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 Wednesday May 21, 2008.

Stocks stumble out of gate Tuesday with the Dow losing nearly 200 points. As a matter of fact, today trading action is very consistent to the bearish “turnaround Tuesday” scenario that we’ve offered right here in the previous Market Outlook.

Contributed to the overall weaknesses were another record high energy prices, bearish news on financial stocks and a higher than expected core inflation reading.

U.S. light crude oil rose $2.26 to settle at a record $128.98 after hitting a new intra-day trading record of $129.10 a barrel earlier in the session.

Chart 1.1 – Light sweet crude oil index (daily).

In fact, today’s trading action had confirmed the validity of the “test of an important sentiment 130 level” hypothesis that we’ve offered a couple days ago when we wrote that: “prices’ basing sideway near high as the market works off the overbought condition. The action is bullish and suggesting that there is a pretty good chance that we’ll see a test of an important sentiment 130 level in the days ahead.”

Technically speaking, Tuesday’s bullish breakout had cleared the one-week congestion pattern and helped setting the stage for an upward push above the important sentiment 130 level. In addition, the MACD indicator is also trending above its signal line, and hence, confirms the bullish trend. At this juncture, only a sustain decline below last week’s low at 122.60 can wreck the near-term bullish outlook.

Crude’s jump pushed the Dow Jones transport, which posted an all time high Monday, lower – down 0.79%. Though it worth notice that, shares of Pacer International Inc (PACR) bucks the overall trend, up 1% for the day. The gain, while small, is pretty bullish given the overall pessimism surrounding transport stocks. It‘s indicating that there is a pretty good dose of optimism in the stock.

Chart 1.2 – Pacer International Inc (daily).

Initially profiled in May 01 “Swing trader bulletin”, shares of the air delivery & freight services provider has appreciated more than 7% and remains well position. From a technical point of view, we really like the trading action in the past couple of days – price climbs steadily above the one-month congestion area after a pullback to support at the area of January trend-line was met with a new wave of buying enthusiasm. In addition, recent MACD indicator bullish crossover also strengthens the bull case – the MACD had not only crossed above its signal line but also trending above the zero line and hence, confirmed the bullish trend. The best case scenario would be an upward push to the area of last August’ high, about 22. This, if hurdle and sustain, will increase the probability for a test of the long-term overhead supply at the area of last February’s bearish breakdown gap, about 30.

Financial stocks were underselling pressure Tuesday after the highly influential Oppenheimer’s Meredith Whitney opined that the credit crisis will extend into 2009. The KBW bank index dropped 2.33% as a result.

Chart 1.3 – KBW bank index (daily).

It seems to us that the sector is heading back to the critical support around the 75 area. Also, the bearish MACD crossover appeared to favor the bear case. Right now the most obvious level to watch is, of course, the 75 level. This, if violates, will trigger all sorts of stops, hence, has the potential to push prices into the area of 2003 low, about 65. The breakdown, if and when it comes, shall take the board market down with it. Key resistance is at the area of May high, about 89.

Bad news surrounding financial stocks dragged down the S&P 500 – after all, it comprises 16.5% of the board market index.

Chart 1.4 – S&P 500 index (daily).

The index printed an evening star pattern at the area of key resistance (see chart). This is very bearish and indicating a change in the direction of the trend. Right now, we’ll be watching the May 09^th low at 1384. As mentioned, a walk below this level will push prices directly into the 50-day moving average. And this, if violates, will put an end to the eight-week recovery rally.

In summary: there is no need to sugar coating it Tuesday’s trading action is outright bearish and suggesting further prices weaknesses in the next two to five trading sessions.

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 May 20, 2008.

We’ve noted right here in the previous Market Outlook that: “it seems to us that the eight-week recovery rally is now getting heavy. However, unless there is a headline that everyone recognizes as extremely bearish, there is a pretty good chance that this bear-market rally will continue to go on for awhile longer.” Stocks opened on a positive note Monday with the S&P 500 hit a five-month high amid a stronger-than-expected economic indicators report. The market, however, struggled in the afternoon on record commodity prices.

With regard to commodities, U.S. light crude oil for June delivery rose 76 cents to settle at a record $127.05 a barrel on the New York Mercantile Exchange after hitting an all-time trading high of $127.82 a barrel Friday. Gold added $3.50 or 0.39% to settle at $904.80.

Chart 1.1 – World gold index (daily).

The yellow metal rallied directly into the area of 50-day moving average after the test of support at the area of 200-day moving average was met with an aggressive wave of buying interest. As a matter of fact, recent trading action was pretty consistent to the “technical rebound” scenario that we’ve offered right here a couple week ago when we wrote that: “price pullback to key support at the area of 200-day moving average. Not only that this is a strong support, in fact this is the area where bargain hunters often place their bets, the RSI indicator is also indicating an extreme oversold condition – a situation that precursor to a meaningful technical rebound. That being said, recent sell-off seems to be overdone and this will eventually trigger a major buying opportunity.” As you can see, the yellow metal has gained about 50 points immediately followed our positive comment.

However, with the short-term RSI indicator is fast approaching the overbought level as prices rallied directly into the area of 50-day moving average, it seems to us that the stage had been set for a pullback consolidation. That being said, while we’ve became aggressively bullish at the downside re-test of 200-day moving average in early May, believing that the test would be successful, we’ve, regrettably, turned cautious now.

Speaking of gold, shares of Yamana Gold Inc (AUY) added on to last week’s strong gain, up 1.26% for the day. Initially profiled in May 02 “Swing Trader Bulletin“, AUY gains more than +17% and remains well position.

Chart 1.2 – Yamana Gold Inc (daily).

From a technical point of view, we really like the trading action in the past couple of days - a modest pullback to minor support around the $14 level followed by an upside thrust directly into the area of key resistance. Right now, the most obvious level to watch is today’s high at $15.49. This, if hurdle and sustained, will complete the bullish inverse Head-Shoulder pattern, hence, has the potential to fuel an acceleration run toward March’s high, about $20. In short, the near-term outlook remains bullish barring a close below last week’s low at $13.80.

Negative headlines surrounding financial stocks - Goldman Sachs (GS), Morgan Stanley (MS) and Lehman Brothers (LEH) all lost about 2% after having their second quarter earnings estimates cut at Citigroup (C) – dragged down the board market. The S&P 500 index, which rose as much as 1% in early Monday session, ended the day near the zero line.

Chart 1.3 – S&P 500 index (daily).

Last week we’ve said that: “while Thursday’s trading action is bullish and indicating that the market is ready for an upward push above the 200-day moving average, trading volume didn’t seem supporting the underlying advance. This is a bearish relationship and suggesting that the rally might not sustain.” As we saw, they did exactly that – almost immediately followed the early panic buying that took the S&P above the 200-day moving average, the bears stepped in and pushed the index back under the 200-day MA (see chart). The index printed an ugly bearish shooting star candlestick on the daily chart as a result. In addition, the short-term RSI indicator is also indicating an extreme overbought condition. Right now, follow-through is the key. We’ll be watching the 1420 level. This, if violate, will trigger a large-scale sell-off that has the potential to push prices directly into the area of May 09^th low at 1384, then the 50-day moving average afterward. At this juncture, only sustain advance above today high at 1440.24 can wreck the short-term bearish outlook.

In summary: it seems to us that Monday’s bearish trading action had helped setting the stage for a turnaround Tuesday. However, unless the bears manage to push prices below S&P 1384, the upcoming correction is merely a consolidation that would eventually trigger a major buying opportunity.

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 Monday May 19, 2008.

Stocks finished around the unchanged mark Friday. Though do not let the flat tape fool you, Friday trading action was pretty bullish considering that the S&P 500 ending Friday session at a more than 4-month high – the board market index up in four out of five trading sessions last week in a face of a record high energy prices.

U.S. light crude oil rallied $2.19 to close at $126.04 a barrel, after hitting an all-time intraday high of $127.30 earlier.

Chart 1.1 – Light sweet crude oil index (daily).

