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Good Morning. This is Capital Essence's "Market Outlook" (the technical analysis of financial markets) for Thursday April 17, 2008.
Stocks spiked Wednesday, with the Dow rising almost 250 points, as investors cheered positive earnings surprises from several major corporations. The most important fact about Wednesday was that, just like Tuesday, there were no negative earnings surprises. JPMorgan Chase (JPM), Wells Fargo (WFC), Coca-Cola (KO), CSX Corp (CSX), Abbott Labs (ABT) and Johnson Controls (JCI) - all topped expectations. This is a positive for the stock market. As a matter of fact, today trading action had confirmed the validity of the "bullish" outlook that we've offered right here in the previous Market Outlook when we wrote that: "the market appears to be hammering out a nice bottoming pattern…the near-term outlook is bullish."
As expected, Intel (INTC) was one of the most influential stocks on Wednesday, and was by far the most actively traded issue. Shares of the world's largest maker of semiconductors rose 5.83% after the company issued a bullish outlook that helped calm investors' fears over demand and margins. And the PHLX Semiconductor Sector index gained 5.45% as a result.
Chart 1.1 – PHLX Semiconductor Sector index (daily).
As predicted, the sector rallied directly into the area of April's high today. While the action is bullish, we'd exercise with caution until the February's high, about 380, is recaptured. This, if hurdle and sustained, will have the potential to push prices into the area of December's low, about 400. Critical support is at the area of March's low, about 332.
Speaking of earning, shares of International Business Machines Corp (IBM) jumped about 3% after Wednesday closing bell to a new multi-year high after the company reported earnings that beat expectations. This is bullish. Our instinct tells us that good news surrounding IBM's upbeat earning report should give the board market a significant dose of optimism going into option expiration Friday.
Chart 1.2 – S&P 500 index (daily).
The bulls have to be thrill with Wednesday's trading action. The S&P gained over 2% today on increasing volume. The rally had push prices back above the minor resistance at the two-week falling channel. The action is bullish and helped setting the stage for a test of key resistance at the area of February's high, about 1400. Again, this, if hurdle and sustained, will completed the bullish inverted head and shoulders pattern, which has the potential to push the index up to about 1520! In short, the near-term outlook is bullish barring a close below immediate support at last week's low, about 1312.
It worth noticing that despite the record high energy prices - crude oil hit an all-time high of $115.07 per barrel – the Dow Transports did a huge breakout today.
Chart 1.3 – Dow Jones Transport Average (daily).
As you can see, today bullish breakout pushed prices above key resistance at the 5000 level and hence, completed the bullish inverted head and shoulders pattern. The action is bullish and suggesting a test of last July's high, about 5400. At this juncture, only a sustain decline below March 31st low at 4695 can wreck the bullish outlook and argue for low prices.
In summary: Wednesday's recovery rally had helped setting the stage for an assault of key resistance around the S&P 1400 level. Technically speaking, the duration and strength of the breakout, if and when it comes, should help us know how much buying interest is out there and how confident investors are for the second half of the year.
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.
