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Weekend Stock Market Analysis
(8/5/06)
Next week there is a Federal Reserve Policy meeting and more than likely this
meeting will have an impact on the major averages. The major averages have
rallied over the past few weeks leading up to this meeting so it's going to be
interesting to see how they react to any decision made by the Federal
Reserve. The Dow has to developed a potential Double
Bottom pattern and briefly rose above the 11280 level on Friday which is where
it had previously stalled out at in early June (point A). Since mid July
the Dow has risen over 600 points so there is a good chance we could see a
pullback develop before much longer. If a pullback does develop I would
look for support to occur near the Dow's 50 Day EMA (blue line) which is
currently approaching the 11100 level. 
The Nasdaq has had a more difficult time rallying over the
past few weeks but has risen just over 100 points. Meanwhile since
early May the Nasdaq has been encountering resistance either at its 200 Day EMA
(green line) or 50 Day EMA (blue line) while making a series of lower
lows. The current pattern looks similar to what occurred from mid June
through early July when the Nasdaq rallied just over 100 points but then stalled
out at its 50 Day EMA (points B to C) which was then followed by more selling
pressure. The question is will a similar pattern develop in the near term
with the Nasdaq eventually dropping back to or below its mid July low near
2010. 
As for the S&P 500 just like the Dow it may be developing
a possible Double Bottom pattern as well although the 2nd bottom didn't quite
drop back to its previous low made in mid June. The S&P 500 has
rallied around 65 points since mid July and has risen just above where it
stalled out at in early June near 1290 (point D). In the near term if we
do see a pullback develop in the S&P 500 look for support to occur at its 50
Day EMA (blue line) around the 1265 area. 
Meanwhile if we take a look at a longer term chart of the
S&P 500 so far it's acting similar to what occurred in the Spring and Summer
of 2004. Back in 2004 the S&P 500 peaked in March and then developed a
similar potential Double Bottom pattern. However the S&P 500 then
stalled out in June which was eventually followed by more selling pressure
before the real bottom occurred in August (points E to F). Thus it
will be interesting to see if the S&P 500 takes a similar path in the weeks
ahead. 
Finally continue to keep an eye on those
stocks which are holding up the best and forming a favorable chart pattern as
they may eventually become the next market leaders. For example EGN from
our Top 100 Stocks List has just completed the right side of a 10 month Cup and
now needs to develop a constructive Handle over the next few weeks to complete a
Cup and Handle pattern. 
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