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Weekend Stock Market Analysis

(6/5/04)

As talked about in last Weekend's Analysis the major averages had become somewhat overbought in the short term based on the Slow Stochastics as the %K Line had risen above the 90% level and were due for some type of pullback/consolidation.

The Dow has run into some resistance in the short term at its 50% Retracement Level near 10300 (calculated from the February high to the May low) but has been holding support near 10200 which is where its 50 Day EMA (blue line), 100 Day EMA (green line) and 38.2% Retracement Level resisde at.  What I will be watching for next week is either a rally above 10300 leading to a move up to the 10400 area which is at the Dow's 61.8% Retracement Level (point A) or a significant break below 10200 leading to a drop back to its 200 Day EMA (purple line) near 10000 (point B).  

The Nasdaq basically traded sideways this past week while finding support near 1960 (point C) and encountering resistance just below its 50% Retracement Level (calculated from the Janaury high to the May low) around 2000.  Next week I will be looking for two possible scenario's to develop.  Either the Nasdaq will rally above its 50% Retracement Level around 2010 leading to a move up to its 61.8% Retracement Level around 2040 (point D) or it will break below 1960 leading to a drop back to its 200 Day EMA (purple line) near 1920 (point E).    

The S&P 500 found support this past week at its 50 Day EMA (blue line) but encountered some resistance at its 61.8% Retracement Level around 1130 (calculated from the March high to the May low).   There are two scenario's I will be watching for over the next week or two in the S&P 500.  If the S&P 500 can rally above the 1130 area this could lead to an upward move back to the 1142 area (76.4% Retracement Level) or 1152 level (point F) which was the April high.   Meanwhile a key support area to watch in the S&P 500 is around 1110 (point G) which is near its 100 Day EMA (green line) and 38.2% Retracement Level.  If the S&P 500 breaks below 1110 then this would likely lead to a drop back to its 200 Day EMA (purple line) near 1085 (point H).

As far as a few sectors the market continues obsessed with the price of Oil.  In the near term the Oil Index (OIX) so far has remained above its 50 Day EMA (blue line).   If the OIH drops below its 50 Day EMA a key support level to watch is around 332 which is where it found support twice in the month of May (points I) and also corresponds to its 100 Day EMA (green line).  If the OIH  breaks below 332 this would likely lead to a more substantial drop back to its 200 Day EMA (purple line) near 315 (point J) which may act as a positive for the market in the longer term. 

The Semiconductor Holders (SMH) came under some selling pressure last week as they had become overbought on a short term basis as the %K Line associated with the Slow Stochastics had risen above 90 (point K).  The key level to watch next week is just below 37 as this is along the SMH's small upward sloping trend line (solid black line) from the early May low.  If the SMH's break below this trend line then look for an eventual retest of the early May low near 34.50 (point L) which will likely lead to additional selling pressure in the Nasdaq as well.  In order for the SMH's to be constructive in the longer term they will eventually have to break above the 39.25 area which is along their downward sloping trend line (solid brown line). 

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