Technically speaking, today’s bullish breakout above the one-week consolidation pattern had confirmed the validity of the “test of an important sentiment 130 level” hypothesis that we’ve offered right here in the previous Market Outlook when we wrote that: “price is basing sideway near high as it works off the overbought condition. The action is bullish and suggesting that there is a pretty good chance that we’ll see a test of an important sentiment 130 level in the days ahead.” In short, the near term outlook remains bullish barring a close below last week’s low at 122.60. This, if violates, will have the potential to push prices into the area of immediate support at the area of April’s high, about 117; then the February trend-line, now at 115, afterward.

Speaking of energy, James River Coal Company (JRCC) made a very nice move Friday closing up nearly 7% for the session.

Chart 1.2 – James River Coal Company (daily).

Initially profiled in March 26 “Swing Trader Bulletin”, JRCC has gained more than +120% and remains well positioned. From a technical point of view, we really like the trading action in the past couple of weeks – trading volume surge as prices cut through important resistance levels. This has been a great setup for a test of the all-time high set on September 2005 at $52.56. Support is at the area of April’s high, about $26.75.

Despite the better-than-expected earnings results for the most recent quarter from several popular retailers like Nordstrom (JWN), Kohl’s (KSS), and Abercrombie & Fitch (ANF), retail stocks were underselling pressure Friday. The S&P 500 Retail Index ended the session 1.09% lower.

Chart 1.3 – S&P 500 Retail Index (daily).

Price retreated slightly after the test of the ten-month falling trend-line was met with a new wave of selling interest. Not only that this is a tough level to overcome, the short-term RSI indicator also indicating that the sector is pretty much overbought; so it wouldn’t surprise us to see a retest of support at the area of the monthly’s low, about 390. This, if violates, will put an end to the March’s recovery rally and increase an odds for a retest of critical support at the area of March’s low, about 362.

One of the more actively traded shares in the IPO market was Titan Machinery Inc (TITN). Shares of the agricultural and construction equipment retailer jumped almost 11% Friday on explosive volume.

Chart 1.4 – Titan Machinery Inc (daily).

Initially profiled in our May 13 “Swing trader bulletin”, Titan has gained about +17%b and remains well position. Technically speaking, Friday’s bullish breakout had helped setting the stage for a test of April’s high at $24.50. This, if hurdle and sustained, will trigger an acceleration run into the uncharted territory. At this juncture, only a close below May 01^st low at $17.59 can wreck the near-term bullish outlook.

US Treasury Secretary Henry Paulson, speaking Friday afternoon, said that “we are closer to the end of the market turmoil than the beginning” regarding to the current financial market turmoil. Still, financial stocks were underselling pressure Friday. The KBW bank index lost 2.26% to finish at 80.73.

Chart 1.5 – KBW bank index (daily).

Prices continue basing sideway near support at the area of the weekly’s low. The medium-term RSI indicator is also fast approaching the oversold level. So it wouldn’t surprise us to see some aggressive buying activities around the area of April’s 24^th low at 78.63. Although bear in mind that a failure to hold above this level will trigger a large-scale sell-off that has the potential to push prices back into the area of critical support around the 75 level.

Despite the negative sentiment in the financials stocks and another spike in oil prices that nearly carried crude to nearly $128 a barrel, equities shook off late-day weakness to finish around the flat line. The S&P 500 index up 0.13%.

Chart 1.6 – S&P 500 index (daily).

As expected, the market tried to move higher though still, it’s unable to take out the 200-day moving average. Again, not only that this is a tough level to overcome, the short-term RSI indicator is also indicating that the market is pretty much overbought. So it wouldn’t surprise us to see a retest of immediate support at the area of last week’s low, about 1384, in the days ahead. This, if violates, will increase the odds for a retest of key support at the area of the 50-day moving average, about 1350.

In summary: it seems to us that the eight-week recovery rally is now getting “heavy”. However, unless there is a headline that everyone recognizes as extremely bearish, there is a pretty good chance that this bear-market rally will continue to go on for awhile longer. From a long-term perspective, until we see a positive turnaround in the financial and retail complexes, the bears still have a benefit of the doubts.

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 Friday May 16, 2008.

As expected, stocks spent Thursday’s morning trading around the zero line though a pullback in crude oil sparked a strong recovery rally in the afternoon with a majority of major indices up more than 1%.

U.S. light crude oil fell 26 cents to settle at $123.85 a barrel in a volatile session - crude traded as high as $125.70 per barrel, near its all time record high set last week.

Chart 1.1 – Light sweet crude oil index (daily).

Price continues basing sideway near high as it works off the overbought condition. The action is bullish and suggesting that there is a pretty good chance that we’ll see a test of an important sentiment 130 level in the days ahead. Key support is at the area of April’s high, about 117.

Tech stocks attracted some strong buying interest Thursday with the NASDAQ composite index rose 1.48% to finish at 2533.

Chart 1.2 – NASDAQ composite index (daily).

The main event here is a climb above the 200-day moving average on strong volume. The action is bullish and helped setting the stage for a test of key resistance at the area of January’s bearish breakdown gap, about 2570. Immediate support is at the area of last week’s low, about 2430.

Speaking of tech, shares of MetroPCS Communications Inc. (PCS) jumped 5.50% on explosive volume.

Chart 1.3 – MetroPCS Communications Inc. (daily).

Initially profiled in our May 12 “Swing trader bulletin” share of the wireless communications provider gains more than 7% and remained well position. Technically speaking, today’s bullish breakout had helped setting the stage for a test of key resistance around the 22.70-24 area. Immediate support is at the 50-day moving average, about 18.50.

The drop in energy prices gave stocks a nice boost with the S&P 500 index gained about 15 points or 1.06% to close at 1423.

Chart 1.4 – S&P 500 index (daily).

The board market index claimed a new four-month high today. While today’s trading action is bullish and indicating that the market is ready for an upward push above the 200-day moving average, trading volume didn’t seem supporting the underlying advance. This is a bearish relationship and suggesting that the rally might not sustain. Immediate support is at the area of last week’s low, about 1384.

In summary: Thursday’s bullish trading action had helped setting the stage for an upward push above the S&P 200-day moving average. Unless the break of resistance happens on a big volume surge, the breakout might not sustain. As usual, we must stress out that tomorrow is the options expiration day, which is the most volatile trading session of the month, so you’ve got to watch-out for fake-head, or false price breakout.

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 Thursday May 15, 2008.

Stocks opened on a positive noted Wednesday in response to a milder-than-expected inflation report and falling oil prices also helped dampen inflation concerns. However, the sense that the market is pretty much overbought in a short-term basis triggered a large-scale sell-off that caused the major indices to give up a great bulk of their early gains. For the day, the Dow Jones industrial average gained 66 points or 0.5% to 12898 - that was about 100 points off its intraday high of 12993. The Standard & Poor’s 500 index up 0.4%.

Despite the late-day weakness, shares of Lsb Industries Inc (LXU) held pretty well to the early gain - up 6.52% on strong volume.

Chart 1.1 – Lsb Industries Inc (daily).

Initially profiled in March 25 “Swing trader Bulletin”, LXU has gained about 16% and remains well position. Actually, we really like the action over the past few days - volume picked up as prices cut through the March and April highs (see chart). Technically, today’s bullish breakout had helped clear the one-week overhead resistance and set the stage for a test of key resistance around the area of the 200-day moving average, about $21. In short, the near term outlook remains bullish barring a close below last week’s low at $16.25.

Large-cap tech stocks saw a steeper retreat from their intraday high — after being up 1.3%, the NASDAQ 100 index ETF (QQQQ) ended Wednesday trading session with a 0.22% lost. As matter of fact, today’s trading action was pretty consistent to the “fake-out” scenario that we’ve offered in the previous “Cubes Speculator Bulletin” when we wrote that: “there is a pretty good chance that we’ll see a test of January’s bearish breakdown gap, about $50, follow by a bearish reversal into the area of 200-day moving average.” The stock gave up all of the early gains - it reached as high as $49.93 in early Wednesday trading – and close slightly lower after the test of resistance at the $50 level was met with an aggressive wave of selling interest. Any ATM (at the money) put options traded could have gained at least 100% intraday.

Chart 1.2 – QQQQ (daily).

