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Weekend Stock Market Analysis

(5/14/05)

Of the three major indexes the Nasdaq is starting to act better than the Dow or S&P 500 which is a shift from earlier in the year when the Nasdaq peaked in early January and began selling off while the Dow and S&P 500 continued higher and didn't put in a top into early March.

Despite the recent strength in the Nasdaq it's approaching a significant upside resistance area around 2000 which corresponds to its 200 Day EMA (green line) and downward sloping trend line (solid brown line) originating from the early January high.  If the Nasdaq can break solidly above the 2000 area this could signal a change in its longer term direction which has been basically downward since early January.  Meanwhile if the Nasdaq is unable to break above the 2000 level and begins to come under renewed selling pressure this would likely lead to a retest of its late April low near 1890 (point A).  

There are two sectors to watch which may have an impact on the Nasdaq in the weeks ahead.  The first is the Semiconductors as the Semiconductor Holders (SMH) have been rallying of late after finding support near the 30 level (point B).  The SMH's ended the week by closing just above their 40 Weekly EMA (blue line) near 33.  If the SMH's continue to rally this may help the Nasdaq as well.   Meanwhile look for upside resistance to occur near 35 which is where the SMH's have stalled out twice before since last October (points C) and corresponds to their longer term 38.2% Retracement Level (calculated from the October 2002 low to the early 2004 high). 

Meanwhile another sector to keep an eye on is the Biotechs (BTK).  As I mentioned in the Mid Week Market Analysis the Biotechs have developed a longer term Symmetrical Triangle pattern as their downward and upward sloping trend lines (solid black lines) are converging.  This type of pattern usually signals that a substantial move in one direction of the other is nearing.  If the Biotechs can break solidly above the 560 level then this would have a positive affect on the Nasdaq.  However if the Biotechs break strongly below 480 then this would likely have a negative affect on the Nasdaq.

As far as the other two major indexes the Dow encountered strong upside resistance near 10400 early in the week which corresponded to its 50 Day EMA (blue line) and 200 Day EMA (green line) and then got sold off the rest of the week.  The Dow has a key short term support level near 10000 which corresponds to its 76.4% Retracement Level (calculated from the October 2004 low to the early March high).  If the Dow fails to hold support near 10000 then its next major support area would be at its October 2004 low near 9700 (point D).  

As for the S&P 500 it stalled out near 1180 early in the week and also came under selling pressure the rest of the week.  The S&P 500 has a key short term support level near 1137 (point E) which was the mid April low.  If the S&P 500 fails to hold support near 1137 then its next support level would be around 1125 (point F) which corresponds to its 61.8% Retracement Level (calculated from the August 2004 low to the early March high). 

For those watching the price of Crude Oil the prices continue to drop and a key support level exists near 48 which corresponds to its 40 Weekly EMA (blue line).  We saw the same type of action in late 2004 when the price of Crude Oil sold off and dropped back close to its 40 Weekly EMA (points G to H).  This was then followed by a strong rally from January through March (points H to I).  Thus the question remains what will happen this time if the price of Crude Oil drops back to its 40 Weekly EMA.  Will the price of Crude Oil find support near 48 and then rally strongly like occurred earlier in the year or will it break below 48 leading to a much bigger drop back to its late 2004 levels in the lower 40's?  

Finally although the market has been frustrating for most investors so far in 2005 continue to be patient and maintain a list of stocks which are holding up the best and developing a favorable chart pattern.

A current example of a stock we are watching from our database is ASF which has formed the right side of a 1 year Cup.  What we would like to see over the next few weeks is for ASF to develop a constructive Handle to complete a "Cup and Handle" pattern before attempting to move higher.

Signup today for a "Free" 2 Week Trial Membership  and have access to our Stocks to Watch List which provides a list of Stocks that are exhibiting a favorable Chart Pattern such as the "Cup and Handle", "Double Bottom" and "Flat Base".  Also you will receive our Daily Breakout Report by email which Alerts you to Stocks that are breaking out of a favorable Chart Pattern from our Stocks to Watch List.  

Amateur Investors Performance versus the Major Averages (1/1/05-5/13/05)

                                                                  Amateur Investors:    +13.9%
                                                                  Dow:                               -6.0%
                                                                  Nasdaq:                          -9.4%
                                                                  S&P 500:                        -4.8%

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