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Weekend Stock Market Analysis

(12/27/03)

I haven't talked about the Contrarian Indicators in a while however I'm a little concerned with the Put to Call Ratio as it's hinting that a possible pullback may occur in the near term.  Notice over the past year when the Put to Call Ratio has dropped below .60 (point A) that some selling pressure has occurred (points B) in the S&P 500 with varying degrees of intensity.  It looks too me if the S&P 500 does come under some selling pressure in the near term that it could pullback to the 1060-1065 area which is along its upward sloping trend line (red line) originating from the May low. 

 

Meanwhile upon further analysis you will also notice that that the 1060-1065 area is also were the S&P 500's 10 Weekly EMA (blue line) and longer term 38.2% Retracement Level reside at as well.  Thus the 1060-1065 zone appears to be a key support area for the S&P 500 if a pullback does happen.  In the longer term the S&P 500 still has a chance to rally up to the 1155-1170 area which coincides with its 50% Retracement Level (1155) and high made in 2002 near 1170.

As for the Dow it has become fairly stretched away from its 10 Weekly EMA (blue line) and could also be close to a pullback as well.  The last time the Dow was stretched this far from away its 10 Weekly EMA was back in June (point C) which was followed by a pullback of around 450 points as it found support at its 10 Weekly EMA (point D).  If a similar pattern develops this time around I would look for support in the 9990 to 10000 range which coincides with the Dow's rising 10 Weekly EMA (9900) and longer term 61.8% Retracement Level (10000).  In the longer term there is still a chance the Dow could rally up to the 10700 level which is the 76.4% Retracement from the early 2000 high to the October 2002 low and also coincides with the high made in 2002.    

As for the Nasdaq it still remains in a trading range between 1880 and 2000 which has been going on for almost 3 months now.  Eventually the Nasdaq is going to break out of this trading range and make a substantial move in one direction or the other.  If the Nasdaq can break above the 2000 level this should lead to a quick move up to the 2050-2100 range which coincides with its longer term 23.6% Retracement Level (2050) and high made in the early part of 2002 near 2100 (point E).  Meanwhile if the Nasdaq breaks below the bottom of its trading range near 1880 which is also around its 20 Weekly EMA (green line) then look for a quick drop back to its 40 Weekly EMA (purple line) near 1760 (point F). 

Historically the best performing stocks exhibit strong Sales and Earnings Growth before and after breaking out of a favorable chart pattern.  CALM is a good example of a stock which has been exhibiting strong Sales and Earnings Growth over the past year and is one we featured last June in our Weekend Analysis for June 7th.  Notice in this example CALM developed two separate "Cup and Handle" patterns.  CALM broke out of its 1st Cup and Handle (H #1) pattern in July of this year and rose from $5 to $8.  CALM then developed a 2nd Cup and Handle (H #2) pattern before breaking out again in October and has risen from $8 to $41 for a gain of nearly 400% during the past 3 months.

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