Price printed a bearish reversal bar right at the area of key resistance. Trading volume also confirmed the validity of today’s bearish trading action. Technically speaking, these are bearish signs and suggesting further weaknesses in the days ahead. Immediate support is at the area of 200-day moving average, about $48. This, if violates, will trigger a large-scale sell-off that has the potential to push prices directly into the area the 50-day moving average, about $45.75.

Similar to the NASDAQ, the S&P also printed a bearish shooting star candlestick on the daily chart.

Chart 1.3 – S&P 500 index (daily).

As it was the case in the past couple of days, price dropped hard every time it hit the 200-day moving average, about 1425. So, it seems to us that the 200-day moving average is the line on sand. Also notice that volume picked up today though the real volume surge was due to late-day selling. And again, this is bearish. Right now, the most obvious level to watch is last Friday’s low at 1384. As mentioned, a sustain decline below this level will trigger a large-scale sell-off that has the potential to push prices into the area of the 50-day moving average, about 1350.

In summary: Wednesday’s trading action is pretty bearish and helped setting the stage for a test of last week’s low at S&P 1384, then 1350 afterward. As mentioned, a failure to hold above this level will put an end to the powerful eight-week rally.

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 Wednesday May 14, 2008.

We’ve offered right here in the previous Market Outlook that: “Monday’s trading action is bullish and suggesting further short-term gains. However, the trading volume didn’t seem supporting the strong price action. And this is indicating that the upcoming rally, if and when it comes, should be considered as a selling opportunity.” Stocks closed slightly lower Tuesday amid a fresh round profit taking activities. Contributed to the overall weaknesses were another record energy prices and Wal-Mart’s (WMT) disappointing earning guidance.

Crude oil spiked to an all-time high of $126.50 per barrel, before settling with a gain of 1.57% at $125.80.

Chart 1.1 – Light sweet crude oil index (daily).

Price continues basing sideway near high as it works off the extreme overbought condition. The action is pretty encouraging and suggesting “buy-the-dip” is still the best strategy. Immediate support is at the area of April’s high, about 119.

Despite the better than expected April retail sales report, retail stocks were under pressure Tuesday amid a negative sentiment surrounding Wal-Mart’s conservative guidance. Shares of the world’s largest retailer lost 2.36% to $56.65. The S&P retail index lost 0.19% as a result.

Chart 1.2 – S&P retail index (daily).

Prices broke down below the March’s trend-line though held the 50-day moving average. This is not bad though the bulls don’t really have any cases unless they manage to overcome the ten-month falling trend-line and last week’s high, about 425. Immediate support is about 390. This, if violates, will increase the odds for a test of critical support at the area of March’s low, about 362.

Speaking of retail, shares of Big Lots Inc (BIG) posted a health gain of 1.13% Tuesday.

Chart 1.3 – Big Lots Inc (daily).

Initially profiled in our April 15 “Swing Trader Bulletin”, shares of the closeout retailer has gained about 30% and remains well positioned. Technically speaking BIG remains strong but had rallied directly into the area of overhead resistance around the $29 level. This, if hurdle and sustain, will trigger an acceleration run that has the potential to push prices into the $31 level, then $35.60 afterward. On a long-term perspective, we’re still bullish on BIG and expecting the stock to trend higher. Immediate support is at the area of the January’s trend-line, now about $25.

Negative sentiment surrounding retail stocks dragged down the board market with the S&P 500 post a slight loss, about half a points or 0.04%.

Chart 1.4 – S&P 500 index (daily).

Price continues basing sideway around support. The action is pretty encouraging from a technical point of view given number of negative headlines – record high oil prices, Wal-Mart’s disappointing guidance and Oppenheimer’s bearish outlook on brokers. Though the one problem with Tuesday’s trading was that volume actually picked up on down day. This had jeopardized Monday’s impressive price gains and the well anticipate, big “200-day moving average” test. Right now, the most obvious level to watch is last Friday’s low at 1384. This, if violates, will trigger a large-scale sell-off that has the potential to push prices into the area of the 50-day moving average, about 1350.

In summary: the market seems lost the positive momentum that was built on Monday. It could be ready to rollover and all it needs is a meaningful catalyst. Hopefully the April CPI – a major inflation gauge – which is scheduled to release Wednesday morning at 8:30am will do the trick. As noted above, keep an eye on S&P 1384. If we break this level, 1350 will show up in no time.

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 May 13, 2008.

Stocks staged a recovery rally Monday with the Dow gained 130 points or 1.02% to finish at 12876. Contributed to the overall optimism was a falling energy price - U.S. light crude oil for June delivery fell $1.73 to settle at $124.23 per barrel on the New York Mercantile Exchange after settling at a record $125.96 per barrel on Friday. Energy stocks were under selling pressure as a result - the HOLDRS Oil Service ETF (OIH) lost 1.67% to close at $203.49.

Chart 1.1 – HOLDRS Oil Service ETF (daily).

Monday’s trading action was pretty consistent to the bearish case that we’ve offered in the previous Market Outlook: “the sector printed a potential bearish double top pattern on the daily chart. In addition, the MACD indicator is also trending below its signal line since late April. This is bearish and hence increased the odds for a retest of key support at the area of May’s low, about 190. This, if violates, will complete the bearish double top pattern and hence indicates that the sector is in a midst of a medium-term correction cycle. A sustain decline below 201 will confirm this.” While today trading action is bearish, we’ll remain on the sideline until there’s a sustain breakdown below the 201 level. Again, at this juncture, only a sustain breakout above this level can wreck the near-term bearish outlook. Key resistance is at the area of April 21^st high, about 210.60.

Despite the negative sentiment surrounding the energy stocks, shares of James River Coal Company (JRCC) added on to last week’s massive gains, jumped more than 5% to $32.72.

Chart 1.2 - James River Coal Company (daily).

Initially profiled in March 26 “Swing trader Bulletin”, shares of the coal producer has gained about 100% and remains well position. Actually, we really like the action over the past few days. Volume has picked up, as prices cut through key resistance at the area of 2005, 2006 lows (see chart). Technically, JRCC remains very strong, but has reached overbought level in all time frames – a situation that precursor to a pullback consolidation period - so it wouldn’t surprise us to see some backings and fillings in the days ahead. On a long-term perspective, however, we’re still bullish on JRCC and expecting the stock to trend higher. Immediate support is at the area of April’s high, about $26.75.

Financial stocks provided leadership in Monday’s advance with the KBW bank index gained more than 2%.

Chart 1.3 - KBW bank index (daily).

As a matter of fact, today trading action had confirmed the validity of the “oversold rebound” scenario that we’ve traced out in the previous Market Outlook when we wrote that: “the short-term RSI indicator is indicated that the sector had reached an extreme oversold condition, so it wouldn’t surprise us to see a technical rebound.” Technically speaking, the ability to hold above the 50-day moving average is pretty encouraging (see chart) though the bulls will need to overcome the looming seven-month falling trend-line resistance in order to turn the medium-term trend up. That being said, until we see a sustain breakout above May 02^nd high at 88.67, the bears shall continue to have the benefit of the doubts. Critical support is at the area of March’s low, about 75.

Strength in the financial sector had helped lifting the board market significantly higher with the S&P 500 gained about 15 points or 1.10% to 1403. Though trading volume was pretty disappointed.

Chart 1.4 – S&P 500 index (daily).

The S&P held double supports at the March’s trend-line and the April’s bullish breakout point, about 1390. This is bullish and helped setting the stage for another test of the looming 200-day moving average, about 1430. This, if hurdle and sustain, will turn the long-term trend up though it’s not expected tomorrow. Immediate support is about 1383. As mentioned, a failure to hold above this level will push prices directly into the area of key support at the 50-day moving average, about 1350.

In summary: Monday’s trading action is bullish and suggesting further short-term gains. However, the trading volume didn’t seem supporting the strong price action. And this is indicating that the upcoming rally, if and when it comes, should be considered as a selling opportunity.

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 Monday May 12, 2008.

We’ve noted in the previous market outlook that: “the market had a change of character today - it held tough in the face of the bearish breakdown in the retail and financial sectors. This is a short-term plus for the bulls. However, the bleeding [in these two key sectors] has to stop right now; else we could be in for some serious selling in the days ahead.” Stocks broke down Friday with the Dow losing more than 100 points, after AIG’s (AIG) massive losses and write downs in its first quarter earnings report sparked fears of continuing credit woes. The KBW bank index lost 0.71% as a result.

