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Good Morning. This is Capital Essence's "Market Outlook" (the technical analysis of financial markets) for Friday May 09, 2008.
Stocks closed slightly higher Thursday with the Dow Jones industrial average gained about 52 points or 0.41%. Contributed to the early strength was a better-than-expected April retail sales, but the gains were limited by record-high oil prices - U.S. light crude oil for June delivery rose 16 cents to settle at a record $123.69 a barrel on the New York Mercantile Exchange - and bad news surrounding the financial stocks.
Gold also attracted some buyers Thursday with COMEX gold for June delivery rose $11.10 to $882.30 an ounce, its highest close this month. Speaking of gold, shares of Yamana Gold (AUY) jumped 6.69% Thursday on heavy volume after the company reported earnings results that beat the Street's expectation.
Chart 1.1 - Yamana Gold Inc (daily).
Initially profiled on May 02 "Swing trader Bulletin", AUY gains more than 13% and remains well position. Thursday's bullish breakout had helped setting the stage for a test of key resistance at the area of April's high, about $15.44. This, if hurdle and sustain, will trigger all sorts of stop and hence, has the potential to propel prices into the 17-20 area. In short, the near term outlook remains positive barring a close below Tuesday's low at $13.46.
Despite the positive sales data from a number of key retailers, the S&P retail index dropped 1.68% - a two-week low.
Chart 1.2 - S&P retail index (daily).
Plunged below the March trend-line after the test of resistance at the area of the 10-month falling trend-line was met with an aggressive wave of selling interest. This is bearish and suggesting a test of critical support at the area of March's low, about 364. However, the sector is pretty much oversold on a short-term basis, so it wouldn't surprise us to see some sorts of technical rebound before price start to roll over again. At this juncture, only a sustain advance above last week's high at 425.07 can turn the short-term trend up.
Some investors continue to hope that the financial mess is over, and they continue to see themselves disappointed. Financial stocks were also down noticeably in Thursday's trading session with the KBW bank index lost 1.51% to 81.64. Large-cap stocks like Goldman Sachs (GS), Bank of America (BAC) and AIG (AIG) were the primary laggards.
Chart 1.3 - KBW bank index (daily).
Yesterday we wrote that: "the index printed an ugly bearish reversal pattern on the daily chart …this is very bearish and suggesting a retest of critical support at the area of March's low, about 75. Right now, follow through is the key. Our instinct tells us that if the bears can successfully take out last Thursday's low, about 82.70, then we could see 75 before you can blink." It broke both of last week's low and the April trend-line support today. In addition, the MACD indicator is also breaking down as well. This is very bearish and confirms a retest of critical support at the area of March's low, about 75. In short, today's trading actions can be interpreted as very bearish and suggesting further weaknesses in the days ahead. At this juncture, only a sustain advance above last Friday's high at 88.67 can wreck the bearish outlook.
Strength in the material and energy sectors provided the market a nice lift. The S&P 500 gained about 5 points or 0.37% to 1397.
Chart 1.4 – S&P 500 index (daily).
The index is back below the important sentiment 1400 level though it manages to hold above the 20-day moving average. This is a short-term plus for the bull. In addition, the short-term RSI indicator is also fast approaching the oversold level. So, it wouldn't surprise us to see some sorts of consolidation before another selling stampede starts. As mentioned, keep a close eye on last Thursday's low at 1383 because once we break this level, 1350 will show up in no time.
In summary: the market had a change of character today - it held tough in the face of the bearish breakdown in the retail and financial sectors. This is a short-term plus for the bulls. However, the bleeding [in these two key sectors] has to stop right now; else we could be in for some serious selling in the days ahead.
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.
