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Amateur Investors Performance through 7/7/06
Long Term Strategy:  +11%
Short Term Strategy:  +29%
 

Weekend Stock Market Analysis

(7/8/06)

The market failed to follow through this week after the big upward move which occurred on June 29th.  The Dow has encountered resistance just below where the last brief oversold rally stalled out at in early June near the 11275 area and has dropped back below its 50 Day EMA (blue line).  If the Dow continues lower in the near term look for support either at its 200 Day EMA near 10980 or at the low made seven trading days near 10890 (point A).  If the Dow were to drop below the 10890 level then look for a retest of the mid June low near 10700 (point B).    

The Nasdaq encountered resistance this week at its 50 Day EMA (blue line) near 2190 and looks like it may eventually retest the mid June low near 2065. 

Meanwhile a longer term chart of the Nasdaq shows that the 2065 area is at the Nasdaq's 50% Retracement Level (calculated from the Summer 2004 low to the April 2006 high).  If the Nasdaq were unable to hold support at the 2065 level then the next area of support would either be at the October 2005 low near 2025 (point C) or at its 61.8% Retracement Level near 1990 (point D).

As talked about in the past future movement in the Nasdaq will likely depend on what the Semiconductor sector does.  A longer term chart of the Semiconductor Index (SOX) shows it completed a bearish Double Top pattern in early January after encountering resistance at its previous high made in early 2004 near 560 (point E).  If the SOX is unable to hold support at the low made in October of 2005 near 420 and continues its downward trend then it may eventually drop back to 350 to 380 range.

The 380 level (point F) is very close to the SOX's 50% Retracement Level (calculated from the September 2002 low to the highs made in the early part of 2004 and 2006) while the 350 level (point G) is near the SOX's 61.8% Retracement Level.  If the SOX does eventually drop back to the 350 to 380 range at some point then Nasdaq will likely continue downward as well.

As for the S&P 500 it stalled out this week near the 1280 level and has dropped back below its 50 Day EMA (blue line).  The key support level to watch in the near term is at its 200 Day EMA (green line) near 1260.  If the S&P 500 breaks below the 1260 level then look for a drop back to where it found support at a few weeks ago near 1237 (point I). 

Finally for those watching the price of Crude Oil it appears it has developed one of two possible chart patterns.   One could say the price of Crude Oil has developed a bullish Double Bottom pattern and may now consolidate for a few weeks before making another significant move higher which may have a negative affect on the market.

Meanwhile one could also argue the price of Crude Oil is developing a bearish Double Top pattern as well which could eventually lead to a significant sell off.  If this occurred then this may have a positive impact on the market.  

If the price of Crude Oil eventually makes another move higher then the Oil sector stocks may continue to do well.  For example TRMA from our current "Stocks to Watch List" has developed a potential Double Bottom pattern and we will be watching to see if it can develop a constructive Handle over the next few weeks before attempting to make another move higher.

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