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Weekend Stock Market Analysis
(11/12/05)
The major averages had another favorable week as the price of
Crude Oil continues to drop. As we have seen over the past few years when
the price of Crude Oil has undergone a correction (points A to B) this has been
followed by a rally in the Dow (points C to D). Currently the price of
Crude Oil has dropped back to a key support level at its 40 Weekly EMA (green
line) near 58. The question at this point is will the price of Crude Oil
hold support near 58 or will it continue to drop? If the price of Crude
Oil fails to hold support near its 40 Weekly EMA and continues lower then it may
drop back to where it made a bottom at in mid May in the lower 50's. If
this were to happen then I would expect the major averages to continue to rally
through the end of the year. 
As for the major averages the Dow is
now nearing a previous upside resistance area just above 10700. If the Dow
is able to break solidly above this resistance area then I would expect it to
eventually rally up to the 10900 to 11000 range by the end of the year.
Meanwhile if the Dow is unable to break above the 10700 level and stalls out
then I would expect some selling pressure to redevelop with it potentially
dropping back to its 10 Weekly EMA (blue line) just below
10500. 
Meanwhile if we look at a longer
term chart of the Dow it has been basically stuck in a longer term trading range
since early 2004 between 9700 and 11000. If the Dow were able to break
above the 11000 level then it could eventually rise up to where it stalled out
at in 2001 near 11400 (point E) at some point in 2006. 
The Nasdaq is now approaching its
previous high made in early August near 2220 and it wouldn't surprise me if it
runs into some resistance near 2220. As you may notice the Nasdaq is
acting rather similar to what occurred last April and May as it made a bottom in
late April and then rallied for 5 weeks (points F to G) before encountering
resistance near 2100 in late May. The Nasdaq then eventually broke above
the 2100 resistance area in early July and then continued higher until early
August (points H to I). Thus if we see a similar pattern develop it's
possible the Nasdaq could stall out near 2220 and then begin to move sideways
for 2 to 4 weeks while holding support above its 10 Weekly EMA (blue line)
before making another higher as we near the end of the year. 
In the longer term just like the Dow
the Nasdaq has been basically stuck in a choppy trading range since early 2004
between 1750 and 2200. If the Nasdaq was able to rally strongly above the
2220 level then its next major upside resistance area would potentially be in
the 2350 to 2600 range. The 2350 level is where the Nasdaq stalled out at
in early 2001 (point J) after attempting to bounce from oversold conditions
while the 2600 level (point K) corresponds to the longer term 38.2% Retracement
Level (calculated from the early 2000 high to the low made in late
2002). 
As for the S&P 500 it's not very
far away from a previous upside resistance area in the 1240 to 1245 range so it
could encounter some resistance in this area either next week or the week
after. 
Meanwhile a longer term chart of the
S&P 500 shows there is an even more significant upside resistance area
around 1254 (point L) which corresponds to its 61.8% Retracement Level
(calculated from the early 2000 high to the late 2002 low). If the S&P
500 was able to break solidly above the 1254 level then it could eventually
rally up to the 1310 to 1360 range in the longer term. The 1310 level is
where the S&P 500 stalled out at in early 2001 (point L) after attempting to
rally from oversold conditions while the 1360 area is at its 76.4% Retracement
Level (point M). 
Finally when creating a list of
stocks to possibly invest in focus on those that have developed a favorable
chart pattern such as the Cup and Handle, Double Bottom and Flat Base. A
recent stock from our Stocks to Watch List that broke out of a 6 week Flat Base
(FB) was GILD. 
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