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Weekend Stock Market Analysis

(7/2/05)

The major averages pretty much traded sideways this past week after coming under selling pressure the previous week.  The price of Crude Oil ran into resistance near its previous early April high near $60 and pulled back some this week which may have helped the major averages stabilize somewhat.  The price of Crude Oil did hold support at its 10 Weekly EMA (blue line) near $56 so that will be a key support level to watch over the next few weeks.  If the price of Crude Oil holds support near its 10 Weekly EMA and then rallies above the $60 level this could eventually lead to a rise up to around the $70 level at some point which would likely have a negative affect on the major averages in the longer term.  Meanwhile if the price of Crude Oil fails to hold support at its 10 Weekly EMA then its next support area would be at its rising 40 Weekly EMA (green line) near $50.  If this occurs then this could have a positive affect on the major averages in the longer term.  

As far as the major averages the Dow in the near term has held support at its upward sloping trend line (brown line) originating from the April low but encountered resistance this week just above 10400 which is where its 10 Weekly EMA (blue line) and 40 Weekly EMA (green line) are near.  Meanwhile the Dow is still exhibiting a potential bearish looking Head and Shoulders Top pattern from a longer term perspective.  I see two possible scenario's occurring in the weeks ahead.  If the Dow can break solidly above the 10400 level then it may rally back to its 2nd Shoulder near 10650.  On the other hand if the Dow drops below its upward sloping trend line near 10250 then I would expect it to retest its April low near 10000 (point A).  

The Nasdaq held support this week at its 10 Weekly EMA (blue line) near 2040 however it still has a major upside resistance area near 2100 which has been the case since last February.  If the Nasdaq can hold support at or above its 10 Weekly EMA in the weeks ahead and eventually break through the 2100 resistance area then it could eventually rally up to its previous early January high near 2190 at some point.  Meanwhile if the Nasdaq comes under more selling pressure and drops below the 2040 level then its next area of support would be near 2020 which is where its 40 Weekly EMA (green line) and 38.2% Retracement Level (calculated from the August 2004 low to the early January high) come into play at.  If the Nasdaq failed to hold support near 2020 then its next potential area of downside support would be near 1970 which is at its 50% Retracement Level (point B).   

Once again a key sector to keep an eye on in the weeks ahead is the Semiconductors.  The Semiconductor Holders (SMH) are still exhibiting a potential Double Bottom pattern and have developed a 4 week Handle (H) while holding support above their 40 Weekly EMA just above 33.  In the weeks ahead I see two possibilities for the SMH's.  The first scenario would be for them to break out of their Handle and above the 36 level leading to an eventual move up to the 39 area which is at their 61.8% Retracement Level (calculated from the January 2004 high to the September 2004 low).  If this scenario occurred then this would have a positive affect on the Nasdaq.  On the other hand if the SMH's failed to hold support at their 40 Weekly EMA near 33 while developing their Handle then this would likely lead to a retest of their April low near 30 which would have a negative affect on the Nasdaq.

As for the S&P 500 it held support this week near its 10 Weekly EMA (blue line) around 1190.   However like the Dow its exhibiting a potential bearish looking Head and Shoulders Top pattern as well.  If the S&P 500 can hold support at its 10 Weekly EMA and attempts to rally look for resistance at its 2nd Shoulder near 1120.  Meanwhile if the S&P 500 comes under more selling pressure and drops below 1190 then its next area of support would either be at its 40 Weekly EMA (green line) near 1170 or at its long term upward sloping trend line (brown line) originating from its August 2004 low near 1160.  

Finally for the first 6 months of 2005 the Oil related stocks have been the best performers as shown by the table below as 6 out of the top 10 performing sectors are Oil related.  

	Total
Sector	Return
	1/1/05-7/1/05
Oil&Gas-Canadian Explo/Prod	44.9%
Food-Confectionery	36.4%
Oil&Gas-Drilling	36.1%
Oil&Gas-Canadian Integrated	34.7%
Consumer-Misc Products	34.6%
Oil&Gas-Refining/Mktg	32.9%
Oil&Gas-U S Explo/Prod	29.7%
Retail-Department Stores	28.7%
Oil&Gas-U S Integrated	28.5%
Retail-Drug Stores	28.2%

If this trend continues the rest of this year then focus on those Oil stocks which have developed a favorable chart pattern.  Here is an example of a stock (GMRK) from our watch list which has formed a Double Bottom pattern and is near the upper end of its 4 week Handle (H).

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