Editor’s note: this column was originally published on Capital Essence’s CEM News on January 07, 2008. 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 Tuesday January 08, 2008.

We’ve predicted right herein the previous Market Outlook that: “market is pretty much oversold [on a short-term basis], and a counter trend rebound is, therefore, expected”, equity market managed to cut losses by the close of a very choppy session Monday with the Dow Jones industrial average added 0.2%. The broader market index, S&P 500, gained 0.3%.

It worth notice that shares of Dolby Laboratories Inc (DLB) jumped more than 8% on heavy volume Monday as investors cheers its new video technologies debut at the 2008 International Consumer Electronics Show. Just so that you know, DLB is posting a nice return since profiled in our December 21 “Swing Trader Bulletin” as a potential buy candidate.

Of the five economic sectors finished higher, utilities outperformed and Treasuries also caught quite a number of bids amid recession concerns.

utilities_20080107

Chart 1.1: Utilities Index (daily).

The index seems to have the potential to resume the long-term uptrend after a pullback to support at the area of 50-day moving average was greeted with a new wave of buying interest. An upside follow-through will confirm this and a test of December’s high, about 211 is, therefore, expected. From a long-term perspective, we believe that this group will continue to outperform the market. And this could save the equity from rolling over. Immediate support is about 200.

dow_20080107

Chart 1.2: Dow Jones Industrial Average (daily).

The blue-chips index is basing sideway around support. The action suggests that the market is buying its time here. This is not very encouraging. As mentioned, a failure to hold above this level will increase the probability for a test of 2007’s low, about 12000. Resistant is about 13300.

sp500_20080107

Chart 1.3: Standard & Poors 500 Index (daily).

Similar to the Dow, the S&P 500 index is also basing sideway around the area of key support. As noted above, a failure to kick off a nice rebound [from current level] in a next couple of days will increase the probability for a test of 2007’s low, about 1370. Short-term resistant is about 1490.

In summary: Monday’s trading action suggested that, more likely than not, turn around Tuesday [i.e., short-term rebound] is upon us.

 

(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.

 

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