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Good Morning. This is Capital Essence's "Market Outlook" (the technical analysis of financial markets) for Tuesday April 29, 2008.
Stocks finished lower Monday, giving up early gains sparked by Mars' $23 billion buyout of Wrigley (WWY), as investors jittered ahead of the start of the two-day Fed policy meeting. Also contributed to the overall weakness was a record high energy price - U.S. light crude oil for June delivery rose 23 cents to settle at $118.75 a barrel on the New York Mercantile Exchange after hitting a record $119.93 earlier in electronic trading. For the day, both of the Dow Jones industrial average and the broader market index, Standard & Poor's 500, lost a few points to end at 12871 and 1396 respectively. Monday's trading action had once again confirmed the validity of the "sideway consolidation" scenario that we've traced out right here in last week's Market Outlook when we wrote that: "until proven otherwise expect the S&P to drift sideway within the 1370-1400 trading range."
Speaking of the FED, the bond market believe that the FED will cut rates a quarter point and signal that the period of cutting rates is coming to a close.
Despite the overall weakness, shares of Big Lots Inc (BIG) jumped almost 4% on heavy volume after JPMorgan upgraded the closeout retailer to "Overweight" from "Neutral".
Chart 1.1 – Big Lots Inc (daily).
Initially profiled in April 15 "Swing Trader Bulletin", BIG has gained more than 20% and remains well positioned. Technically speaking, Monday's break to the upside is bullish and hence confirmed the test of key resistance around the $30 level. This, if hurdle and sustained, will trigger an acceleration run to 2007 high, about $35. In short, the near-term outlook remains bullish barring a close below key support at the area of previous bullish breakout point, about $24.
Let's take a look at the major indices:
Chart 1.2 – Dow Jones industrial average (daily).
Prices drifting sideway just beneath key resistances at the area of 200-day moving average and December 2007 low, about 13070, (see chart). Volume remains low through out last week's rally. This is indicative that professional or smart money is still sitting on the sideline. And this is bearish for the market on the long-term. That being said, the bulls will not have any cases until they manage to take out key resistances around the 13100 area. Immediate support is about 12650.
Chart 1.3 – S&P 500 index (daily).
It worth noticing that the index managed to breach the 1400 mark – an important sentiment level – during Monday's trading session though the rally eventually frizzle out and the index close the day with a slight loss. While Monday's trading action wasn't impressive, it might be the first wave of a series of rally attempts that have the potential to pop prices through key resistance at the area of November's low, about 1406, and into the 200-day moving average, about 1435 – though this is not expected tomorrow. Key support is at the area of 50-day moving average, now at 1345.
In summary: Monday's choppy and low volume trading session is indicative that despite recent strength, smart money is sitting on the sideline. So it wouldn't surprise us to see the holding pattern carries on until Wednesday's Fed decision.
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.
