Signup today for a Premium Membership and save 50%
which includes our Stocks to Watch List and Daily Breakout Reports

  Weekend Stock Market Analysis

(12/4/04)

The big sell off in the price of Crude Oil this week helped the major averages rally.  However Crude Oil is approaching a major support level just below $42 which is at its 200 Day EMA (purple line) and is near its upward sloping trend line (solid black line).  Thus we could see an oversold bounce occur in the price of Crude Oil next week which could lead to some selling pressure in the major averages. 

Remember during the past year the price of Crude Oil and the Dow have been going in opposite directions.  When the price of Crude Oil has rallied (points A to B) the Dow has come under selling pressure (points C to D) and when the price of Crude Oil has fallen (points B to A) the Dow has rallied (points D to C).

As far as the major averages the Dow still remains in a longer term trading range that began last February when it peaked around 10750 (point E).  In the longer term if the Dow can break solidly above 10750 then this could lead to a move up to the 2001 high near 11300 (point F).  However in order for this to happen the price of Crude Oil may have to break strongly below the $42 level in the weeks ahead.

In the near term if we do see an oversold bounce occur in the price of Crude Oil and some selling pressure develops the Dow should find initial support in the 10400 to 10450 range which corresponds to its November low and rising 20 Day EMA (blue line).

As far as the Nasdaq it has been in a trading range this year between 1750 and 2150 and has rallied back to where it was when it peaked in late January (point G).  If the Nasdaq can break strongly to the upside out of this trading range in the weeks ahead then it could potentially rally up to the April 2001 high near 2300 (point H) which may act as the next significant level of upside resistance.

Meanwhile since breaking out in late October the Nasdaq has been holding support above its 20 Day EMA (blue line).  If some selling pressure does develop in the near term I would look for the Nasdaq to hold support at or above its rising 20 Day EMA which is currently just above 2080. 

The S&P 500 which had been stuck in a trading range between its longer term 38.2% and 50% Extensions Levels (calculated from the 2000 high to the October 2002 low) broke out in early November.  If the S&P 500 can follow through in the weeks ahead its next significant area of upside resistance resides at its 61.8% Extension Level near 1255 (point I).  

In addition a key sector to watch is the Banks (BKX) which are weighted heavily in the S&P 500.  Currently the BKX appears to be developing a "Cup and Handle" pattern.  If the BKX can break above the 104 level in the weeks ahead this would be a good sign for the S&P 500 and probably allow the S&P 500 to test the 1255 level. 

In the near the S&P 500 has been holding support above its rising 20 Day EMA (blue line) since late October while remaining in an up trend.  If some selling pressure does develop in the near term look for support at the S&P 500's 20 Day EMA which is currently around 1173.   

Some of you have asked when do you start to consider locking profits after a stock has broken out of a favorable chart pattern such as the "Cup and Handle".   One guide you can use once a stock has broken above its Pivot Point is placing a Trailing Stop just below its 10 Weekly EMA on a Weekly Chart or the 50 Day EMA on a Daily Chart to lock in profits once a stock potentially begins to breakdown.

NCX is a recent example of a stock in our Top 100 List which broke out of a "Cup and Handle" pattern last July accompanied by strong volume (point J) and has been trending higher for several weeks.    In the case of NCX as you can see below it has remained above its rising 10 Weekly EMA (blue line) while trending higher over the past several weeks.  Also it did pullback some in October on heavier volume (point K) as some selling pressure developed however as you can see it held support above its 10 Weekly EMA.  

Another example of a stock which broke out of a "Symmetrical Triangle" pattern last August was TZOO.  Notice how it has been finding support at its 10 Weekly EMA (blue line) while remaining in an up trend over the past several weeks.  Although the pullbacks in late September (points L to M) and mid November (points N to O) were dramatic TZOO still held support at its 10 Day EMA. 

Signup today for a 2 Week Trial Membership  and have access to our Stocks to Watch List which provides a list of Stocks that are exhibiting a favorable Chart Pattern such as the "Cup and Handle".  Also you will receive our Daily Breakout Report by email which Alerts you to Stocks that are breaking out of a favorable Chart Pattern from our Stocks to Watch List.  

Click Here to signup for a "Free" 2 Week Trial Membership

Amateur-Investor.net