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Weekend Stock Market Analysis

(7/10/04)

One of the key sectors to watch is the Semiconductors as the Semiconductor Holders (SMH) so far have held support near their longer term 38.2% Retracement Level  (calculated from the October 2002 low to the January 2004 high) around the 34.25 area.  Meanwhile another thing I'm noticing is that the upward and downward sloping trend lines of the %K Line (solid red lines) associated with the Slow Stochastics are narrowing which is a signal that a substantial move in one direction or the other is increasing.   If the SMH's fail to hold support near the 34.25 area then look for an eventual drop back to their longer term 50% Retracement Level which is around 31.50 (point A).   

Meanwhile if the SMH's can hold support near 34.25 and continue to rally then I would expect upside resistance to occur at their 50 Day EMA (blue line) near 37. 

Another sector I'm watching is the Brokers (XBD) which are testing a key support area near 120.  If the XBD's are unable to hold support near 120 then their next level of downside support would be at their longer term 38.2% Retracement Level (calculated from the October 2002 low to the February 2002 high) near 117 (point B).  Meanwhile a break below 117 would likely to a drop back to the XBD's 50% Retracement Level near 107 (point C).  Thus it is going to be important for the XBD's to not drop below the 117 area in the days ahead.

Meanwhile one discouraging sign is the Oil Index (OIX) which is trying to move high after breaking out of a longer term "Cup and Handle" pattern a few weeks ago.  If the OIX continues to follow through to the upside this could have a negative affect on the market.

As far as the major averages the Dow so far has held support above its 200 Day EMA (purple line).  If we see some type of oversold bounce continue next week I would look for upside resistance in the 10275 to 10300 range which coincides with the Dow's 100 Day EMA (green line) and 50 Day EMA (blue line).  Meanwhile if the Dow reverses to the downside instead and breaks below 10170 (point D) then look for it to drop back to its 200 Day EMA near 10080.  In the longer term if the Dow is unable to hold support at its 200 Day EMA then I would expect a retest of its May low near 9850 (point E).

The Nasdaq has found short term support at its 200 Day EMA (purple line) near 1935.  If we see some follow through to the upside next week I would look for upside resistance to develop near 1980 which is where the Nasdaq's 100 Day EMA (green line) and 50 Day EMA (blue line) are converging at.  Meanwhile if the Nasdaq fails to hold support near 1935 and continues lower then expect an eventual retest of the May low near 1870 (point F). 

As far as the S&P 500 so far it has held support above its 200 Day EMA (purple line).  If the S&P 500 bounces from oversold conditions next week I would expect upside resistance to develop at its 50 Day EMA (blue line) near 1123.  Meanwhile if the S&P 500 continues its downward trend look for support at its 200 Day EMA near 1093.  In the longer term if the S&P 500 fails to hold support at its 200 Day EMA then I would expect it to retest its May low near 1077 (point G).

Meanwhile looking at the Volatility Index (VXN) which tracks the Nasdaq 100 shows that it has gotten somewhat overextended from its 10 Day Moving Average (MA) so it's possible it may briefly revert back to its 10 Day MA which is currently approaching 21.  If this does occur then we may see some type of oversold rally occur next week for a few days.  A similar situation occurred in early May as the VXN pulled back to its 10 Day MA (points H to I) and the Nasdaq rallied for a few days (points J to K).  However also notice that the VXN eventually turned higher again (points I to L) as the Nasdaq trended lower (points K to M).

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