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Weekend Stock Market Analysis

(5/29/04)

The major averages have continued to bounce from oversold conditions which began a few weeks ago.  The Dow has rallied back to around the 10225 area which is where its 50 Day EMA (blue line), 100 Day EMA (green line) and 38.2% Retracement Level (calculated from the February high to the low made a few weeks ago) reside at.  In the near term the Dow has become somewhat overbought as the Slow Stochastics show that the %K Line has risen above 90 (point B) thus we may see a little bit of selling pressure develop next week.   If the Dow does encounter some resistance in the 10225 area I would look for short term support around 10100.  Meanwhile if the Dow does break above 10225 its next upside resistance area will probably come into play around the 10400 level (point A) which corresponds to its downward sloping trend line (red line) and 61.8% Retracement Level.   

The Nasdaq has rallied around 100 points during the past two weeks and has risen back above its 50 Day EMA (blue line) and 100 Day EMA (green line).  However on a short term basis it has become overbought as the Slow Stochastics show the %K Line has risen above 90 (point C) as well.  If the Nasdaq does come under some selling pressure next week I would look for initial support at its 50 Day EMA (blue line) just above 1960.   Meanwhile if the Nasdaq can break above its 50% Retracement Level near 2010 (calculated from the January high to the mid May low) then it will probably rally back to around the 2040 area (point D) which coincides with its downward sloping trend line (red line) and 61.8% Retracement Level.  

The S&P 500 has rallied around 40 points since finding support at its 200 Day EMA (purple line) a few weeks ago and has risen back above its 50 Day EMA (blue line).  Just like the Dow and Nasdaq the Slow Stochastics show that the S&P 500 has become somewhat overbought in the short term as the %K Line has also risen above 90 (point E).   If the S&P 500 stalls out an comes under some selling pressure next week look for initial support at its 100 Day EMA (green line) just above 1110.   Meanwhile if the S&P 500 can break above the 1130 area which corresponds to its 61.8% Retracement Level (calculated from the March high to the mid May low) then look for it to rally up to 1145-1150 range which is where it stalled out at in April.    

Also keep a close eye on the Volatility Index (VIX) as it has been trending lower again and is getting stretched away from its 10 Day Moving Average (blue line).  Over the past 6 months or so when the VIX has fallen to 14 or below (points E) this has led to some type of correction.   

As far as some sectors the Semiconductor Holders (SMH) are approaching a significant resistance area near 39.50 (point F) which is along their downward sloping trend line (black line).  Also as I have mentioned in the past since the SMH's peaked in early January they have typically rallied about 4 to 5 points (points G to H) while remaining in a downtrend.  Since making a bottom in early May the SMH's have rallied about 4 1/2 points so it will be interesting to see if they will stall out near the 39.50 area and then come under more selling pressure.  

Meanwhile the Oil Sector (OIX) appears to have formed the right side of a 3 Year Cup and could be in the early stages of developing a Handle.  The key support level to watch in the OIX is around the 330 area which is at its 20 Weekly EMA (green line).  If the OIX holds support at or above 330 this would keep its developing Handle intact.  However if the OIX breaks below 330 this would negate its Handle and likely lead to a quick drop back to its 40 Weekly EMA (purple line) near 315.  It seems lately the market has been fixated on the price of Oil so future market direction may depend on how the price of Oil acts in the weeks ahead.  If the OIX breaks above 355 this probably will have a negative impact on the market while if the OIX drops below 330 then this may have a positive affect on the market.

Finally for those following the Gold and Silver sector (XAU) the XAU which found support at its longer term 50% Retracement Level a few weeks ago after becoming oversold is now approaching a significant upside resistance area near 93.  The 93 level coincides with its 20 Weekly EMA (green line) and 40 Weekly EMA (purple line) and this is where the XAU may stall out and come under some selling pressure.

When looking for stocks to invest in focus on those that have good Sales and Earnings Growth which are developing a favorable chart pattern such as the "Cup and Handle".  HANS has done very well over the past several months after breaking out of a "Cup and Handle" pattern last October.

How can a Premium Membership to amateur-investor.net benefit you as an investor?   We focus on stocks which are exhibiting favorable Sales and Earnings Growth that have developed a favorable chart pattern such as a "Cup and Handle", "Double Bottom", "Flat Base" or "Symmetrical Triangle".  These stocks are then included in our "Stocks to Watch List" which gives investors a quick reference to those stocks which may provide the best buying opportunities to the long side in the weeks ahead.  Each stock in our "Stocks to Watch List" includes specific Buy Prices, Stop Loss Prices (very important) and projected Target Prices.   Our Performance so far in 2004 is shown below as compared to the major averages.

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