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Weekend Stock Market Analysis

(1/10/04)

As I mentioned in the Mid Week Analysis the market is due for some type of correction/pullback and it appears after Friday's action that we could be in the beginning stages of one.  The Nasdaq has become stretched significantly away from its 50 Day EMA (blue line) and is also very overbought, based on the stochastics, which shows the %K line well above 80 (point A).  Meanwhile since last March when the %K line has risen well above 80 (points A) and the Nasdaq has gained over 150 points this has usually led to some type of correction/pullback varying from 70 to 130 points.  Thus it wouldn't be too surprising if the Nasdaq drops at least 70-80 points from the intra day high made on Friday near 2113, in the short term, as this has been a common theme since last March. 

If the Nasdaq does drop around 80 points or so this would take it back to its 38.2% Retracement Level near 2030 (calculated from the December low to the intra day high on Friday).

In the longer term view the Nasdaq did break out of its 3 month trading range just over a week ago after holding support above its 20 Weekly EMA (green line).  However as I have mentioned before there was a potential upside resistance area near 2100 which corresponded to the Nasdaq's intra day high in early 2002 (B).  As mentioned above if the Nasdaq does undergo a correction/pullback I would look for initial support around the 2030 level.

Meanwhile the Dow also had a reversal day on Friday and if it goes through a correction/pullback I would look for initial support near 10350 which is close to its 23.6% Retracement and 20 Day EMA (blue line).  If the Dow drops below 10350 then the next support area would be in the 10100 to 10200 range which corresponds to its 38.2% Retracement (10200) and 50 Day EMA (green line) near 10100. 

Looking at a longer term chart of the Dow shows it has gotten stretched way above its 10 Weekly EMA (same as 50 Day EMA on a daily basis) much like occurred  last June (point C).  This was then followed by a 450 point drop over the next week and a half.  If the Dow undergoes a similar drop this would take it down to around 10150 or so which is close to its 10 Weekly EMA (blue line). 

As or the S&P 500 if it also goes through a correction/pullback in the near term look for initial support in the 1095 to 1100 range which coincides with its 38.2% Retracement Level (1095) and 20 Day EMA (near 1100).   If the S&P 500 drops below 1095 then its next level of support would be around 1080 which is where its 50 Day EMA (green line) and 50% Retracement Level come into play at.

Considering how well the major averages have performed since late November some type of correction/pullback shouldn't be much of a surprise and could eventually clear the way for another move higher down the road.  Also keep in mind two heavyweights in the technology sector (Intel and Yahoo) report earnings next week which could have substantial affect on the market and lead to a lot of volatility as the market overreacts to their earnings reports.

Finally keep focusing on those stocks which are showing increasing Sale and Earnings Growth that are developing a favorable chart pattern as those stocks will be the ones to watch in 2004.  An example of one our featured stocks in 2003 that did very well was RIMM.  

Notice how RIMM began exhibiting strong Sales and Earnings Growth during the past 2 quarters (highlighted in red) as it was developing a longer term Cup and Handle pattern.  RIMM then broke out of its 10 Week Handle in December accompanied by strong volume and then quickly doubled in price over a short period of time.

How can a Premium Membership to amateur-investor.net benefit you as an investor?  We focus on stocks which are exhibiting favorable Sales and Earnings Growth that have developed a favorable chart pattern such as a "Cup and Handle", "Double Bottom" or "Flat Base".  These stocks are then included in our "Stocks to Watch List" which gives investors a quick reference to those stocks which may provide the best buying opportunities in the weeks ahead.  Each stock in our "Stocks to Watch List" includes specific Buy Prices, Stop Loss Prices (very important) and projected Target Prices.  

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