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Weekend Stock Market Analysis

(6/12/04)

I'm watching the Volatility Index (VIX) very closely as a drop back to 14 or below could signal a nearing top in the market.  Remember the last three times the VIX has dropped to 14 or below (points A) this has been followed by some type of sell off of differing magnitudes (-3.4%, -6.0% and -6.0%) in the S&P 500.

As far as the major averages the Dow has rallied back to around its 61.8% Retracement Level near 10400 (calculated from the February high to the May low).  If the Dow can rally above 10425 it should be able to rise back to its April high near 10550 (point B).  Meanwhile if the Dow peaks around 10400 and comes under some selling pressure look for initial support around 10250 which is where its 50 Day EMA (blue line) and 100 Day EMA (green line) have converged at.  

The Nasdaq stalled out this past week near its downward sloping trend line around 2025 (solid gray line) established from the January high.  If the Nasdaq can break solidly above this trend line then look for a potential upward move to the 2060 (point C) to 2080 (point D) range which would be the next levels of upside resistance.  Meanwhile if the Nasdaq encounters selling pressure look for initial support either at  1975 which is where its 50 Day EMA (blue line) and 100 Day EMA (green line) have converged at or around 1960 (point E) which has been the June low so far.

A sector that will have a significant impact on the Nasdaq is the Semiconductors.  A look at the Semiconductor Holders (SMH) shows that their downward and upward sloping trend lines (solid black lines) are beginning to converge which tells me they are getting close to making a substantial move in one direction or the other.  Over the past few weeks the SMH's have been encountering resistance near their 100 Day EMA (green line) just below 39.  If the SMH's can break solidly above the 39 level this would be a Bullish sign with a possible rally up to their April high near 42 (point F) and would have a positive affect on the Nasdaq.   Meanwhile if the SMH's break below the 37 level then this will likely lead to an eventual retest of the early may low near 34.50 and thus have a negative affect on the Nasdaq.

The S&P 500 stalled out near the 1140 area this week.  If the S&P 500 rallies above 1140 it should be able to rise back up to its April high around 1152 (point G) or possibly as high as its May high near 1163 (point H).  Meanwhile if the S&P 500 tops out in the near term and comes under some selling pressure look for initial support in the 1115 to 1120 area which coincides with its 100 Day EMA (green line) and 50 Day EMA (blue line).  

One sector that will have a substantial affect on the S&P 500 is the Banking sector (BKX).  The BKX has rallied back to its 61.8% Retracement Level near 98.50 (calculated from the March high to the May low).  If the BKX can break solidly above 98.50 look for a potential rally up to the 102 level which would have a positive affect on the S&P 500.  Meanwhile a key support area to watch in the BKX is just below 97 which is where its 50 Day EMA (blue line) and 100 Day EMA (green line) have converged at.  If the BKX falls below 97 this could lead to a drop back to its 200 Day EMA (purple line) just below 95 which would have a negative affect on the S&P 500. 

Finally continue to watch the Oil sector (OIX) closely as well.  As I mentioned a few weeks ago the OIX had formed the right side of a 3 year Cup and it has now developed a 5 week Handle (H).  If the OIX breaks above the 355 level (Pivot Point) then this would likely lead to selling pressure in the market as rising Oil Prices would have a negative impact on our economy.  Meanwhile the key support level to watch in the weeks ahead is near 335 which is at the bottom of the 5 week Handle and is close to the OIX's 20 Weekly EMA (blue line).  If the OIX breaks below 335 this would likely lead to a drop back to its 40 Weekly EMA near 320 and negate the Bullish looking "Cup and Handle" pattern and potentially have a positive affect on the market.  

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