|
Signup
today and save 50% on a Premium Membership Plan
which includes our Stocks to Watch List and Daily Breakout Reports
Weekend Stock Market Analysis
(4/10/04)
The major averages pulled back some this week after rallying
strongly the previous week. In the near term the Dow stalled out near its
short term 76.4% Retracement Level around 10600 (calculated from the February
high to the late March low). It will be important for the Dow to hold
support near the 10400 area next week which coincides with its 50 Day EMA (blue
line) and 50% Retracement Level. If the Dow drops below 10400 its next
support area to the downside would be in the 10275-10300 range which coincides
with its 38.2% Retracement Level and 100 Day EMA (green line). Meanwhile
if the Dow can break above 10600 then its next upside resistance area would be
at its February high around 10750. 
The
Nasdaq has encountered some resistance in the near term just above 2070. A
key short term support area to watch next week is around 2040 which is at the
Nasdaq's 23.6% Retracement Level (calculated from the late March low to its
recent high). If the Nasdaq breaks below 2040 then its next area of
downside support appears to be around 2010 which coincides with its 50 Day EMA
(blue line) and 38.2% Retracement Level. Meanwhile if the Nasdaq can break
above 2080 then its next area of upside resistance would probably be at its
January high near 2150. 
The
S&P 500 has encountered some resistance in the near term around 1150.
The key support level to watch next week is just above 1135 which is at its
23.6% Retracement Level (calculated from the late March low to its recent
high). If the S&P 500 drops below 1135 its next area of downside
support would be just above 1125 which coincides with its 50 Day EMA (blue line)
and 38.2% Retracement Level. Meanwhile if the S&P 500 can hold support
near 1135 and begins to rally look for resistance at its previous high made in
early March near 1160. 
From
a longer term perspective the major averages still may be in the early stages of
a developing 5th Wave as talked about last week in relation to Elliot Wave
Theory. A simplified chart of an Elliot 5 Wave Pattern is shown
below. Notice how Waves 1,3 and 5 are upward moves with Wave 3 lasting
the longest while Wave 5 is the shortest. Meanwhile also
notice that Waves 2 and 4 are corrective Waves which only last for a brief
period of time before the upward trend continues. Also notice that
once the 5 Wave pattern completes itself that this is followed by a longer term
correction.
A longer term chart of the Dow shows that it found support a few
weeks ago near 10000 which corresponded to its longer term 61.8% Retracement
Level (calculated from the early 2000 high to the October 2002 low) and was just
above its 40 Weekly EMA (blue line). In the longer term there are two
possible scenarios for the Dow. Either it will break above 10750 and rally
up to its previous high made in April of 2001 near 11300 (point A) or it will
drop below 10000 and drop back to its longer term 50% Retracement Level near
9500 (point B).
The Nasdaq found support a few weeks around 1900 which was near
its 40 Weekly EMA (blue line) and 23.6% Retracement Level (calculated from the
October 2002 low to its January 2004 high). In the longer term it appears
the Nasdaq has two possible scenarios as well. If the Nasdaq can rally
above its previous high near 2150 it appears its next area of upside resistance
would be around 2300 which was the high made in the early Summer of 2001 (point
C). Meanwhile if the Nasdaq drops below 1900 it appears its next area of
downside support in the longer term would be around 1800 which coincides with
its 38.2% Retracement Level (point D).
As far as the S&P 500 it stalled
out near its longer term 50% Retracement Level near 1160 (calculated from the
early 2000 high to the October 2002 low). If the S&P 500 can rally
above the 1160 level then it appears its next area of upside resistance would be
near 1260 which coincides with its longer term 61.8% Retracement Level (point
E). Meanwhile a key support level to watch in the longer term
is around 1070 which coincides with the S&P 500's 40 Weekly EMA (blue line)
and 38.2% Retracement Level (point F). 
Finally from a historical
perspective rising Interest Rates and high Oil Prices have not been good for the
market. When you look at longer term chart of the Dow and compare it to
the longer term charts of Interest Rates and Oil Prices you will notice two
things. First when Interest Rates are dropping like occurred from
the 1980's through the 1990s (points G to H) and the price of Oil is decreasing
(points I to J) the market remained in a longer term Bullish Phase (points K to
L). Meanwhile when you look at a period of time when Interest Rates were
rising in the 1960's and 1970's (points M to G) and the price of Oil began
rising in the 1970's (points N to I) this had a negative affect on the
Dow. Notice that from the mid 1960's through the early 1980's the Dow got
stuck in a trading range between 550 and 1050 and by 1982 was virtually at the
same level as it was in 1965. The question is if the
Federal Reserve begins to raise Interest Rates and the price of Oil continues to
rise will this have the same affect on the Dow like we saw from the mid 1960's
through the early 1980's? 
The above commentary is not designed
to scare you out of the market, however, if we do see a longer term trading range
eventually develop in the Dow like occurred from the mid 1960's through the
early 1980's investors will have to be prepared to play both sides of the
market. A closer analysis
of the Dow from 1966-1982 shows it went through a series of downward and upward moves during that time but essentially ended up where it
started (1966) by the end of 1982 before finally breaking out if its extended
trading range in 1983. From 1966 through 1982 there were 6 major rallies
(blue lines) and 6 major sell offs (red lines) with each one lasting from 1 to 3
years. If we see a similar pattern develop over the next several
years there will be several opportunities to play both sides of the market and
the Contrarian Indicators should become useful in helping determine when
significant market reversals may develop. 
How can a Premium Membership to amateur-investor.net
benefit you as an investor? We focus on stocks which are exhibiting
favorable Sales and Earnings Growth that have developed a favorable chart pattern such as a "Cup and Handle",
"Double Bottom", "Flat Base" or "Symmetrical
Triangle". These stocks are then
included in our "Stocks to Watch List" which gives investors a
quick reference to those stocks which may provide the best buying opportunities
to the long side in the weeks ahead. Each stock in
our "Stocks to Watch List"
includes specific Buy Prices, Stop Loss Prices (very important) and projected
Target Prices. Signup
Today for a "Free" Trial Membership
and see which Stocks to Buy or Short in the weeks ahead
Amateur-Investor.net
|
