Capital Essence’s Investment Blog- 錢途集團

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 October 03, 2008.

Stocks gave up most of recent gains and returning to the weekly low Thursday with the Dow Jones industrial average fell 348 points or 3.2% to finish at 10482. Market breadth was largely negative with losers topped winners five to one on volume of 1.51 billion shares on the New York Stock Exchange.

It worth noticing that, despite the overall weakness, shares of TreeHouse Foods Inc (THS) jumped more than 3% on huge volume to close at $31.23 – a new 52-week high. Just so that you know, THS was initially profiled in our September 19 “Swing Trader Bulletin” as a potential buy candidate

Contributed to the overall pessimism were concerns about the economy’s direction, and whether a revised version of the $700 billion asset purchase plan will find favor in the U.S. House of Representatives.

Notably, the CBOE Volatility index, or VIX, jumped more than 13% Thursday to settle at 45.26.

Chart 1.1 – CBOE Volatility index (daily).

As you can see from the chart, volatility is raising in this market. General speaking, high volatility never happens in the middle of a cycle. It often associates with market tops or bottoms and this is certainly not a market top. So, we could be at or very close to an important market’s low.

Thursday’s massive decline pushed the S&P 500 index back into the area of important support.

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

Looking at the six-year weekly chart of the S&P 500 we can see that there is currently a test of support at the area of the 2003 trend-line. Right now the important question is whether this level holds or not. For this question, we need to look at the smaller time frame.

Chart 1.3 – Standard & Poor’s 500 index (daily).

We’re basically right back where we were two days ago. The folks who jumped on the bullish bandwagon this week are having their conviction tested here. Right now, the most oblivious level to watch is Monday’s low at 1106.42. At this moment, it’s impossible to know for sure whether this support holds or not though the short-term indicator seems favor the bullish case. So we should be expecting at least anther attempt to rally soon. A sustain advance above 1167.03 will confirm this.

As usual we must stress out that a breakdown below Monday’s low at 1106.42 indicates that the decline that started from Monday’s high at 1209.07 has some legs and a test of key support at the area of 2004 low, about 1060, is therefore expected.

In summary: market shows signs of capitulations, which indicated that we could be at or getting very close to a significant bottom. So we should expect at least one more attempt to rally soon. Although, this doesn’t mean that you should immediate run out and buy stock. It’s only suggesting that you should stay away from the short side, at least for the time being.

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.

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 September 30, 2008.

Stocks stumbled Monday, with the Dow lost nearly 778 points - its biggest single-day point loss ever - after the House rejected the government’s $700 billion bank bailout plan. Monday’s trading action had, in fact, pretty consistent to the “No Deal” scenario that we’ve traced out in the previous Market Outlook when we wrote that: “conventional wisdom is telling us that [if the bailout plan didn’t get passed over the weekend], then there is a higher than average odds that we’ll be facing a massive sell-off.”

Overall, it was a near bad day with all ten of the economic sectors posted a loss. The worst performing sector, financials, fell 15.8%, while the best-performing sector, consumer staples, fell 4.2%. There were quite a numbers of ‘rate cut’ chatters after Monday’s massive decline. So we should expect the FED to cut the short-term rate, at least 25 basis points, soon.

Let’s take a look at the major indices:

Chart 1.1 – Dow Jones industrial average (weekly).

Monday lost of 777.68 points surpassed the 684.81 loss on Sept. 17, 2001 - the first trading day after the September 11 attacks. However the 7% decline does not rank among the top 10 percentage declines.

Looking at the four-year weekly chart of the Dow Jones industrial average we can see that Monday’s massive decline pushed prices right below key support at the area of September 18 low. This is very bearish and indicating further near-term weakness is likely. Right now the most obvious level to watch is the 2005 low, about 9961 - at 10365, we’re only about 400 point or 3.9% away from it. Immediate resistance is about 11140. At this juncture, only a sustain advance above this level can wreck the near-term bearish outlook.

Similar to the Dow, the S&P 500 also suffered at largest one day lost since Black Monday in 1987. The board market index lost nearly 107 points or 8.8% to finish at 1106 – a level that had not seen since 2004.

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

The weekly chart of the S&P 500 index remains largely negative with both of the 20 and 50-week moving averages are sloping downward. In addition, Monday’s decline took out key support at 2005 low and pushing prices right into the area of 2004 low, about 1060. At this moment, it’s impossible to know for sure whether this level holds or not though a sustain close below it will increase the odds for a retest of key support at the area of the 2003 bullish breakout point, about 955. That’s about 14% from where we sit. Immediate resistance is about 1209. At this juncture, only a sustain advance above this level will begin to brighten the near-term outlook.

In summary: there is a pretty good chance that we’ll have several rate-cut announcements from central banks around globe before market opens Tuesday. Market reaction to the event, if and when it happens, will be quite informative. That’s being said, if the ‘sell the news’ pattern remains intact, then we’ll know for sure that the worst is far from over.

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.