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  Weekend Stock Market Analysis

(11/20/04)

I believe the main thing to watch was we head into the end of the year is what the price of Crude Oil does.  As I have mentioned several times in the past the price of Crude Oil and the Dow have been trading in opposite directions during the past year.  When the price of Crude Oil has risen (points A to B) the Dow has trended downward (points C to D) and when the price of Crude Oil has fallen (points B to A) the Dow has rallied (points D to C).

This week Crude Oil found support at its 100 Day EMA (green line) just above 45 and then rallied strongly on Friday and closed just above its 50 Day EMA (blue line).  The question is at this point will Crude Oil try and rally back to its previous high in the mid 50's over the next several weeks or will it stall out after a few days and then stabilize?   

As far as the major averages the Dow rallied nearly 900 points from its late October low to the most recent high.  If we continue to see some selling pressure in the near term I would look for initial support at its 20 Day EMA (blue line) near 10350.  If the Dow fails to hold support at its 20 Day EMA then the next area of support would be in the 10180 to 10260 range which is where its 50 Day EMA (green line), 100 Day EMA (purple line) and 38.2% Retracement Level (calculated from the October low to the most recent high) come into play.  

The Nasdaq has been in a persistent up trend since mid August and gained around 350 points during the past three months.  In the near term if the Nasdaq comes under some additional selling pressure I would look for initial support in the 2025 to 2035 range which coincides with its 20 Day EMA (blue line) and 23.6% Retracement Level (calculated from the August low to the most recent high). 

As far as the S&P 500 it has been in an up trend as well the past three months and gained around 125 points.  If we see some additional selling pressure in the S&P 500 the first area of support would be around 1160 which is where its 20 Day EMA (blue line) and 23.6% Retracement Level (calculated form the August low to the most recent high) come into play at.   

As mentioned in the beginning the price of Crude Oil will likely have a significant impact on the major averages in the weeks ahead.  If the price of Crude Oil rallies over the next several weeks this will likely lead to more selling pressure in the major averages.  Meanwhile if the recent action in the price of Crude Oil is just a bounce from oversold conditions and it stalls out after a few days, and then begins to trend lower in the weeks ahead, then this would likely have a positive impact on the major averages into the end of the year.     

One sector to watch is the Oil Index (XOI) which has been consolidating over the past 6 weeks with a trading range (TR) between 685 and 720.  If the XOI breaks strongly out of this trading range to the upside look for strength in the Oil stocks over the next several weeks. 

Over the past 6 weeks several of the Oil related stocks have formed "Cup and Handle" patterns.  An example of one Oil stock is VPI which has developed a 6 week Handle (H) after forming the right side of a 3 year Cup.  If VPI can break above the $22 level then it could make a quick move up to around $26. 

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