Range-Bound

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Good Morning. This is Capital Essence’s “Market Outlook” (the technical analysis of financial markets) for Thursday August 30, 2007.

Upon the heels of Tuesday massive sell-off, stocks bounced back in noticeable fashion Wednesday as a sense that the world is still flooded with liquidity kicked in – Moody (MCO) said that leveraged loan commitments of major US investment banks do not have negative rating implications as liquidity remains sufficient.

As discussed on the previous “Cubes Speculator Bulletin” – “the bulls had put on the brave face and pushed the tape higher. Breadth remains strong …The tape will stay this way [read: positive] into the close” – we’ve peeled off the entire NASDAQ-100 ETF (QQQQ) downside puts into Wednesday mid-day weakness for a total gain of +70%. Why? Why did we choose to dance our way out of the trade? General speaking, successful trading is all about the quack count. If the ducks align, hit ‘em hard. When they don’t, take your money off the table.

Let’s take a look at the major index charts:

(Click on image to enlarge)

The Standard & Poors 500 Index (daily) chart above addresses a short-term frame. No downside follow-through to Tuesday’s breakdown. This could due to the fact that the bears could have exhausted themselves after yesterday massive sell-off. Although, we ain’t out of the wood until or unless, the index trade above key resistant at August 08’s high, about 1504. Support is about 1410-1370.

(Click on image to enlarge)

The Dow Jones Industrials Average (weekly) chart above addresses an intermediate-term frame. Similar to the S&P 500 Index, the blue-chips index had also printed a bullish reversal bar on the daily chart. Although, as noted above, the bears continue to have the upper hand until or unless the index manages to trade above key resistant at August 08’s high, about 13700.

Bottom line: despite Wednesday bullish reversal, the range-bound trading pattern remains intact. As a matter of fact, we expect it to last until, at least, the first week of September.

Until next time, good luck.