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Weekend Stock Market Analysis

(5/22/04)

Although there has been some volatility over the past two weeks the major averages have essentially been trading sideways.  The Dow has been trading mainly between 9850 and 10050 the past few weeks and eventually it will probably make a significant move in one direction or the other.  If the Dow can break above 10050 then look for upside resistance around 10225 which is where its 50 Day EMA (blue line) and 100 Day EMA (green line) are converging at.  In the longer term if the Dow can rally above 10225 then it's next area of significant upside resistance would probably reside near 10450 which is along its developing downward sloping trend line (point A).  Meanwhile if the Dow breaks below 9850 it could quickly fall back to the low made last November near 9600 (point B).  In the longer term if the Dow breaks below 9600 then a drop back to its 38.2% Retracement Level near 9400 (calculated from the October 2002 low to the early 2004 high) is possible.

The Nasdaq has roughly been trading between 1880 and 1935 over the past two weeks.  If the Nasdaq can break above 1935 then look for initial upside resistance near 1975 which is where its 50 Day EMA (blue line) and 100 Day EMA (green line) come into play at.  In the longer term if the Nasdaq can break above 1975 then its next area of upside resistance would probably reside around 2030 which is along its downward sloping trend line (point C).  Meanwhile if the Nasdaq breaks below 1880 then its next major support area is around 1760 which is its longer term 38.2% Retracement Level calculated from the October 2002 low to the early 2004 high. 

The S&P 500 so far has held support near its 200 Day EMA (purple line) around 1080.  The S&P 500 has initial upside resistance in the 1115-1118 area which coincides with its 50 Day EMA (blue line) and 100 Day EMA (green line).  If the S&P 500 can break above 1118 then look for the next area of upside resistance near 1140 which is along its downward sloping trend line (point D).  Meanwhile if the S&P 500 breaks below 1080 look for a quick drop back to the 1055 area which was near the low made last December (point E).  In the longer term if the S&P 500 falls below 1055 its next major support area would reside around 1015 which is its 38.2% Retracement Level calculated from the October 2002 low to the early 2004 high.

As far as a few sectors the Semiconductor Holders (SMH) which tried to put in a bottom in early May have been encountering resistance near their 200 Day EMA (purple line) around 38.  If the SMH's can rally above 38 then look for additional upside resistance either at 39 which is the 100 Day EMA (green line) or around 40 which is along their downward sloping trend line (point E).  Meanwhile a key support level to watch is near 34.50 (point F).  If the SMH's break below 34.50 then this would likely lead to a drop back to their longer term 38.2% Retracement Level near 32 (calculated from the October 2002 low to the early 2004 high).. 

Meanwhile the Oil sector (XOI) which has been in a steady up trend since March of 2003 has started to pull back some over the past 2 weeks.  The key support level to watch over the next few weeks is around 580 which is close to the XOI's 20 Weekly EMA (green line) and longer term 23.6% Retracement Level (calculated from the March 2003 low to the recent high).  If the XOI breaks below 580 this would likely lead to a drop back to either its 40 Weekly EMA (purple line) near 555 or its longer term 38.2% Retracement Level just above 540.

For those of you following the Gold and Silver sector (XAU) it has found near term support at its longer term 50% Retracement Level near 78.  If the XAU continues to bounce I would look for upside resistance to develop at its 10 Weekly EMA (blue line) near 90.  Meanwhile if the XAU breaks below 78 then its next level of downside support would be at its longer term 61.8% Retracement Level near 70 (point G).

Last weekend I talked about the Bullish-Bearish Indicator starting to show signs that investors were slowly becoming pessimistic about the future of the market as the % difference between the Bearish and Bullish Investment Advisors was slowly decreasing.  Over the last several years when the % difference between the Bearish and Bullish Investment Advisors has approached zero or become negative (% of Bearish Advisors is greater than % of Bullish Advisors) then this has led to a some type of bottom (points H) followed by a decent rally.  Right now the % difference between the Bearish and Bullish Investment Advisors is around 17% but in late April its was around 28% so as I said above it has been slowly trending lower.   

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Performance (Long Strategy) vs Major Averages
(1/1/04-5/21/04)

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