Capital Essence’s Investment Blog- 錢途集團

Editor’s note: this column was originally published on Capital Essence’s CEM News on November 28, 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 Thursday November 29, 2007.

We’ve offered in the previous Market Outlook that: “market could be at major turning point” stock surged Wednesday that saw the Dow Jones industrial average gained 331 points, its second-best single day advance of the year. The broader S&P 500 index rose about 2.9% and the tech-fueled NASDAQ climbed 3.2%. As a matter of fact, today’s trading action was very consistent to what we’ve offered in the previous “Cubes Speculator Bulletin”: “we’ve got a new buy signal… apparently, the “bullish double bottom scenario” that we’ve been discussed is on the card … [expect] a test of $51.40.” The NASDAQ 100 ETF (QQQQ) opened significantly higher and tested the expected $51.40 level Wednesday. The recent calls option setup gained more than 50% for the day.

Contributed to the overall optimism was the bad, yes bad, news from the financial sector. Wells Fargo (WFC) warned that it will be recording a special fourth quarter loss provision of $1.4 billion due largely to losses in its home equity loan portfolio. Freddie Mac (FRE) announced a 50% cut in its fourth quarter dividend and plans to issue $6 billion in non-cumulative preferred stock. It worth noting that little more than a week ago, shares of FRE plummeted 29% after the company said it would be pursuing efforts to raise capital in the near-term. It seemed to me that the market was braced for horrible news and rallied when it failed to arrive.

Energy prices fell sharply for the second straight day on a smaller-than-expected dip in crude oil and distillate supplies. Light, sweet crude for January delivery tumbled $3.80 to settle at $90.62 a barrel Wednesday on the New York Mercantile Exchange.

Chart 1.1: Oil Index (daily).

Energy continues to deteriorate. As you can see, today decline had pushed oil into the area of short-term support around the 90 level. As mentioned, a failure to hold above this level will complete the bearish double top pattern and test of previous bullish breakout point around 80 is, therefore, expected.

Chart 1.2: Standard & Poors 500 Index (daily).

As discussed, “an advance above 1447 will set the stage for a test of resistant around the 1465 level”, the board market index rebound nicely Wednesday and closed around the short-term resistant around 1465 immediately followed an early bullish breakout above the 1447 level. Needless to say, this is bullish. Support is at Monday’s low, about 1400. Resistant is about 1500.

Chart 1.3: Dow Jones Industrial (daily).

As expected, the blue-chips index tested and held above the 13200 level. This is bullish. And even better, as you can see from the above chart, Wednesday rally had propelled the index above key resistant at the 200-day moving average. With that said, the bulls will have the benefit of the doubts as long as the index holds above Monday’s low of 12700. Resistant is about 13500.

In summary: Wednesday rally felt pretty refreshing. As mentioned, this could be the beginning of a new bull leg. However, we expect things to be a bit sloppy at current level until the bulls manage to take out the S&P 1500 level.

(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.