US Market Analysis -- 18th Aug 08

DJI closed 11,659.90 for the week ended 15th Aug 08, down of 74.42 points or 0.63% from previous week. Nasdaq closed 2,452.52 for the week ended 15th Aug 08, up 38.42 points or 1.59% from previous week. S&P500 closed 1,298.20 for the week ended 15th Aug 08, up 1.89 points or 0.15% from previous week. Crude oil price finished the week at US$113.77/barrel as compared with previous week of US$115.20/barrel; dropping more than US$35 from its 11th Jul 08 record of US$147.27/barrel. A recap of last week economic data/event is as followed.

1. 12th Aug 08, International Trade reported -$56.8b as compared with previous value of -$59.8b and market consensus of -$61.5b; indicating US trade deficit in Jun 08 shrank despite a jump in the oil deficit.
2. 13th Aug 08, Retail Sales came in -0.1% with market expectation of 0.0% and previous value of 0.1%
3. 14th Aug 08, CPI reported 0.8% with market consensus only 0.4% and previous value of 1.1%.
4. 14th Aug 08, Jobless Claim reported 450K as compared with previous value of 455K and market expectation of 440K.
5. 15th Aug 08, Industrial Production was 0.2% compared with previous value of 0.5% and market consensus of 0.0%
6. 15th Aug 08, Consumer Sentiment was 61.7 compared with previous value of 56.6 and market expectation of 62.0

Economic data/events for the coming week is as followed

1. 19th Aug 08, Housing Starts, PPI
2. 21st Aug 08, Jobless Claims, Leading Indicators, Philadelphia Fed Survey
   

The volatility in the US markets remained with concern of more write-downs at investment banks, mixed economic data and crude oil price dictated the direction of the US markets. The volatility should remain for sometimes as current there is no new lead/indication that the worst are over. Japan has already spelled that they are on the brink of recession and Europe could be following the footstep of Japan. This piece of news will definitely not helping the global economy.

Technically, the ascending triangle formation of DJI has not broken down and if a breakout does occur the potential upside target would be at the 200d EMA level of 12,310. A breakdown of the ascending triangle would finding support at 10,800 level. Looking at indicators like ADX, MACD, RSI and Stochastic the probability of a breaking out is higher than that of a breaking down. MACD in positive region, RSI heading towards 70% level and Stochastic showing sign of cutting up. ADX is also about to cut up.


Nasdaq technically showed more strength than DJI. It managed to close above the 200d EMA level for the week and maintains the possible formation of a cup-handle shape. For the cup-handle formation to materialize, Nasdaq would have to experience from pull back from current level to probably the 100d EMA level of 2376 to complete the handle shape and from there on rally up to a potential target of 2760 ( derviation was explained in last week analysis ). The ADX indicator showed a pretty good strength in upward trend as the DI+ is way above the DI-. MACD is maintaining well at the positive region and no sign of divergence yet. RSI now above 70% slightly overbought and potentially a small pull back will occur to correct for the overbought. Stochastic is also at the overbought region; above 80%. Both the RSI and Stochastic indicators could signal some pull back in the coming week to form the handle shape of the cup-handle formation. The downside for the moment of the Nasdaq would be around the 2244 level.


S&P500 being the weakest among the 3 US indices because it houses all the financial stocks does showing sign of recovery. S&P500 is currently on a v-shape recovery trend. Technically, S&P500 should have more upside till around the 200d EMA level of 1360 to complete a v-shape. MACD is at positive region and no sign of divergence. RSI is heading towards the 70% and no sign of cutting down. Stochastic is cutting up to hit the 80% level. ADX is a bit the flat with DI+ is slightly above DI-; indicating downside could be limited in short-term.