Chart 1.1 - KBW bank index (daily).

As expected, the sector followed through to the downside Friday. While the action is bearish suggesting further weaknesses, the short-term RSI indicator is indicated that the sector had reached an extreme oversold condition, so it wouldn’t surprise us to see a technical rebound follow by a panic selling in the days ahead. At this juncture, only a sustain advance above 90 can wreck the bearish outlook. Critical support at the area of March’s low, about 75.

Also contributed to the overall weakness was a record high oil price - U.S. light crude oil for June delivery settled at a record $125.96 per barrel on the New York Mercantile Exchange, after hitting a trading record of $126.20 earlier. Speaking of energy, shares of Fording Canadian Coal Trust (FDG) rose 2.71% to close at $71.59 - a new record high.

Chart 1.2 - Fording Canadian Coal Trust (daily).

Initially profiled on May 5 “Swing trader Bulletin”, FDG has gained about 13% and remains well position. Technically speaking, Friday’s break to the upside is very bullish and helped setting the stage for an acceleration run toward the key sentiment 75-80 level. In short, the near term out look remains bullish barring a close below last Monday’s bullish breakout point, about $67.

Despite the rise in oil prices, the energy sector was a primary laggard throughout Friday trading session.

Chart 1.3 – HOLDRS Oil Service ETF (daily).

The sector printed a potential bearish double top pattern on the daily chart. In addition, the MACD indicator is also trending below its signal line since late April. This is bearish and hence increased the odds for a retest of key support at the area of May’s low, about 190. This, if violates, will complete the bearish double top pattern and hence indicates that the sector is in a midst of a medium-term correction cycle. A sustain decline below 201 will confirm this. Key resistance is at the area of April 21^st high, about 210.60. At this juncture, only a sustain breakout above this level can wreck the near-term bearish outlook.

Weaknesses in the financial and energy stocks dragged down the board market with the S&P 500 gave up about 9 points or 0.67% to finish at 1388.

Chart 1.4 – S&P 500 index (daily).

Investors who hoped for a quick turnaround in the second half of the year found themselves disappointed last week. The S&P broke decisively below the important sentiment 1400 level, lost about 1.28% for the week. Although the trading action was not very encouraging, the medium-term uptrend is still intact at this point. As a matter of fact, the S&P is currently sitting at minor support at the area of May 01^st bullish breakout point. As mentioned, a failure to hold above the 1383 level will increase the probability for a test of key support at the area of the 50-day moving average, about 1350. This, if violated, will put an end to the recent seven-week rally. Key resistance is at the area of 200-day moving average, about 1430.

In summary: there’s no getting around the fact that record high commodities prices are putting extreme pressure on the bullish case. Although the short-term chart is still showing that the bear won’t have any cases until there’s a close below S&P 1350. That being said, while we expect a continue weakness in equities, there’s no clear technical evidence that suggests the bear-market rally that starts from March 17^th low has come to an end, at least at this point.

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 Friday May 09, 2008.

Stocks closed slightly higher Thursday with the Dow Jones industrial average gained about 52 points or 0.41%. Contributed to the early strength was a better-than-expected April retail sales, but the gains were limited by record-high oil prices - U.S. light crude oil for June delivery rose 16 cents to settle at a record $123.69 a barrel on the New York Mercantile Exchange - and bad news surrounding the financial stocks.

Gold also attracted some buyers Thursday with COMEX gold for June delivery rose $11.10 to $882.30 an ounce, its highest close this month. Speaking of gold, shares of Yamana Gold (AUY) jumped 6.69% Thursday on heavy volume after the company reported earnings results that beat the Street’s expectation.

Chart 1.1 - Yamana Gold Inc (daily).

Initially profiled on May 02 “Swing trader Bulletin”, AUY gains more than 13% and remains well position. Thursday’s bullish breakout had helped setting the stage for a test of key resistance at the area of April’s high, about $15.44. This, if hurdle and sustain, will trigger all sorts of stop and hence, has the potential to propel prices into the 17-20 area. In short, the near term outlook remains positive barring a close below Tuesday’s low at $13.46.

Despite the positive sales data from a number of key retailers, the S&P retail index dropped 1.68% - a two-week low.

Chart 1.2 - S&P retail index (daily).

Plunged below the March trend-line after the test of resistance at the area of the 10-month falling trend-line was met with an aggressive wave of selling interest. This is bearish and suggesting a test of critical support at the area of March’s low, about 364. However, the sector is pretty much oversold on a short-term basis, so it wouldn’t surprise us to see some sorts of technical rebound before price start to roll over again. At this juncture, only a sustain advance above last week’s high at 425.07 can turn the short-term trend up.

Some investors continue to hope that the financial mess is over, and they continue to see themselves disappointed. Financial stocks were also down noticeably in Thursday’s trading session with the KBW bank index lost 1.51% to 81.64. Large-cap stocks like Goldman Sachs (GS), Bank of America (BAC) and AIG (AIG) were the primary laggards.

Chart 1.3 - KBW bank index (daily).

Yesterday we wrote that: “the index printed an ugly bearish reversal pattern on the daily chart …this is very bearish and suggesting a retest of critical support at the area of March’s low, about 75. Right now, follow through is the key. Our instinct tells us that if the bears can successfully take out last Thursday’s low, about 82.70, then we could see 75 before you can blink.” It broke both of last week’s low and the April trend-line support today. In addition, the MACD indicator is also breaking down as well. This is very bearish and confirms a retest of critical support at the area of March’s low, about 75. In short, today’s trading actions can be interpreted as very bearish and suggesting further weaknesses in the days ahead. At this juncture, only a sustain advance above last Friday’s high at 88.67 can wreck the bearish outlook.

Strength in the material and energy sectors provided the market a nice lift. The S&P 500 gained about 5 points or 0.37% to 1397.

Chart 1.4 – S&P 500 index (daily).

The index is back below the important sentiment 1400 level though it manages to hold above the 20-day moving average. This is a short-term plus for the bull. In addition, the short-term RSI indicator is also fast approaching the oversold level. So, it wouldn’t surprise us to see some sorts of consolidation before another selling stampede starts. As mentioned, keep a close eye on last Thursday’s low at 1383 because once we break this level, 1350 will show up in no time.

In summary: the market had a change of character today - it held tough in the face of the bearish breakdown in the retail and financial sectors. This is a short-term plus for the bulls. However, the bleeding [in these two key sectors] has to stop right now; else we could be in for some serious selling in the days ahead.

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 Thursday May 08, 2008.

Stocks stumble out of gate Wednesday with the Dow lost over 200 points. Contributed to the overall weakness was another record high energy prices - crude oil spiked to a record $123 a barrel. This is very bad for stocks because the higher energy prices means higher inflation and as we’ve already mentioned, the Street was very concern, or nervous, about inflation and the effect it is having on corporate profits and consumer spending. As a matter of fact, Wednesday’s trading action had confirmed the validity of the “larger-cycle pullback consolidation” scenario that we’ve traced out right here in the previous Market Outlook when we wrote that: “while Tuesday’s trading action is bullish, the trading volume suggested that the rally will not sustain. In addition, with the VIX hovering at the low-end of its six-month trading range, the odds for a larger-cycle pullback consolidation had also increased.”

Despite the overall weakness, James River Coal Company (JRCC) added on to recent gains, jumped about 8% to $30.88 on heavy volume. This brings the weekly gains to about 7 points or 28%, so far.

Chart 1.1 - James River Coal Company (daily).

Shares of the coal producer gains about 90% since profiled in our March 26 “Swing trader Bulletin” and done so on technical confirmation – volume expands as price climbs. This is the very bullish. Though not only that the stock seems to be overextended at the moment it has also rallied directly into key resistance at the area of 2005 and 2006 lows. So it wouldn’t surprise us too see some backings and fillings in the days ahead. On a long-term perspective, however, we’re still bullish on JRCC and expecting the stock to trend higher.

