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Weekend Stock Market Analysis

(2/19/05)

I believe the major averages are getting ready to make a substantial move in one direction or the other before much longer.  This is based on the fact that the Volatility Index (VIX) has been trading nearly sideways for three weeks (point A) as the volatility has contracted.  Thus one of two things are likely to happen.  Either the VIX will make another significant move downward like occurred last December (points B to C) which lead to a sharp upward move in the S&P 500 (points D to E) or the VIX is going to make a significant move upward (points F to G) leading to a sharp downward move in the S&P 500 (points H to I) like occurred  in mid January. 

At this time it's not clear which direction the VIX may move but I don't think it's going to move sideways much longer.

As far as the major averages the S&P 500 has stalled out just below its early January high which was around 1218.  If the S&P 500 is unable to rally above its early January high and comes under selling pressure look for initial support at its 50 Day EMA (blue line) near 1190.  If the S&P 500 drops below 1190 then its next support area would be in the 1163 to 1172 range which corresponds to its 100 Day EMA (green line) and late January low (point J). 

Meanwhile if the S&P 500 is able to rally above its early January high near 1218 then its next major upside resistance area would be around 1255 (point K) which corresponds to its longer term 61.8% Extension Level (calculated from the 2000 high to the 2002 low).

Furthermore keep an eye on Banking Index (BKX) next week as its approaching a key support area near its 200 Day EMA (purple line) and upward sloping trend line (black line) originating from the May 2004 low.  What transpires near the 99 level in the BKX is going to have a significant impact on the S&P 500 as the Banks are heavily weighted in the index.  If the BKX can hold support at its upward sloping trend line and bounce strongly like occurred in late October (point L) then this would have a positive affect on the S&P 500.  However if the BKX breaks strongly below its upward sloping trend line this would spell trouble for the S&P 500. 

The Nasdaq has been encountering resistance near the 2100 level since mid January.  Once  again it wasn't able to break above this level this past week and then came under some selling pressure.  A key short term support level to watch in the Nasdaq is around 2040.  If the Nasdaq drops below 2040 this will likely lead to a retest of its late January low near 2010 (point M) which also corresponds to its 200 Day EMA (purple line).  Meanwhile if the Nasdaq holds support near 2040 and attempts to rally once again look for resistance near the 2100 area.  

As for the Dow it has stalled out near its early January high which was around 10870.  If the Dow is unable to break above its early January high and comes under more selling pressure look for initial support at its 50 Day EMA (blue line) near 10600.  If the Dow drops below 10600 then its next support area would be at its 100 Day EMA near 10500.

Meanwhile if the Dow can break strongly above its early January high near 10870 then its next major upside resistance area would be in the 11200 to 11300 range which corresponds to its highs made in 2001 (point N). 

Each week its important to notice which stocks are developing a constructive chart pattern as they will be the ones to focus on in the weeks ahead.   TIWI is a stock in our Top 100 List  which has just completed the right side of a 1 year Cup and now will need to work on developing a Handle over the next few weeks.

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