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Weekend Stock Market Analysis

(5/7/05)

Although it has been rather volatile the major averages have been able to follow through some to the upside after putting in a minor bottom a few weeks ago.   The Dow has run into some resistance near 10400 which is where its 50 Day EMA (blue line) and 200 Day EMA (green line) reside at.  If the Dow can break above the 10400 area then its next area of upside resistance would be in the 10500 to 10550 range which corresponds to its 38.2% Retracement Level (calculated from the October low to the early March high) and where it stalled out at in early April (point A).  Meanwhile if the Dow is unable to break above the 10400 area and then begins to sell off this would likely lead to an eventual retest of the mid April low near 10000 which is where it found support at its 76.4% Retracement Level.

The Nasdaq has rallied back to its 50% Retracement Level near 1970 (calculated from the August low to the early January high).  If the Nasdaq can break solidly above 1970 and its 50 Day EMA (blue line) then its next area of upside resistance would be in the 2000 to 2025 area which corresponds to its 200 Day EMA (green line) and 38.2% Retracement Level.  Meanwhile if the Nasdaq is unable to break above the 1970 level and then comes under more selling pressure this could eventually lead to a drop back to its 76.4% Retracement Level near 1855. 

The S&P 500 has rallied back to its 50 Day EMA (blue line) after putting in a short term bottom near 1137 (point C).  If the S&P 500 can break above 1180 its next area of upside resistance would at its 23.6% Retracement Level near 1190 (calculated from the August low to the early March high).  Meanwhile if the S&P 500 stalls out near its 50 Day EMA and comes under more selling pressure then look for support at its April low near 1137. 

For those watching the price of Crude Oil it tried to rally on Friday but still remains below its 50 Day EMA (blue line) near 53.50.  Once of two things may happen with the price of Crude Oil in the short term.  If the price of Crude Oil breaks above its 50 Day EMA near 53.50 then I would expect a rally up to the 55.50 area (point D).  Meanwhile if the price of Crude Oil stalls out near its 50 Day EMA and then comes under more selling pressure look for a drop back to its 200 Day EMA (green line) near 47.

As far as a longer term chart of Crude Oil, as you can see below, it has remained above its 40 Weekly EMA (green line) since 2003 while remaining in an up trend.  Thus I believe the key thing to watch in the weeks ahead is whether the price of Crude Oil will hold support at its 40 Weekly EMA or not which may have a significant impact on the major averages.

If the price of Crude Oil does hold support at its 40 Weekly EMA then this could eventually lead to another surge in Crude Oil prices which would likely have a negative affect on the major averages.  Notice how the price of Crude Oil held support near its 40 Weekly EMA (point E) in the latter half of 2004 after being sold off  hard from late October through early December.   This was then followed by a strong rally in the price of Crude Oil from January through March in which the price of Crude Oil rose from the lower 40's into the upper 50's.  

Meanwhile if the price of Crude Oil fails to hold support at its 40 Weekly EMA then this could signal a potential top with an eventual drop back to longer term Retracement Levels (calculated from the 2003 low to the 2005 high) which may have a positive affect on the major averages.  Crude Oil's 38.2% Retracment Level is around 45 while the 50% Retracement Level is near 41.

Finally although I know it can be frustrating when the market isn't acting well this is when you should really be paying close attention to those stocks which are holding up well and developing a favorable chart pattern.

As mentioned last weekend GILD from our Stocks to Watch List had formed the right side 7 month Cup and it's now beginning to develop a small Handle (H).    

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 (1/1/05-5/6/05)

                                                                  Amateur Investors:    +14.1%
                                                                  Dow:                               -4.1%
                                                                  Nasdaq:                          -9.5%
                                                                  S&P 500:                        -3.3%

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