Positive bias for Friday session
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 Friday June 13, 2008.
It looked like we were going to have a big rally on Thursday morning though buying interest faded in the afternoon as traders headed for exits ahead of the weekend. Contributed to the early optimism was a strong retail sales report. May retail sales increased by 1.2%, excluding autos, which was above the expected 0.7% increase. Speaking of retails, shares of Big Lots Inc (BIG) jumped 3.54% on twice the daily average volume to 33.01 – a new 52-week high. Just so that you know, the stock had gained about +50% since profiled in our April 15 “Swing trader bulletin” and remains well position.
Chart 1.1 – Big Lots Inc (daily).
Looking at a 15-month daily chart, we can see that Thursday’s break to the upside is very bullish. It had helped clearing the overhead resistance at last autumn high and setting the stage for a test of the major resistance at the area of last May’s high. In short, we’re still bullish on BIG and believe the stock will trend higher. At this juncture, only a sustain decline below May’s low at 26.37 will begin to compromise the near-term bullish outlook.
Also contributed to the early optimism was a renewed buying interest in financial stocks after the sector was upgraded at Morgan Stanley (MS). Large-cap names like Bank of America (BAC), Citigroup (C), and JPMorgan Chase (JPM) all closed higher. The Philadelphia bank index, or BKX, gained 1.02% as a result.
Chart 1.2 – Philadelphia bank index (daily).
The sector is pretty much oversold in all time frames, a situation that often precursor to a technical rebound. In addition, current price structure suggested that the sector had put in an important low though it’s still in an early state of healing process. Immediate resistance is about 69. A sustain advance above this level will trigger a snap back rally that has the potential propel prices into the area of key resistance around the 75 level. In short, we could survive and find the low as long as price holds above the 65 level.
Good news surrounding the financial stocks had helped pushing the board market higher with the S&P gained about 4 points or 0.38% to 1339.
Chart 1.3 – S&P 500 index (daily).
We’re technically pretty much oversold on a short-term basis. It explained Thursday’s positive trading action. In fact, this is very consistent to the “oversold bounce” scenario that we’ve offered in the previous Market Outlook when we wrote that: “right now the most obvious level to watch is the 1325. Not only that this is a pretty strong support, the RSI indicator is also fast approaching the oversold level. So, it wouldn’t surprise us to see some buying interest around this area.” In short, there is a pretty good chance that we’ll see a retest of the 50-day moving average in the days ahead as long as price holds above the 1325 level.
In summary: Thursday’s trading action indicated a positive bias for Friday session. That being said, unless there is a headline that everyone recognizes as bearish, there is a higher than average odds that the tape will go higher tomorrow.
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.