Wednesday’s sell-off was pretty much board base that saw all ten of the major economic sectors close with losses. And as it was the case since last October, financials got hit hard the KBW bank index dropped 3.54% for the day.

Chart 1.2 - KBW bank index (daily).

The index printed an ugly bearish reversal pattern on the daily chart after a test of key resistance at the area of seven-month falling trend-line was met with an aggressive wave of selling interest. The action is very bearish and suggesting a retest of critical support at the area of March’s low, about 75. Right now, follow through is the key. Our instinct tells us that if the bears can successfully take out last Thursday’s low, about 82.70, then we could see 75 before you can blink. Immediate resistance is about 90.

As goes the bank so goes the tape. Weakness in the financial stocks – especially in large-cap names like Citigroup (C), JPMorgan Chase (JPM), and Bank of America (BAC) all down about 3% to 5%, weighed on the board market with the S&P lost roughly 26 points or 1.8% to finish at 1392.

Chart 1.3 – S&P 500 index (daily).

Yesterday we said that: “while Tuesday’s trading action is bullish, the trading volume remains disappointed. It has been light since we broke out in April. This is not very encouraging and suggesting that the rally might not sustain.” The market broke down Wednesday. The action’s, in fact, very consistent to the “fake-out” scenario: “a break above key resistance at the area of November’s low, about 1406, and back below it” - that we’ve offered a couple days ago.

The market had a change of character today. Lately, trading volume has been very light as prices climb though today they went in opposite direction. The most significant part of the day was to see that trading volume had finally picked up as prices dropped. And yes, this is the most bearish relationship under the sun. It seems to us that the market is poised for a test of key support at the area of 50-day moving average. As usual, follow through is the key. A sustain decline below last Thursday’s low at 1383 will confirm this. Key resistance is at the area of 200-day moving average, about 1435.

In summary: no need to sugar coating, Wednesday’s trading action is outright bearish. Although, as noted above, the market can drop all the way to the 50-day moving average and still be in an uptrend. That being said, there is a pretty good chance that the bulls will put up a fight at this important sentiment level. So expect volatility to pickup in the days ahead.

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 Wednesday May 07, 2008.

As expected, stocks opened on a negative tone Tuesday that saw the Dow lost more than 100 points in early trading. Contributed to the early weaknesses were another record high energy prices - crude oil spiked to a record $122.35 a barrel - and Fannie Mae’s (FNM) big quarterly loss, still the stock rallied 8.91%. Speaking of energy, shares of James River Coal Company (JRCC) – a subject of our previous bullish discussion - jumped more than 10% in a face of yesterday’s 8% gains to $28.68, a new multi-year high. Just so that you know, shares of the coal producer gains more than 73% since featured in our March 26 “Swing trader Bulletin”. Apparently, coal stocks are doing pretty well lately. Shares of Fording Canadian Coal (FDG) also jumped 4.43% today or about 10% after profiled in our “Swing trader Bulletin” 2 days ago.

Market, however, stabilized by midday and moved higher as traders are betting that the U.S. economy will improve in the second half. This is, of course, a very bold guess though today trading is indicative that this group of traders is willing to put the money where their mouth is. And this is very positive.

Chart 1.1 – CBOE Volatility Index (daily).

General speaking, VIX values greater than 30 are generally associated with a large amount of volatility as a result of investor fear or uncertainty, while values below 20 generally correspond to less stressful, even complacent, times in the markets. Now with the VIX, or a fear indicator, is sitting at its lowest levels since October, it seems to us that traders are getting more comfortable with taking on more risks. And this, from a contrarian point of view, is bearish for the board market.

Buying interest in the energy and financial sectors provided the market a strong lift, the S&P rebounding from a 0.7% loss to finish the day with a 0.7% gain.

Chart 1.2 – S&P 500 index (daily).

The index rose above last week’s closing high after a test of support at the area of 10-day moving average was met with an aggressive wave of buying interest. This is bullish and helped setting the stage for an important test of key resistance at the area of 200-day moving average. Trading volume, however, remains disappointed. It has been light since we broke out in April. This is not very encouraging and suggesting that the rally might not sustain. Immediate support is at the area of last Thursday’s low, about 1383. This, if violates, will trigger a large scale sell-off that has the potential to push prices into the 1350-1325 area. Key resistance is at the area of 200-day moving average, about 1435.

In summary: this is a very interesting and important day. There were a lot of reasons to sell, however, the market pulled off a rally. This action is bullish. However, until we see a pickup in trading volume, it’s believed that the rally will not sustain. In addition, with the VIX hovering at the low-end of its six-month trading range, the odds for a larger-cycle pullback consolidation had also increased.

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 May 06, 2008.

As we’ve predicted in the previous Market Outlook that: “the market is pretty much overbought in a medium-term basis - a situation that often precedes a pullback consolidation” - equity market closed lower Monday with the Dow Jones industrial lost 88 points or 0.68% to 12969. Contributed to the overall weakness were a record high crude oil prices and news of a failed takeover. U.S. light crude oil for June delivery jumped $3.65 to set a settlement record of $119.97 per barrel on the New York Mercantile Exchange. As a matter of fact, the action had confirmed the “bullish” notion that we’ve offered right here in the previous Market Outlook when we wrote that: “recent test of was met with an aggressive wave of buying interest…the RSI indicator had also worked off the overbought condition. Technically speaking, the medium-term outlook is bullish.” Speaking of energy, shares of James River Coal Company (JRCC) jumped about 8% to $26, a new multi-year high.

Chart 1.1 - James River Coal Company (daily).

Shares of the coal producer gains about 60% since featured in our March 26 “Swing Trader Bulletin” and done so on technical confirmation – volume surged significantly on breakouts. Monday’s bullish breakout had pushed price well above the 50-day moving average and this is considered a short-term overbought. That being said, the stock seems to be overextended at the moment, so expect some backings and fillings – at least, last Friday’s bullish breakout gap at $24.09. Overall, we’re still bullish on JRCC and expecting the stock to trend higher.

Topping Monday’s headline was news that Microsoft (MSFT) abandoned its acquisition plans after its increased offer was rejected at Yahoo! (YHOO). Shares of Yahoo plummeted 15% while the tech rich, NASDAQ composite index lost about 13 points or 0.52% as results.

Chart 1.2 - NASDAQ composite index (daily).

As expected, the index settled with modest losses on Monday after the test of key resistance at the area of 200-day moving average was met with a bunch of sellers. Although seemingly for further short-term losses, the bears will not have any cases until they manage to push prices below last Thursday’s low at 2416. As mentioned, a sustain decline below this level will increase the probability for a test of key support is at the area of 50-day moving average, about 2320. Immediate resistance is about 2520.

Financial stocks were also under-selling pressure Monday after Friedman Billings said Bank of America (BAC) may renegotiate its deal to acquire Countrywide Financial (CFC) to $2 per share or less from $7 per share. Friedman noted Bank of America faces $20 billion to $30 billion in loan write-downs on the close of the Countrywide’s transaction. The KBW Bank index lost 1.12% as a result.

Chart 1.3 – KBW Bank index (daily).

The sector took an abrupt turn to the downside after the test of key price level at the area of the eight-month falling trend-line. Technically speaking, Monday’s trading action is bearish and suggesting a retest of critical support at the area of January-March low, about 75. A decline below last Thursday’s low at 82.72 will confirm this. Immediate resistance is about 89.

As goes the bank so goes the tape, so to speak. Bad news surrounding financial stocks dragged down the board market. The S&P 500 index lost about 6 points or 0.45% to finish at 1407.

Chart 1.4 – S&P 500 index (daily).

As expected, the index slumped Monday as traders decided to lock in some profits in the face of the S&P 500’s 12% surge from March 17^th low to last week’s closing level. Also noticing the negative RSI divergence at recent high (see chart). This is very bearish. Right now, the most obvious level to watch is last Thursdays’ low at 1383. This, if violates, will trigger a large scale sell-off that has the potential to push prices into the 1350-1325 area. Key resistance is at the area of 200-day moving average, about 1435.

In summary: while seemingly vulnerable for further short-term losses, the bears will not have any cases until they manage to push prices below last Thursday’s low at S&P 1383.

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 Monday May 05, 2008.

