Dow In New Upleg
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 June 30, 2009.
Our statement yesterday about “stocks likely to break to the upside in the short term” worked out perfectly, so far. The broader market, S&P 500, index followed through to the upside, added 8 points, or 0.9%, to finish at 927. The rally was broad-based with all 10 major sectors in the S&P 500 logged healthy gains. Indication is that the positive end-of-month and pre-holiday seasonality continue favor the bulls.
Energy stocks caught a bid in Monday trading session amid higher oil prices, which finished 3.4% higher at $71.49 per barrel. However, our “U.S. Market Trading Map” suggested that recent advance has been much more consistent with a short-squeeze and normal retracement, rather than a beginning of a new up-leg. So we could be at risk to a significant decline over the next couple of days.
Chart 1.1 – Energy SPDR (daily).
Looking at the daily chart of the Energy SPDR (XLE), we can see that after a strong run of outperformance since March low, the sector peaked in early June and then lagged the broad market by a wide margin over the past couple of weeks. Notice that our “U.S. Market Trading Map” had been bearish on the sector since June 18. A decline below 48.07 would trigger a short-term sell signal and a retest of June low at 46.31 is, therefore, inevitable. Only a close above 50.39 (the white line in the above chart) will wreck the near-term bearish outlook.
Key technical development in Monday trading session was a break above the June trend-line on the Dow Jones industrial average daily chart. This is bullish and suggesting further short-term gain likely.
Chart 1.2 – Dow Jones industrial average (daily).
As indicated in the above chart, the Dow rebound nicely off May low, about 8200. Notice that it’s also recapturing the 50-day moving average after Monday’s advance. Right now the most important thing to look out for is a retest of the June high, about 8900. Although let’s notices that the market is nearly overbought in a short-term basis, so it won’t be a straight line advance.
Bottom line, recent trading action suggested strongly that an important low has been established and the market is in an early stage of a new upleg that points to a test of the 8900 level on the Dow Jones industrial average.
(By: Michelle Mai for Capital Essence)
Note: Michelle Mai writes technical analysis for Capital Essence and is the editor of Capital Essence’s newsletters. To receive the daily edition, please subscribe. It’s now available at a monthly rate.
Tags: crude oil, DJIA, dow jones industrial average, Energy SPDR, s&p 500 index, spx, XLE
