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Good Morning. This is Capital Essence's "Market Outlook" (the technical analysis of financial markets) for Monday April 14, 2008.
When GE speaks, the market listens. Due to its massive 2.8% S&P 500 weighting and wide-range of businesses, it came as no surprise that the market stumble out of gate Friday after General Electric (GE) - the second largest U.S. Company by market cap behind Exxon Mobil (XOM) - reported lower first-quarter sales and earnings that missed estimates. The company also cut its second-quarter and full-year 2008 profit forecast. As a result, shares fell nearly 13% - the largest one-day percent decline since the 17.5% plummet on Black Monday, which occurred more than 20 years ago in 1987.
Let's take a look at the major indices:
Chart 1.1 – Dow Jones Industrial Average (daily).
Friday massive breakdown sent price below key support at the 50-day moving average (see chart above). Volume was also above average. The action is bearish and suggesting further weaknesses. Right now the most obvious level to watch is the immediate support at the area of March 31 low at 12176.11. This, if violate and sustain, will confirm last Friday's major sell signal and a retest of January low at 11634.82 is, therefore, expected.
Chart 1.2 – S&P 500 index (daily).
Similar to the Dow, the S&P broke down decisively below key support at the 50-day moving average. This is considered as a major sell signal. Although the short-term relative strength index indicator, or RSI, is indicated that the market is pretty much oversold on a short-term basis. This could help limiting downside risk. With all that said, while seemingly vulnerable for further weaknesses, the bears won't have any cases unless they manage to push prices below March's low at 1256.98. This, if violate and sustain, will resume the major down-trend and has the potential to push prices into the area of 2006 low, about 1220. Immediate resistance is about 1350. Key resistance is at the area of February high, about 1390-1400.
In summary: while seemingly vulnerable for further short-term loss, the bulls will not get into any serious trouble as long as price holds above March's low. And until proven otherwise, we believe that the market is in for a period of sideways trading for the next couple of months. In short, rather than looking at the January and March lows as a double bottom, let's consider them the bottom of a new, wider trading range between S&P 1270 and 1400. This can be part of the healing or bottoming process, but chances are it might also lead to low volume days no matter where the tape is heading.
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.
