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Good Morning. This is Capital Essence's "Market Outlook" (the technical analysis of financial markets) for Thursday April 03, 2008.
Stocks registering modest decline Wednesday after Tuesday's massive rally with the Dow Jones industrial average lost 45 points, or 0.4%.
Contributed to the overall weaknesses was a sharp rebound in commodities prices. COMEX gold for June delivery added $12.40 to $900.20 an ounce after falling below $900 for the first time in nine weeks Tuesday. While U.S. light crude oil for May delivery soared $3.85 to $104.83 a barrel on the New York Mercantile Exchange after slipping below $100 earlier this week.
Chart 1.1 – Light Sweet crude oil index (daily).
Price rebound nicely after the dip into the "secret" double support had once again attracted the buy the dippers. Right now the most obvious level to watch is the short-term resistance around the area of the three-week falling trend-line, now at 106. At this moment, it's unknown whether this level holds or not though a sustain breakout above it will trigger all sorts of stops, so to speak, and has the potential to propel prices into the area of March high, about 110. Key support is about 99.
The financial sector was under pressure most of Wednesday session after Federal Reserve Chairman Ben Bernanke said a U.S. recession was a possibility in a Congressional hearing Wednesday. The Fed chief said he believed the economy is still "slightly growing at the moment," though a U.S. economic recession is possible. He said he expects a continued rise in unemployment, and he noted that the economic outlook has worsened since the Fed's last forecast was released in January. Weaknesses in the financial stocks dragged on the board market with the S&P lost about 3 points or 0.19%.
Chart 1.2 – S&P 500 index (daily).
The index printed a reversal bar at the area of February high. The action is bearish though it's expected. As a matter of fact, Wednesday's trading action was pretty consistent to the "profit taking" scenario that we've traced out right here in the previous Market Outlook when we wrote that: "Tuesday advance had helped … set the stage for a test of key resistance at the 1400 level. Though not only that this is a tough level to overcome, the relative strength index indicator, or RSI, is also fast approaching the overbought level so it wouldn't surprise us to see some sorts of profit taking activity in the upcoming days."
Right now the most obvious level to watch is the short-term support around the 50-day moving average area. While any dips into this level could be consider as a buying opportunity, what we don't want to see is a drop below last week's swing low at 1312. The index has a layer of resistance that runs from 1380 to 1400.
In summary: the market is pretty much overbought on a short-term basis and Wednesday's rollover could be the beginning of a meaningful pullback. After a 3.59% gain in the S&P Tuesday, the pullback is normal and should be considered as a buying opportunity.
Until next time, good luck.
(By: Michelle Mai for Capital Essence)
(By: Michelle Mai for Capital Essence)
Note: Michelle Mai writes technical analysis for Capital Essence and is the editor of Capital Essence's "Market Outlook" newsletter. To receive the daily edition, please subscribe. It's now available at a monthly rate.