Stocks opened on a positive note Friday, looking to extend the prior session’s gains, though the rally eventually frizzle out amid a higher commodities prices. Still, stocks closed the session with a modest gain with the Dow Jones industrial up 48 points or 0.37% to 13058 – its highest close this year.

U.S. light crude oil for June delivery rose $3.80 to settle at $116.32 a barrel on the New York Mercantile Exchange. And COMEX gold for June delivery rose $7.10 to $858 an ounce. As a matter of fact, Friday’s trading action had confirmed the validity of the “commodities rebound” scenario that we’ve offered in the previous Market Outlook when we wrote that: “recent decline had pushed gold prices into the area of key support at the 200-day moving average. Not only that this is a strong support, in fact this is the area where bargain hunters often place their bets, the RSI indicator is also indicating an extreme oversold condition – a situation that precursor to a meaningful technical rebound. That being said, recent sell-off seems to be overdone and this will eventually trigger a major buying opportunity.”

Chart 1.1 – World gold index (daily).

As predicted, the yellow metal rebound nicely after a test of an important sentiment level around the $850 was met with a new wave of buying interest. Right now upside follow-through is the key. Keep an eye on the 878 level. This, if hurdle and sustain, will trigger an acceleration run into the $950-$1000 area. Although as always, we must stress that recent decline in gold was anything but panicked. That being said, it’s possible that we’ll see a nasty weak bull shake out prior to a strong thrust upward. Critical support is at the area of last December’s bullish breakout point, about $800.

Chart 1.2 – Light sweet crude oil index (daily).

Similar to gold, oil also moved higher today, up more than 3% after a test of support at the area of three-month rising trend-line was met with an aggressive wave of buying interest. In addition, the RSI indicator had also worked off the overbought condition. Technically speaking, the medium-term technical outlook is bullish barring a close below last Thursday’s low at 110.50. Immediate resistance is at last Monday’s high, about 120.

With oil hanging around record high level, the fear that there is nothing to moderate the rise in inflation rippled through stocks – the Nasdaq composite index gave up all of the early gain and closed slightly lower.

Chart 1.3 - NASDAQ composite index (daily).

We’ve noted in the previous Market Outlook that: “while Thursday’s trading action is bullish, the RSI indicator is indicating an overbought condition, so chances are we’ll see a lot of whipsaw in the days ahead.” The index printed a bearish reversal bar today after an early rally into the area of 200-day moving average was met with an aggressive wave of selling interest. Volume had also expanded as price dropped. This is not very encouraging though it was expected. Right now the most obvious level to watch is Thursday’s low at 2416. A sustain decline below this level will increase the probability for a test of immediate support at the area of previous bullish breakout point, about 2390. Critical support is at the area of 50-day moving average, now at 2320.

Financial stocks were under pressure Friday after Standard &Poor’s downgraded Countrywide Financial’s (CFC) debt to junk. The downgrade is a wakeup call to those who bet that the worst of the credit crisis is over. Weakness in the financial sector dragged down the board market. The S&P 500 index gave back a majority of its early gains to close up just 4 points or 0.32%.

Chart 1.4 – S&P 500 index (daily).

We’ve said on May 01 that: “the main event here is a breach of key resistance at the area of last November’s low. This is bullish and should help getting the next up-leg started.” The index added on to previous gain. However, it ran into resistance at 1425 – it’s about 10 points below the 200-day moving average. As mentioned, not only that this is a tough level to overcome, the RSI indicator is also indicating an overbought condition. So it wouldn’t surprise us to see some whipsaws in the days a head. In short, the overall technical outlook remains positive barring a close below last Thursday’s low at 1383. Key resistance is at the area of 200-day moving average, about 1435.

In summary: technically speaking, the market is pretty much overbought in a medium-term basis - a situation that often precedes a pullback consolidation. However, we do not think the rally is over. Rather, it’s going to be a stair-step advance as market breaks through pieces of key resistances. That being said, while recent trading action was very bullish in most respect, the market needs a good pause before explode higher.

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 Friday May 02, 2008.

Stocks started the month on a strong note that saw the Dow closed above 13,000 for the first time in almost 4 months. Tech provided leadership to the market, receiving particular help from large-cap tech stocks. High beta stocks like Google Inc (GOOG), Apple Inc (AAPL), Research in Motion Ltd (RIMM), and Baidu.com (BIDU) are all breaking out. Just so that you know, GOOG has gained more than 34% since profiled in our March 12 “Swing Trader Bulletin” as a potential buy candidate.

We’ve been talking about the “rotation out of commodities and into tech” in the past couple days. It continues today. Just look at what happened to commodities: oil hit $120 earlier in the week, now trades at $112.52 a barrel on the New York Mercantile Exchange, down about 6%. Gold hit $1,000 in March, today closed at $865, down more than 13%. Meanwhile the tech rich index, NASDAQ composite, is trading at its highest level since January.

Chart 1.1 – World gold index (daily).

We’ve said on April 21 that: “Friday’s [April 18^th] breaks to the downside had completed the bearish lower-high pattern. In addition, the on balance volume indicator, or OBV, also traded below its 20-period moving average and hence confirmed the bearish trend…expects further short-term losses.” As you can see, the yellow metal had lost about 65 points immediately followed our bearish comment.

Recent decline had pushed prices into the area of key support at the 200-day moving average. Not only that this is a strong support, in fact this is the area where bargain hunters often place their bets, the RSI indicator is also indicating an extreme oversold condition – a situation that precursor to a meaningful technical rebound. That being said, recent sell-off seems to be overdone and this will eventually trigger a major buying opportunity.

Nasdaq Composite index posted an impressive gain of 2.81% in Thursday’s trading session. It’s now 14% off the 52-week low, which was hit in March.

Chart 1.2 - NASDAQ composite index (daily).

The index broke out from the six-month falling trend-line resistance today. The action is bullish and helped setting the stage for a test of key resistances around the 2540 level. This, if hurdle and sustain, will turn the major trend up. Although with the RSI indicator hovering around the overbought territory, chances are we’ll see a lot of whipsaw in the days ahead. Immediate support is about 2390.

The most significant part of the day was to see some panic buying in financial stocks as investors bet that the worst of the credit crisis is over. The KBW bank index gained 4.38% as a result. Strength in the financial sector also helped pushing the S&P higher.

Chart 1.3 – S&P 500 index (daily).

The key event here is a breach of key resistance at the area of last November’s low, about 1406. This is bullish and should help getting the next up-leg started. Right now, the most obvious level to watch is the 200-day moving average, about 1450. Not only that this is a tough level to overcome, the RSI indicator is also indicating an overbought condition. So, it wouldn’t surprise us to see some aggressive selling activities in the days ahead. Immediate support is about 1370.

In summary: Thursday’s trading action was extremely strong in most respects. Though with the market’s fast approaching an extreme overbought condition, allow some rooms for whipsaw.

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 Thursday May 01, 2008.

Stocks finished lower Wednesday, gave up all of the earlier gains, as investors were disappointed with the Fed statement. As expected, the Federal Reserve cut the fed funds rate by 25 basis points to 2.00%. The discount rate was also cut by 25 basis points to 2.25%. The FOMC cited continued weakness in economic activity. However, instead of giving a clear indication that its latest rate-cutting cycle is over, the FED said that it is in a wait-and-see mode. What’s going on? With crude oil hanging near the $120 level, the Street is very concern about inflation and the effect it is having on corporate profits and consumer spending. That being said, if the FED continues to lower interest rate, it’s likely to do more damages than good.

Despite the overall weakness, shares of General Motors Corp (GM) jumped as much as $3.04 or 14.34% in Wednesday trading session before pullback a bit to settle at $23.20, up 9.43%. The automaker was the top gainer on the Dow after it reported a narrower-than-expected quarterly loss and said overseas sales helped to alleviate weakness in the U.S. market.

Chart 1.1 – General Motors Corp (daily).

Initially profiled in April 07 “Swing Trader Bulletin”, the stock has gained about 13% and remains well positioned. Technically speaking, Wednesday’s break to the upside had helped setting the stage for an acceleration run toward key resistance at the area of February’s high, about $29. Immediate support is about $21.

