Unless there’s a headline that everyone recognizes as bearish, the path with least resistance is to the upside
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Good Morning. This is Capital Essence’s “Market Outlook” (the technical analysis of financial markets) for Friday June 06, 2008.
Thursday was a great day for the bulls with a rise on the Dow far in excess of 200 points. Contributed to the overall optimism was a surprise dip in weekly jobless claims and the stronger-than-expected May retail sales.
As it was the case in the past couple of weeks, tech stocks provided leadership in Thursday advance.
Chart 1.1 – NASDAQ composite index (daily).
Looking at the seven-month daily chart of the NASDAQ composite index, we can see that Thursday’s bullish breakout had helped cleared the overhead resistance at 200-day moving average and is setting a stage for an upward push toward key resistance at January’s bearish breakaway gap. This, if hurdle and sustain, will increase the odds for a retest of the December’s high, about 2725. Immediate support is at the area of the March’s trend-line, about 2470 now.
Speaking of tech, shares of Advanced Micro Devices (AMD) jumped more than 8% today on the heels of Wednesday’s 5.58% rally.
Chart 1.2 – Advanced Micro Devices (daily).
Initially profiled 3 days ago in our June 4 “Swing trader bulletin”, the stocks gains about 13% and done so on technical confirmation. This is to say, Thursday’s break to the upside had helped cleared the one-month overhead resistance and setting the stage for a test of February’s high, about 8.08. In addition, volume also surged significantly as price advance. This is very bullish.
From a longer term perspective, however, the stock is well above the 40-day moving average, which is considered a short-term overextended. Further, an upside gap had also created, as a result of today’s bullish breakout, which certainly implies the strong upside momentum, but also suggesting the need for some backing and filling. In short, we’re still bullish on AMD and believe that pullback should be bought.
In worth noticing that, the market hit a small air pocket in Thursday afternoon when oil, which touched 122.75 in early trading, attracted some buying interests. U.S. light crude oil for July delivery jumped $5.49 to settle at $127.79 a barrel on the New York Mercantile.
Chart 1.3 – Light sweet crude oil index (daily).
Technically speaking, today’s bullish reversal is indicating that oil had completed the short-term overbought correction and is ready for a retest of the prior high at 133.70. This, if hurdle and sustain, will trigger all sorts of stops, so to speak, and have the potential to propel prices into the area of the important sentiment 150 level. In short, the near-term outlook remains bullish barring a close below Wednesday’s low at 122.
Good news surround retail stocks sparked a new wave of buying interest that helped pushing the S&P to close at its best level of the day. The board market index gained 25 points or 1.87% to settle at 1402.
Chart 1.4 – S&P 500 index (daily).
Thursday’s massive advance had helped pushing the index above the two-week falling trend-line. Trading volume, however, is not consistent with the strong price action. As you can see, volume actually declined a bit today. So, unless volume starts to picking up, we could be stuck below the 200-day moving average for, at least, a couple of days. In short, until proven otherwise, expect the index to bounce within the 1425-1375 trading range.
In summary: it seems to us that today big rally is merely short sellers covering their positions ahead of Friday’s jobs report - chatter that the report will be a lot better-than-expected was in play throughout Thursday trading. That being said, unless there is a headline that everyone recognizes as bearish, the path with least resistance is to the upside.
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.
