Expect the tape to chop sideway into Friday’s job report
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Good Morning. This is Capital Essence’s “Market Outlook” (the technical analysis of financial markets) for Thursday June 05, 2008.
Stocks closed Wednesday’s session mixed, at the end of a choppy session that saw the S&P 500 trading as high as 0.8% and as low as 0.4%. For the day, both of the Dow Jones industrial average and Standard & Poor’s 500 settle slightly below the zero line, while the tech rich, NASDAQ composite index ended roughly 1% higher. In fact, the Wednesday’s trading action is pretty consistent to our bullish outlook on the tech sector: “we’re starting to repeat what happened at the end of March when tech stocks took the leadership. General speaking, the market is doing quite well when tech stocks outperformed and vice versa. So, is it a new bull market? We don’t know yet. But technical analysis tells us that if there is a bull market, it should be tech” – see May 30 Market Outlook.
Let take a look at the major indices:
Chart 1.1 – Dow Jones industrial average (daily).
Looking at the five-month daily chart, we can see that this week’s decline stems from the Dow’s topping its 200 day, and then falling below its 50-day moving average. In addition, the MACD indicator dropped below the zero line and is also trending below its signal line. This is very bearish. Right now the most obvious level to watch is the April 15th low at 12269. This, if violates on a closing basis, is indicating that there is a pretty good chance that we’ll a retest of March’s low in a very near future.
Chart 1.2 – S&P 500 index (daily).
Similar to the Dow, the S&P also pullback to the area of immediate support after a test of key resistance at the 200-day moving average was met with an aggressive wave of selling interest. It worth noticing that volume is picking up as price dropped. Technically speaking, this is the most bearish relationship under the sun. It’s indicating an urgency to sell. With that said, there is a pretty good chance that the market is setting up for a test the 1325 level. A sustain decline below May’s low at 1373 will confirm this. In short, unless there is a sustain walk above last week’s high at 1406, the near-term outlook remains bearish.
In summary: Wednesday’s trading action suggested that, more likely than not, the tape will continue to chop sideway in Thursday session. And from a medium term perspective, the market traded like it wants to go lower. So we see no reason to abandon the “retest of March’s low” hypothesis. Although it seems to us that people need an excuse to sell. Hopefully Friday’s job report will help.
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.