Let’s take a look at the major indices:

Chart 1.2 - Dow Jones industrial average (daily).

Do not let the flat close fool you. The most significant part of the day was to see a test of the double resistances at the 13000 level – an important psychological mark – met with an aggressive wave of selling interest. Also noticing the negative RSI divergence at recent high. The action is bearish and suggesting a test of key support at the area of 50-day moving average, now at 12450. A sustain decline below 12650 will confirm this.

Chart 1.3 – S&P 500 index (daily).

The key event here is a test of November’s low’s – an important sentiment level – in Wednesday’s trading session though the rally eventually frizzle out and price closed the day slightly lower. As a matter of fact, the action had confirmed the validity of the “fake out” scenario that we’ve offered in the previous Market Outlook when we wrote that: “fake-out – a break above key price level and back below it – is not uncommon in FED days… chances are we’ll see a few false moves in both directions in a next couple of days.”

General speaking, Wednesday’s trading action suggests that the 1370-1406 trading is likely to stay a bit longer. Right now the most obvious level to watch is, of course, the 1370 level. This, if violates, will increase the odds for a retest of key support at the area of 50-day moving average, now at 1350.

In summary: whether Wednesday FED’s induced sell-off is a merely a pause that refresh or is the beginning of something worse is remained to be seen; though until we see a sustain breakaway from the S&P 1370-1406 trading range, we believe that the market will remain in limbo.

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 Wednesday April 30, 2008.

As expected, stocks drifting sideways Tuesday as investors await the FOMC announcement on interest tomorrow. For the day, the Dow Jones industrial average fell 0.3% and the Standard & Poor’s 500 index lost nearly 0.4%. Though do not let the quiet day fool you. The most significant part of the day was to see money quietly coming out of commodities and commodities related stocks like gold and energy and into tech stocks.

Chart 1.1 – World gold index (daily).

The yellow metal lost about 50 points immediately followed our bearish comment on the commodity on April 21. While seemingly vulnerable for further short-term loss, we see no convincing evidence that the long-term bull market in commodity is over. As mentioned, the most obvious level to watch is the 200-day moving average – it’s a good place where bargain hunters often place their bets. In addition, the relative strength index indicator, or RSI, also suggests that commodity is pretty much oversold in a medium-term basis – a condition that precursor to a meaning rebound.

Despite the overall weakness, high beta stocks like Google Inc (GOOG), Baidu.com Inc (BIDU), Research In Motion Ltd (RIMM) and Apple Inc (AAPL) have broken out to multi-month highs in Tuesday trading session. This is a clear sign that some smart money is positioning themselves for a rotation out of commodities and into tech. The tech-heavy NASDAQ composite index gained about 1.7 points for the day.

Chart 1.2 – NASDAQ composite index (daily).

As you can see, tech stocks have been outperformed the S&P since late March. This is bullish though the bulls won’t have any cases until they manage to take out resistance at the six-month falling trend-line, now at 2450. This, if hurdle and sustain, will trigger all sorts of stops, so to speak, and hence has the potential to push prices into the area of 200-day moving average, about 2530. At this juncture, only a sustain decline below immediate support around the 2360 level can wreck the current outlook.

The slide in commodities and energy prices dragged down the board market. The S&P lost 0.39% as a result.

Chart 1.3 – S&P 500 index (daily).

The index continues basing sideway just beneath resistance. As mentioned, while a majority of short-term indicators favor a break to the upside, the bears still have the benefit of the doubts until we see a sustain breakout above key resistance at the area of November’s low, about 1406. Although, fake-out – a break above 1406 and back below it – is not uncommon in FED days. That being said, chances are we’ll see a few false moves in both directions in a next couple of days. Key support is at the area of 50-day moving average, now at 1345.

In summary: it seems to us that the market is in need of a meaningful catalyst to overcome the key resistance levels. Hopefully tomorrow FOMC announcement will do the trick.

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 April 29, 2008.

Stocks finished lower Monday, giving up early gains sparked by Mars’ $23 billion buyout of Wrigley (WWY), as investors jittered ahead of the start of the two-day Fed policy meeting. Also contributed to the overall weakness was a record high energy price - U.S. light crude oil for June delivery rose 23 cents to settle at $118.75 a barrel on the New York Mercantile Exchange after hitting a record $119.93 earlier in electronic trading. For the day, both of the Dow Jones industrial average and the broader market index, Standard & Poor’s 500, lost a few points to end at 12871 and 1396 respectively. Monday’s trading action had once again confirmed the validity of the “sideway consolidation” scenario that we’ve traced out right here in last week’s Market Outlook when we wrote that: “until proven otherwise expect the S&P to drift sideway within the 1370-1400 trading range.”

Speaking of the FED, the bond market believe that the FED will cut rates a quarter point and signal that the period of cutting rates is coming to a close.

Despite the overall weakness, shares of Big Lots Inc (BIG) jumped almost 4% on heavy volume after JPMorgan upgraded the closeout retailer to “Overweight” from “Neutral”.

Chart 1.1 – Big Lots Inc (daily).

Initially profiled in April 15 “Swing Trader Bulletin”, BIG has gained more than 20% and remains well positioned. Technically speaking, Monday’s break to the upside is bullish and hence confirmed the test of key resistance around the $30 level. This, if hurdle and sustained, will trigger an acceleration run to 2007 high, about $35. In short, the near-term outlook remains bullish barring a close below key support at the area of previous bullish breakout point, about $24.

Let’s take a look at the major indices:

Chart 1.2 – Dow Jones industrial average (daily).

Prices drifting sideway just beneath key resistances at the area of 200-day moving average and December 2007 low, about 13070, (see chart). Volume remains low through out last week’s rally. This is indicative that professional or smart money is still sitting on the sideline. And this is bearish for the market on the long-term. That being said, the bulls will not have any cases until they manage to take out key resistances around the 13100 area. Immediate support is about 12650.

Chart 1.3 – S&P 500 index (daily).

It worth noticing that the index managed to breach the 1400 mark – an important sentiment level – during Monday’s trading session though the rally eventually frizzle out and the index close the day with a slight loss. While Monday’s trading action wasn’t impressive, it might be the first wave of a series of rally attempts that have the potential to pop prices through key resistance at the area of November’s low, about 1406, and into the 200-day moving average, about 1435 – though this is not expected tomorrow. Key support is at the area of 50-day moving average, now at 1345.

In summary: Monday’s choppy and low volume trading session is indicative that despite recent strength, smart money is sitting on the sideline. So it wouldn’t surprise us to see the holding pattern carries on until Wednesday’s Fed decision.

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 Monday April 28, 2008.

As expected, stocks opened lower Friday though the market managed to overcome early weaknesses to close above the zero line as investors set aside worries about surging energy prices and Microsoft’s underwhelming forecast, and picked up a variety of “cheap” financial stocks. For the day, The Dow Jones industrial average added 0.3% to finish at 12891 - its highest close in nearly four months.

Oil reached new record high Friday amid concern that strikes at a BP P.L.C (BP) refinery in Scotland and an unrelated facility in Nigeria could jeopardize production. U.S. light crude oil for June delivery jumped $2.46 on supply concerns to settle at $118.42 a barrel on the New York Mercantile Exchange.

Chart 1.1 – Light sweet crude oil index (daily).

Technically speaking, Friday’s break to the upside is bullish. It broke the three-day consolidation pattern and helped setting the stage for a test of an important sentiment 120 level. In short, the medium-term outlook remains bullish barring a close below last Thursday’s low at 114.40.

Unsurprisingly, tech stocks were underselling pressure Friday amid weakness in shares of Microsoft (MSFT), which felt more than 6% in response to the lousy fourth quarter forecast.

Chart 1.2 – Microsoft Corp (daily).

As predicted, the stock dropped hard Friday and tested key support around the $29.50 level. While the action is bearish, the late-day upward push suggests that this level might hold for awhile. Expect an oversold consolidation in the days ahead. Critical support is about 28.50. Immediate resistance is about $31.

The financial sector was an outperformed Friday amid an upbeat earning report from American Express (AXP). In addition, shares of Merrill Lynch & Co (MER) also closed significantly higher after the Financial Times reported that Merrill is in discussions with private equity firm TPG regarding possible investments in the investment bank.

