Editor’s note: this column was originally published on Capital Essence’s CEM News on September 8, 2007. It’s being republished as a bonus for the loyal readers. For more information about subscribing to CEM News, please click here.
Good Morning. This is Capital Essence’s “Market Outlook” (the technical analysis of financial markets) for Monday September 10, 2007.
As discussed in the previous Market Outlooks: “there is there is a lot going on in this market… we would remain skeptical [read: bearish]” and “the blue-chips index continues to drag sideway beneath resistant… The action is totally bearish” – stocks gapped down aggressively and remained lower throughout Friday trading session followed the much weaker than expected Non-Farm payroll data. The report rolled in below the flat line (-4K vs. consensus of 110K) for the first time since Aug 2003.
Apparently, the market interpreted the tame job report as extremely bearish. And all of the sudden the debate is not whether the Federal Reserve will cut interest rates, but how extensive those cuts will be. At this stage, it’s impossible to know how much the FED is going to offer in their September 18 meeting. Though, gold investors were certainly benefited from the specter of the lower rates. Spot gold rose to a 16-month high of $706 per troy ounce Friday.
As you can see, spot gold added on to previous gain immediately followed our bullish comment on the commodity. Technically speaking, spot gold is set to challenge the overhead resistant at the ’06 high, about $720, after last week’s bullish breakout. At this moment it’s impossible to know whether this level can be successfully taken out or not. Although, a sustain breakout above this level will setup a stage for an intermediate-term bullish move that might propel prices into the $800 level.
Let’s take a look at the major index charts:
The Standard & Poors 500 Index (weekly) chart above addresses an intermediate-term time frame. The index pulled back to support at the moving average area after the test of the “previous support, now resistant” about the 1500 level was met with an even more aggressive wave of selling. As mentioned, the bearish bias remains intact as long as the index trades below the 1500 level. Support is at August 16’s low about 1370. The index has a layer of resistant that runs from 1500 to 1555.
The Dow Jones Industrials Average (weekly) chart above addresses an intermediate-term time frame. Similar to the S&P 500, the blue-chips index had also pulled back significantly last Friday after the test of the “previous support, now resistant” about the 13500 level was met with an aggressive wave of selling. Support is at August 16’s low about 12500. The index has a layer of resistant that runs from 13500 to 14000.
The NASDAQ Composite Index (weekly) chart above addresses an intermediate-term time frame. Similar to its peers, the tech rich index had also sold off hard last Friday lost about 48 points or -1.86% for the day. Technically speaking, last Friday sell-off had set the stage for a retest of Augusts’ low, about 2386. A decline to below 2550 will confirm this. The index has a layer of resistant that runs from 2650 to 2720.
In speaking of tech, the NASDAQ 100 ETF (QQQQ) dropped about 2 points or -3% immediately followed our September 4 bearish comment on the “Cubes Speculator Bulletin” – “the momentum indicator hit the level that precedes a small price correction in the past. Price looks vulnerable for a pullback.” As discussed, we had swapped the QQQQ upside call option, which carried a triple digit gain, for a downside put option the day before the market tank.
Bottom line: as far as the charts concern, the stage had been set for a retest of August’s lows.
Until next time, good luck.
(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.
