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Weekend Stock Market Analysis

(7/9/05)

Before the market opened on Thursday the Dow Futures at one time were down over 200 points, Nasdaq Futures -35 points and S&P 500 Futures -15 points due to the terrorist attack in London.  At that point it looked like the market was in big trouble however none of the major averages dropped nearly as much at the open as the Futures suggested they would and after the initial gap down they then rallied strongly the rest of the day into Friday.  

The Nasdaq which held support near its 10 Weekly EMA (blue line) the past two weeks broke above a key resistance level on Friday near 2100.  If the Nasdaq follows through to the upside then its next significant area of upside resistance would be at its early January high near 2190.   

As I have mentioned over the past few weeks the Semiconductors are a key sector to watch that will have an impact on the Nasdaq.  The Semiconductor Holders (SMH) are near the top of their 5 week Handle (H) after previously forming a potential Double Bottom pattern.  If the SMH's can break out of their Handle then I would expect them to rise up to either their 50% or 61.8% Retracement Levels which were calculated from their January 2004 high to their September 2004 low.  The SMH's 50% Retracement Level is near 37 while their 61.8% Retracement Level is around 39.  If the SMH's do eventually rise up to the 37 to 39 range this should help the Nasdaq rally back to the 2190 level mentioned above.

As far as the Dow it found support last week at its upward sloping trend line (brown line) originating from the October 2004 low just below 10200 and then rallied strongly on Friday.  If the Dow continues to rally I would look for significant upside resistance to occur in the 10650 to 10700 range which corresponds to its mid June high and longer term 23.6% Retracement Level (calculated from the October 2004 low to the early March high).

One thing the Dow and the market in general will still have to deal with in the future is the price of Crude Oil.  The price of Crude Oil has been in an up trend since the middle part of 2003 and has had an affect on the Dow.  Since the middle part of 2004 when the price of Crude Oil rise above $30 the Dow has really gone nowhere and has been in a very choppy trading range with its high near 11000 and the low around 9700.  Also as I have stated before the price of Crude Oil and the Dow have pretty much traded in opposite directions of each other.  When the price of Crude Oil has rallied (points A to B) the Dow has dropped (points C to D) and when the price of Crude Oil has dropped (points B to A) the Dow has rallied (points D to C). 

Thus if this pattern continues to persist future movements in the Dow may hinge on what the price of Crude Oil does over the next several weeks.  If the price of Crude Oil continues higher and makes a an eventual run up to $70 or above in the longer term this would likely have a negative affect on the Dow.  However if the price of Crude Oil were to top out in the lower $60's and then sell off this could have a positive affect on the Dow in the weeks ahead.   

The S&P 500 is still exhibiting a potential Head and Shoulders Top pattern however if can rise above its 2nd Shoulder near 1220 then this would negate the potential bearish looking pattern.  Thus it will be interesting to see what happens near the 1220 level.  If the S&P 500 were able to break above its 2nd Shoulder then it would likely rally up to its early March high near 1230.

With earnings season picking up over the next few weeks and the threat of more terrorist activity things could be rather volatile in the market either to the upside or downside.

If the market is able to follow through from its strong up day on Friday focus on those stocks that have developed a favorable chart pattern.  During the past year DNA has formed a couple of 4 Week Flat Bases (FB) before moving higher and is currently developing a 6 week Flat Base.

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