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Weekend Stock Market Analysis

(2/21/04)

At this time it appears the market is going through a consolidation phase after the last leg upward.  The Dow appears to be developing a trading range (TR) between 10400 and 10750 over the past 4 weeks.

In the longer term the Dow has run into some resistance near its 76.4% Retracement Level (calculated from the early 2000 high to the October 2002 low).  Meanwhile as mentioned last weekend it appears the Dow has formed a Cup over the past 21 months and is currently developing a small 4 week Handle (H).  As long as the Dow can hold support above the 10400 level the Handle will remain intact.  

If the Dow breaks out of its "Cup and Handle" pattern in the weeks ahead it looks like the next level of upside resistance would be either at its 2001 high near 11350 (point A) or at its 2000 high which was just above 11700 (point B).

The Nasdaq has developed a trading range (TR) between 2010 and 2150 over the past 5 weeks.

In the longer term the Nasdaq also has formed the right side of a 2 year Cup and has developed a 5 week Handle (H).  As long as the Nasdaq can hold support above the 2000 level the Handle will remain intact.  If the Nasdaq can break out of its "Cup and Handle" pattern in the weeks ahead it appears the next level of upside resistance would be near 2350 (point C).

As for the S&P 500 it has been in a trading range (TR) between 1120 and 1160 over the past 4 weeks.

In the longer term the S&P 500 is encountering some resistance at its longer term 50% Retracement Level near 1160 (calculated from the early 2000 high to the October 2002 low).  Meanwhile just like the Dow the S&P 500 has also formed a 21 month Cup and is developing a small 4 week Handle (H).  As long as the S&P 500 can hold support above the 1120 area its Handle will remain intact.

If the S&P 500 can break out of its "Cup and Handle" pattern in the weeks ahead the next area of upside resistance appears to be around 1250 which is at the 61.8% Retracement Level.

Meanwhile I still think it's important to watch the Semiconductors over the next several days.  If the market is going to eventually make another move higher the Semiconductors are going to have to rally as well.  Right now the Semiconductor Holders (SMH) are once again near a critical support area near 40.50 which is at their 20 Weekly EMA (green line) and upward sloping trend line (black line).  If the SMH's fail to hold support near 40.50 then they could eventually retest their 40 Weekly EMA (roughly the same as 200 Day EMA) near 38 which would likely lead to additional selling pressure in the Nasdaq as well.  Thus it will be important for the SMH's to hold support around the 40.50 area in the near term.

For those of you following the Gold and Silver (XAU) sector the key support area to watch in the near term is at its 40 Weekly EMA (same as 200 Day EMA) near 93.  If the XAU fails to hold support near 93 then the next downside support area would be around 86 which is the 38.2% Retracement Level from the 2000 low to the high made in early January.  

From a longer term perspective the XAU has completed the right side of a 6 year Cup and is beginning to work on a small Handle (H) with the key support area once again near 93.  

If the major averages do break out of their "Cup and Handle" patterns in the weeks ahead are you prepared for it.  Right now you should be paying close attention to those stocks which have been holding up well of late and forming a favorable chart pattern.

Although the Semiconductors have been weak of late I have been paying close attention to those stocks in that sector which have been holding up well.  A recent example is MERX which has been working on a 5 week Handle (H) after forming the right side of a Cup.  If you don't believe the Institutional Money doesn't pay attention to longer term Retracement Levels as you can see below MERX ran into resistance right at its longer term 38.2% Retracement Level near $28.  

If MERX can eventually break out of its Handle in the weeks ahead my two potential target prices on it would be either at its 50% Retracement Level near $36 or at its 61.8% Retracement Level around $45.

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