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Weekend Stock Market Analysis

(11/22/03)

So far the major averages (Dow, Nasdaq and S&P 500) have held support near their respective 10 Weekly EMA's (same as 50 Day EMA on a daily basis).  It appears there are two possible scenario's for the shorter term.  The first scenario would be for the major averages to hold support near their current levels and then stage another rally as we move into the end of November and into the month of December.  The second scenario would be for the major averages not to hold support at their current levels which would lead to a drop back to their 20 Weekly EMA's (same as 100 Day EMA on a daily basis).

Looking at the Dow and applying the two scenario's mentioned above if it's unable to hold support near its 10 Weekly EMA (blue line) and comes under more selling pressure the next support area would be at its 20 Weekly EMA (green line) near 9450.  Also notice since April the Dow has been able to hold support near its 20 Weekly EMA so this is a key level that needs to hold if the Dow's longer term up trend is going to remain intact.

Meanwhile if the Dow is able to hold support near its 10 Weekly EMA (blue line) and begins to rally then a rise back to its previous high a few weeks ago near 9900 is possible.  In the longer term the Dow still has a significant upside resistance area at its 61.8% Retracement Level near 10000 calculated from the early 2000 high to the October 2002 low.

The Nasdaq has been able to hold support around 1880 which is near its 10 Weekly EMA (blue) and also coincides with its longer term upward sloping trend line (black line) originating from the March low.  If the Nasdaq is unable to hold support near 1880 then its next area of support appears to be at its 20 Weekly EMA (green line) near 1825.    

Meanwhile if the Nasdaq is able to hold support near the 1880 level and then attempts to rally there are two upside areas of resistance it could encounter.  The first resistance level would be its previous high made a few weeks ago near 1990 while a second area of stronger resistance would reside around the 2050 level which is the 23.6% Retracement Level calculated from the early 2000 high to the October 2002 low.

The S&P 500 also closed near its 10 Weekly EMA (blue line) on Friday.  If the S&P 500 is unable to hold support near its 10 Weekly EMA then the next area of support to the downside would be at its 20 Weekly EMA (green line) near 1015.  As you can see since last April the S&P 500 hasn't dropped below its 20 Weekly EMA so this is an important support area that needs to hold so that S&P 500's up trend from the March low remains intact.

Meanwhile if the S&P 500 is able to hold support near its 10 Weekly EMA and begins to rally there is a significant upside resistance area around the 1065 level which is where the S&P 500 stalled out at a few weeks ago.  The 1065 area is the S&P 500's longer term 38.2% Retracement Level calculated from the early 2000 high to the October 2002 low. 

As mentioned last weekend over the past year or so the Put to Call Ratio has done a fairly good job of signaling short term bottoms and tops.  When the Put to Call has risen to a value of 1.0 or above this has been a signal of a nearing bottom (points B) and when the Put to Call Ratio has dropped to .60 or below this has been a signal of a nearing top.  Now this doesn't mean it has been right 100% of the time during the past year but it has been pretty accurate.  Despite the weakness in the market this past week the Put to Call Ratio didn't rise much and is still below 1.0.  I would be more confident of a nearing bottom in the market if the Put to Call Ratio would have risen more substantially this week.      

As far as a few sectors to watch the Semiconductors (SOX) are still above their 10 Weekly EMA (blue line) and despite pulling back over the past two weeks still look to be in good shape unless they break below their 10 Weekly EMA near 480.   

Meanwhile for those of you that are tracking the Gold sector (XAU) it made another nice move upward this past week.  However I would expect the XAU to run into substantial upside resistance as it nears the 112 level which is its longer term 61.8% Retracement Level calculated from the early 1996 high to the late 2000 low.  Also you may note that the XAU went from the early 40's in late 2000 (point C) to the mid 80s by the early part of 2002 (point D) for a gain of around 100%.  If the XAU does rally up to the 112 level (point F) this would lead to another 100% gain from the low made in the middle part of 2002 which was in the mid 50's (point E).  If history repeats itself again once the XAU reaches the 112 level there may be a sharp sell off much like occurred in the middle part of 2002 (points D to E).

Despite the weakness in the market over the past few weeks there continues to be some stocks setting up favorably if the market does decide to move higher.  Last week I mentioned OIIM in the Semiconductor sector as a stock which had formed the right side of a "Cup" but needed to develop a "Handle".  So far OIIM has held up well and is beginning to develop a very small 2 week "Handle" (H) as it remains in a trading range between $22 and $26.  Want I would like to see over the next few weeks is for OIIM to continue to remain in its trading range between $22 and $26 while working on its "Handle". 

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