Stage set for further gains
Editor’s note: this column was originally published on Capital Essence’s CEM News. 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 March 25, 2008.
Stocks kicked off the week on a positive note with the Dow Jones industrial average jumped almost 190 points, or 1.5% to finish at 12548. As a matter of fact, Monday’s trading action had confirmed the validity of the “bullish” scenario that we’ve traced out right here in the previous Market Outlook when we wrote that: “it’s possible to see further short-term gains.”
Contributed to the overall optimism was a better than expected housing report. The February existing home sales report showed that sales rose 2.9% to a seasonally adjusted annualized rate of 5.03 million. Economists expected sales to fall to 4.85 million from the prior reading of 4.89 million. Although existing home sales remain weak, the report provided some hope as it marked the first monthly rise in one year. The report had helped to put in a bid in the homebuilding stocks with the Philadelphia housing sector index rose 5.29%.
Chart 1.1 – Philadelphia housing sector index (daily).
Price had rallied directly into the area of resistant at the 150 level. At this moment, it’s unknown whether this level can be taken out or not though a sustain advance above this will complete the bullish head and shoulder pattern and hence, have the power to fuel a run into the area of key resistant around the 190 level. Key support is about 123.
Shortly after Monday opening bell JP Morgan Chase (JPM) confirmed that it is going to increase its offer for Bear Stearns (BSC) to $10 a share. The news had gave the market a broad-based lift because it provided some evidence that helped stock investors to feel that the financial crisis is approaching a bottom. The S&P jumped 1.5% as a result.
Chart 1.2 – S&P 500 index (daily).
The main even here is the cross above the key price level at the area of the 50-day moving average. The action is bullish and suggesting that this could be the beginning of a new recovery up-leg off the March low at 1256 that has the potential to fuel a run to the area of key price level at 1400. As mentioned, a walk above this level will turn the medium-term trend up and hence, put the bulls back into the diver side of the market. Support is about 1270.
In summary: the bulls are doing a pretty good job recovering the lost levels though the bears still have the benefit of the doubts unit or unless the S&P manage to cross above the 1400 level. With that said, while the short-term charts exhibit a very positive character that should help setting the stage for further short-term gain, the upside reward could be limited to S&P 1400.
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.
