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Weekend Stock Market Analysis

(8/20/05)

Both the Nasdaq and S&P 500 closed the week at key support levels and it will be interesting to see what transpires next week.  The Nasdaq has dropped back to its 50 Day EMA (blue line) near 2135 and one of two things will likely occur.  The first scenario would be for the Nasdaq to hold support at its 50 Day EMA near 2135 and then attempt to rally back to its previous high earlier this month around 2220.  Remember back in late June and early July (point A) the Nasdaq held support at its 50 Day EMA before resuming its up trend.  Meanwhile the second scenario would be for the Nasdaq to fail to hold support at its 50 Day EMA leading to a drop back to either its previous upside resistance area near 2100 or its 200 Day EMA (green line) which is currently around 2060. 

One sector to watch which may have an affect on the Nasdaq is the Semiconductors.  The Semiconductor Holders (SMH) so far have held support at their 50 Day EMA (blue line) near 36.  In addition the SMH's upward sloping trend line (black line) originating from the April low also comes into play at the 36 level as well.  Thus the 36 area is a key support area to watch over the next few weeks. 

If the SMH's can hold support near the 36 level and then attempt to rally then this would likely have a positive affect on the Nasdaq.  However if the SMH's fail to hold support near the 36 level then this could lead to a drop back to their 200 Day EMA (green line) near 34.20 which would likely have a negative affect on the Nasdaq. 

The S&P 500 has dropped back to its 50 Day EMA (blue line) near 1218 which is a key support level to watch.  Just like the Nasdaq I see two potential scenarios for the S&P 500.  If the S&P 500 can hold support near 1218 and then begins to rally it may rise back to its high made earlier this month around 1245.  Meanwhile if the S&P 500 breaks below the 1218 level then it may eventually drop back to its 200 Day EMA (green line) just below the 1190 area.     

As for the Dow since mid July it has been basically stuck in a trading range with resistance just above 10700 (point B) while remaining above its 200 Day EMA (green line) near 10475.  At some point the Dow may have two potential outcomes in the longer term.  First if the Dow can hold support at or above its 200 Day EMA and eventually break above the resistance area just above 10700 then this could lead to a rise up to the 10850 to 11000 range.  Meanwhile if the Dow is unable to hold support at its 200 Day EMA near 10475 then this could lead to a drop back to its upward sloping trend line (black line) originating from the October 2004 low near 10200.    

If the major averages especially the Nasdaq and S&P 500 can hold support at the levels mentioned above and then begin to rally again focus on those stocks which are breaking out of a favorable chart pattern.

During the past year DNA has been trending higher after breaking out of a series small Flat Bases (FB) while holding support above its 10 Weekly EMA (blue line).  Currently DNA has developed another Flat Base during the past 6 weeks while holding support above its 10 Weekly EMA.  Thus DNA would be a stock to watch if the major averages begin to rally again. 

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