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 20, 2008.

Stocks closed slightly higher Thursday with The Dow Jones industrial average gained about 34 points or 03% to 12063. Contributed to the overall optimism was a lower energy prices. Crude oil prices slumped nearly $5 a barrel on news out of China that the Chinese government will lift fuel subsidies on gas and diesel – a move that could curb demand in the country and lower prices globally.

Crude’s pullback had helped put in a bid in shares of airlines, truckers and railroads. The Dow Jones Transportation average gained 3.4% as a result.

transport_20080619

Chart 1.1 – Dow Jones transport average (daily).

Looking at the seven-month daily chart, we can see that the transport had established a significant short-term low at the area of the January trend-line. It also worth notice that the on-balance-volume, or OBV, indicator is in a leading divergence. This is very bullish and suggesting that there is a pretty good chance that the all-time high recorded on May 19 at 5536.57 will be retested and exceeded in a very near future. In short, unless there is a close below June 12 low at 5031, the near-term outlook remains bullish.

Lower oil prices are really helping today. The board market S&P 500 index also closed a bit higher, up 0.4%, thanks to strength in financials and retails stocks.

sp500_20080619

Chart 1.2 – Standard & Poor’s 500 index (daily).

Looking at the chart of the S&P, a case can be made that it has made a double bottom around the minor support at 1330. This, if true, could trigger a recovery rally into the area of the 2-conjoining resistance around the 1370 level. An upside follow-through tomorrow will confirm this. Immediate support is at the area of today low, about 1330. As usual we must stress out that a close below this level will resume the May-June decline and hence, increase the odds for a retest of March low.

In summary: the market appears to have established a significant near-term low and is ready for a retest of the weekly high. However, tomorrow is the option expiration day and the upside could be limited to S&P 1350.

 

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.

 

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