Chart 1.3 – KBW Bank index (daily).

The sector has been on better ground for the last couple of days as investors have started to bet that the worst of the credit market crisis is over. It seems poised for a test of key price level at the area of the seven-month falling trend-line resistance, now at 87. At this moment, it’s impossible to know for sure whether this level can be taken out or not though a sustain breakout above it will break the “lower highs” pattern going back to October 2007. Critical support remains at 75.

Good news surrounding financial stocks had helped to send the board market higher with the S&P 500 index added 9 points or 0.65% to close at 1397.

Chart 1.4 – S&P 500 index (daily).

Friday’s trading action had confirmed the validity of the “sideway consolidation” scenario that we’ve traced out right here in the previous Market Outlook when we wrote that: “Thursday’s trading action didn’t have the characteristic of a bullish breakout day – it’s rather a continuation the pullback consolidation pattern that starts on Monday April 21^st. Of course, this won’t last forever though until proven otherwise expect the index to drift sideway within the 1370-1400 trading range.”

A milestone here was a crack the old February high at 1396. While the action is bullish, there are quite a number of tough barriers to confront. The first one isn’t very far, it’s the November’s low, about 1406. And even it can overcome that, the 200-day moving average is going to be an even tougher level to encounter. Given the extreme overbought condition, we doubt that the market can overcome it within this rally.

Right now, the most obvious level to watch is the key price resistance at November’s low, about 1406. This, if hurdle and sustain on a retest, will break the “lower highs” pattern going back to October 2007 and hence suggesting higher prices heading into the second half of the year. Key support is at the area of 50-day moving average, now at 1345.

In summary: this is decision time for the market. Despite last week’s strength, technical evidence favoring both bulls and bears. Given the action in the financial complex of late, it appears that fast money is being put back to work on hopes of a turnaround. This is bullish. However, the bulls have got to pay some respects to the overhead resistance at S&P 1406. Until we see a sustain break above this level on “good” volume, the bears still have the loudest growl.

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 Friday April 25, 2008.

Stocks closed higher across the board Thursday with the Dow Jones industrial average added around 0.7% to finish at 12848 and the broader, Standard & Poor’s 500, index added 0.6% - the S&P posted a much bigger gain, reached as high as 1397 in the early afternoon – to close at 1388. As matter of fact, today trading action was very consistent to what we’ve offered in the previous Market Outlook: “the S&P seems poised for a test of an important psychological level, around the 1400 area. However, the wobbly readings from indicators like the short-term slow stochastic suggest that, more likely than not, this test is going to fail.”

Contribute the overall optimism were a stronger dollar and upbeat earnings from Ford Motor Co (F) and Apple Inc (AAPL). Speaking of earning, shares of Microsoft Corp (MSFT) were under selling pressure, down almost 4% in Thursday evening trading, after the world’s biggest software maker reported a rise in earnings that beat expectations but its outlook disappointed investors.

Chart 1.1 – Microsoft Corp (daily).

Do not let the above chart fool you, the stock down about 4% to about $30.20 in after hours trading. Technically speaking, the major resistance at November-December’s low, about $32.63, had been a very important line in the sand. And despite Thursday’s strength, the line remains untouched! This should tell us the strength of the stock going into this evening earning report – very weak, of course! In addition, the short-term RSI indicator is indicating that the stock is extremely overbought – a condition that’s also precursor to a pullback consolidation. So, it wouldn’t surprise us to see a test of immediate support at previous bullish breakout, about $29.50, in the days ahead.

It worth noticing that a stronger dollar has triggered an interesting market rotation: money is coming out of commodities and commodity related stocks and going into financials and home builders. The PHLX Housing Sector Index rose more than 3% while the Amex Gold Bugs Index dropped more than 4% as results.

Chart 1.2 – PHLX Housing Sector Index (daily).

The housing is doing very well, up about 13 points or 10% immediately followed our bullish comment on the sector on March 12. While Thursday’s trading action is bullish and suggesting further short-term gain, the upside could be limited to February’s high, about 157. What’s going on? As you can see, we’ve approached this level and failed at least three times since last December – a lot of good money have been burned at this level before and there is no clear evidence that suggests it won’t happen again. With that said, from a long-term perspective, the bulls will not have any cases unless prices break above the 157 level. This, if clear and sustain, will break the pattern of lower lows that goes back into early 2006 and help setting the stage for s test of 2006 low, about 190.

As noted above, the bullion took a beating Thursday amid a stronger greenback. In fact, recent trading action had confirmed the validity of the “short-term bearish” scenario that we’ve offered in our April 21 Market Outlook when we wrote that: “Friday’s [April 18^th] break to the downside had completed the bearish lower-high pattern. In addition, the on balance volume indicator, or OBV, also traded below its 20-period moving average and hence confirmed the bearish trend…expects further short-term losses.”

Chart 1.3 – Amex Gold Bugs Index (daily).

Thursday’s massive sell-off had pushed prices into key support at the area of the 200-day moving average. Not only that this is a pretty strong support – it’s good place where bargain hunters often place their bets – the short-term RSI indicator is also indicating an extreme oversold condition. So, it wouldn’t surprise us to see a technical rebound in the days ahead. Immediate resistance is about 425.

Heavy buying interest in the financial and home builder stocks had helped to push the board market higher. The S&P up about 9 points to 1388.

Chart 1.4 – S&P 500 index (daily).

As expected, the index tested the important psychological 1400 level today. Not only that it failed to close above this level – this is also expected – Thursday’s trading volume was not very encouraging; it’s just about average. Technically speaking, today trading action didn’t have the characteristic of a “bullish breakout” day – it’s rather a continuation the pullback consolidation pattern that starts on Monday April 21^st. Of course, this won’t last forever though until proven otherwise expect the index to drift sideway within the 1370-1400 trading range. As mentioned, it’s critical that price stays above the 1370 level. This, if violate and sustain, will increase the odds for a retest of the 50-day moving average, about 1345 now.

In summary: while Thursday’s trading action is bullish, it doesn’t have the characteristic of a “bullish breakout” day. In short, it’s good but no firework!

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 Thursday April 24, 2008.

As expected, stocks closed slightly higher, in a choppy trading session, as investors chew on the better than expected earning report from Boeing Co (BA) and another meltdown in the financial sector. For the day, the Dow Jones industrial average rose 43 points, or 0.3%, to finish at 12763.

Financial stocks were under selling pressure Wednesday largely due to disappointment regarding a massive quarterly loss at Ambac Financial (ABK). The bond insurer plummeted 43% to a new all-time low after the company reported a massive $5.42 per share loss on $1.7 billion in write-downs and a $1.0 billion increase in loan loss provisions. The Street was looking for a much smaller loss of $1.51 per share. And the KBW bank index lost 0.86% as a result.

Chart 1.1 – KBW bank index (daily).

Price continues basing sideway around the area of critical support, about 75. The action is bearish. In addition, the short-term slow stochastic indicator is also trending down, below the signal line, and hence, confirms the strong bearish trend. Right now the most obvious level to watch is the March-April’s closing low, about 75. At this moment, it’s impossible to know for sure that whether this level holds or not though a sustain decline below it will trigger all sorts of stops, so to speak, hence, has the potential to push prices into the area of 2003 low, about 65.

Chart 1.2 – S&P 500 index (daily).

It seems to us that recent pullback found support at the area of last week’s bullish breakout gap (see chart). This is bullish and suggesting a retest of key price resistance around the 1400 level. As mentioned, not only that this is a tough level to overcome, the short-term slow stochastic indicator is suggesting that the market is pretty much overbought. As a matter of fact, the action we’ve seen recently appears to be very similar to the time between the November’s high and April’s low when we saw a quite a number of aggressive sell-offs, which took place immediately after the market registered a series of overbought conditions over a short-period of time (see chart). With all that said, it wouldn’t surprise us to see the test of 1400, if and when it comes, will be met with eager sellers. The index has an immediate support around the 1350 area.

In summary: the S&P seems poised for a test of an important psychological level, around the 1400 area. However, the wobbly readings from indicators like the short-term slow stochastic suggest that, more likely than not, this test is going to fail.

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.