Brookstone Market Commentary for the Week of July 5, 2004
Welcome back from the holiday weekend. The market open after the layoff, and not many sectors are in the green. Earnings kick off this week, so it promises to be an insightful four days of trading.
Costa Mesa, CA (PRWEB) July 7, 2004 -- The SPX breaks its own 50ma, and the Bulls likely had numerous stops below this key level. While some will argue this 1119 level is the most important short-term point, my eyes see the 1113-1116 area as a possible reversal point (if numerous stops trigger off the break of the 50ma). Can this be the big reversal area that turns the red screens into green? Not likely, but you never know. With the SPX now near its rising 200ma, a re-test is probable and this battle of the all-important Bull/Bear line in the sand will be akin to Game 7 of the World Series. From oversold levels, the Bulls should win a re-test of the 200ma, but in this example, I am not so confident. By taking a look at the charts you will see the last 200ma battle not so long ago. If a re-test occurs this close in time to the last battle, one has to wonder if the Bulls have many bullets left to continue the fight. If the break occurs, then I will be watching the 1087th area as the next level of support.
The price action of the Banks (BKX) is not giving the Bulls comfort. A break of the 200ma last week was the first sign of trouble and this morning, the BKX highs remain below their 50ma. From oversold levels, a bounce should be coming soon, but if the 50ma begins to closely track and 'push' the sector lower, then this rally should come from considerably lower levels. My eyes will be closely watching BKX 95, as it represents the 50ma on the weekly chart. If the Bears are able to force this level to crack too, then a re-test of the previous May lows would not surprise me. In fact, I can see BKX 86 before a true reversal occurs.
The broad tech NDX is now spitting distance from its own 200ma, and with the SOX on its way to zero, this should not surprise many. Keep an eye on the SOX 432 level, as this might be a reversal area (for the SOX). If the SOX can stabilize, then the NDX has a good chance of holding its own 200ma and turning higher. If SOX 432 does not hold, then I would expect the NDX to soon re-test the 1422 level. If the SOX continue to trade lower, then it might not stop until 398th. This 398 level represents the last important moving average on the longer-term charts for support. If this does not hold, then we need to hide the women and children and stock up on canned goods and bottled water.
This week also kicks off earnings, as AA reports tomorrow and they are normally the first ones out of the shoot. The earnings projections for the future is what many money managers will be keying off, and if they are worse then expected, then the tape can be in for a rough go. The last thing fundamental mutual fund/hedge fund managers want is an area of rising interest rates with poor earnings projections. It is almost the worst combination possible. If we begin to see a pattern of this starting tomorrow, then it would not surprise me if all the key levels crack. It is important to remember that oversold can become more oversold.
The VIX is also at an important juncture. The gap from this morning should be filled, and if it does, then the market should move higher. With its own 200ma above and close by, the risk of the gap not filling shortly is the break of the 200ma to the upside. If this happens, it means 'fear' might be increasing substantially, and this would spell doom for the Bulls, at least for the short term.
Economics and Earnings for this Week:
Wednesday: Earnings from: ACN, ISCA, MSM, AA, DNA, SCHN, YHOO.
Thursday: Initial Jobless and Consumer Credit. Earnings from: FLE, PBG.
Friday: Wholesale Inventories. Earnings from: ABT, GE.
Have a good week of trading.
DISCLAIMER: Brookstone Capital's Weekly Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be used as investment advice. Brookstone Capital assumes no responsibility or liability from gains or losses incurred by the information herein contained.
CONTACT INFORMATION:
Paul Taglia
Brookstone Capital, Inc.
695 Town Center Dr.
Suite 850
Costa Mesa, CA 92626
http://www.brookstonecapital.us
714-434-0689 tel
714-434-2807 fax
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