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Weekend Stock Market Analysis
(3/27/04)
From a longer term perspective all three major averages so far
appear to be exhibiting a corrective 4th Wave for those that follow Elliot Wave
Theory. A brief example of a what an Elliot 5 Wave Pattern looks like is
shown below.
Notice how Waves 1,3 and 5 are upward moves with Wave 3 lasting
the longest while Wave 5 is the shortest. Meanwhile also notice that Waves
2 and 4 are corrective Waves which only last for a brief period of time before
the upward trend continues. Also notice that once the 5 Wave pattern
completes itself that this is followed by a longer term correction.
Now looking at the major averages you can see that so far iy appears
they are just going through a normal 4th Wave correction if they can hold
support at key longer term support levels which are near 9900 (Dow), 1890 (Nasdaq)
and 1065 (S&P 500).
The 9900 level in the Dow is where its 40 Weekly EMA (green
line) and longer term 23.6% Retracement Level (calculated from the October 2002
low to the early 2004 high) reside at. If the Dow can hold support at or
above this level then this could eventually lead to the final upward moving 5th
Wave with the potential to rally back to or above its high made just over a
month ago near 10800. Meanwhile if the Dow breaks below the 9900 area look
for a drop back to its 38.2% Retracement Level near 9400 (point A) in the longer
term.
As far as the Nasdaq it found support last week near 1890 which
was at its 40 Weekly EMA (green line) and near its longer term 23.6% Retracement
Level. If the Nasdaq can remain at or above the 1890 level then there is
still the potential for it to undergo one more upside move to complete its 5
Wave pattern which would take it back to its previous high in January near 2160
or slightly above it. Meanwhile if the Nasdaq drops below the
1890 level then look for a drop back to its 38.2% Retracement Level near 1760
(point B) in the longer term.
The S&P 500 so far has remained above its key longer term
support level near 1065 which coincides with its 40 Weekly EMA (green line) and
longer term 23.6% Retracement Level. As long as the S&P 500 can remain
at or above 1065 it has the potential to rally back to or above its previous
high made a month ago near 1160. Meanwhile if the S&P 500 breaks below
1065 then that would likely lead to a drop back to its 38.2% Retracement Level
near 1015 (point C) in the longer term.
Now let's look at the major averages from a shorter term
perspective. The Dow found support last week near 10000 and then rallied
back to its shorter term 38.2% Retracement Level near 10260 (calculated from the
mid February high to the recent low). If the Dow can rally above 10260
next week I would look for the next area of upside resistance around 10350
(point D) which coincides with its 50 Day EMA (blue line) and 50% Retracement
Level. Meanwhile if the recent rally from an oversold condition fails to
follow through to the upside next week then look for initial support back around
10000 (point E).
The Nasdaq held support last week just above its 200 Day EMA
(purple line) near 1890 and then rallied back to its 100 Day EMA (green line)
near 1980 where it encountered some resistance. If the Nasdaq can break
above 1980 next week I would look for potential upside resistance either at its
50 Day EMA near 2000 or around 2025 (point F) which coincides with its 50%
Retracement Level and downward sloping trend line (solid red line) from the
January high. Meanwhile if the Nasdaq fails to follow through to the
upside then once again the key support level to the downside is at its 200 Day
EMA near 1890.
As far as the S&P 500 it found support last week near 1090
and then rallied up to its 38.2% Retracement Level (calculated from the early
March high to the low last week) near 1115 where it encountered some resistance on Friday. If the S&P 500 tries to rally further next week and
rises above 1115 I would look for the next area of upside resistance in
the 1122 (50 Day EMA) to 1125 area (50% Retracement Level). Meanwhile if
the S&P 500 fails to rally next week look for initial support once again
near 1090 (point G).
Looking at the Semiconductors the Semiconductor Holders (SMH)
found support near 37 last week which was below their 200 Day EMA (purple
line). The SMH's have quite a bit of near term resistance in the 40 to
40.50 area which is where their 50 and 100 Day EMA's and 38.2% Retracement Level
(calculated from the Janaury high to the recent low) come into play at. If
the SMH's can break above the 40.50 area next week look for additional
resistance near 41.25 (Point H) which is where their 50% Retracement Level and
downward sloping trend line (solid red line) are at. Meanwhile if the
SMH's fail to rally next week and reverse to the downside look for support
either at their 200 Day EMA near 38 or at their previous low near 37.
As mentioned in the beginning if we see one more sustained
upward move to complete the Elliot 5 Wave pattern start making a list of stocks
which are developing a favorable chart pattern such as the "Cup and
Handle" pattern. During the past 8 weeks MKTW has been holding up
well despite the market undergoing a correction and has been developing a
"Handle" (H) after forming the right side of a longer term
"Cup". This is one type of chart pattern you should be looking
for before a stock attempts to breakout.
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