Signup today for a Free 2 Week Trial Membership
which includes our Stocks to Watch List and Daily Breakout Reports 

  Weekend Stock Market Analysis

(10/23/04)

At this point it still appears the rising price of Crude Oil is having the biggest affect on the market.  As mentioned before during the past year Crude Oil and the Dow have been trading in opposite directions such that when the price of Oil rises the Dow sells off (points A to B) and when the price of Oil drops the Dow rallies (points B to A).

If this trend continues then the Dow probably won't stage a rally until we see a drop in the price of Crude Oil.  One thing that I would like to point out is that it appears to me that the price of Crude Oil could begin to pullback before much longer.  During the past year while Crude Oil has remained in a steady up trend it has rallied for about 6 to 8 weeks (points C to D) and then pulled back for 2 to 4 weeks (points D to C) before making a new high.  Currently the price of Crude Oil since been rising for nearly 8 weeks after making a bottom in late August so it will be interesting to see if a pullback develops before much longer which could have a positive effect on the market. 

As far as the major averages the Dow broke below its August low this week.  If the price of Oil continues to rise and the Dow trends lower the two levels to watch for support  would be in the 9600 to 9400 range.  The 9600 level coincides with the November 2003 low (point E) and the 9400 level (point F) is at the Dow's longer term 38.2% Retracement Level (calculated from the October 2002 low to the February 2004 high).   Meanwhile if the price of Oil stabilizes and begins to pullback this could lead to a sharp upside reversal like occurred from mid March to early April, mid May to mid June and from mid August through early September.  Furthermore when the %K Line in association with the Slow Stochastics has dropped to around 20 (points G) on a weekly basis this has signaled a nearing upside reversal in the Dow during the past year.  

The Nasdaq is at a key support level near 1900 which is where its 50 Day EMA (blue line), 100 Day EMA (green line), 200 Day EMA (purple line) and upward sloping trend line (brown line) from the August low are converging at.  If the Nasdaq breaks below 1900 then it its next support level would be just above 1840 (point H).  Thus it will be important for the Nasdaq to hold support near 1900 next week.

Meanwhile a key sector to watch that will have an affect on the Nasdaq is the Semiconductors.  The Semiconductor Holders (SMH) tried to rally this week but ran into resistance just below their 100 Day EMA (green line) and closed Friday right at their 50 Day EMA (blue line) near 31.  As I have mentioned in the past the SMH's have a key longer term support area near 28 (point I).

Remember the 28 level is very close to the SMH's 61.8% Retracement Level calculated from the October 2002 low to the January 2004 high).  If the SMH's break below 28 this would likely lead to a drop back to their 76.4% Retracement Level near 24 which would have a negative impact on the Nasdaq.  Thus it will be important for the SMH's to hold support at or above the 28 level the next few weeks.

The S&P 500 broke below its 40 Weekly EMA (purple line) near 1100 this week and has a key support level near 1060 which is at the August low (point J).  On a weekly basis the %K Line in association with the Slow Stochastics is still way above the 20 level (point K).  During the past year when the %K line has dropped to 20 or below (points L) this has signaled a nearing upside reversal.

Meanwhile when looking at the Volatility Index (VIX) which tracks the S&P 500 shows that a similar pattern maybe developing like occurred from June through early August.  Notice the VIX has formed a Double Bottom (DB) pattern and has pulled back over the past week similar to what occurred last Summer (points M to N).   Meanwhile last Summer after pulling back for a week or so the VIX then rose strongly to around 20 (points N to O) which led to a bottom in the S&P 500.  Thus it will be interesting to see if this pattern repeats itself.

Finally when the market is correcting it's important to start noticing those stocks which are holding up the best and developing a favorable chart pattern.  Once a bottom does occur and the market begins to rally these stocks may perform the best.

One chart pattern to look for is the "Cup and Handle" pattern.  DISK is a stock which has just competed the right side of an 11 month Cup and now needs to develop a constructive Handle over the next few weeks.

Meanwhile another chart pattern to look for is a "Double Bottom".  TIBX has recently formed a Double Bottom pattern and is beginning to develop a small Handle (H). 

Signup today for a 2 Week Trial Membership  and have access to our Stocks to Watch List which provides a list of Stocks that are exhibiting favorable Chart Patterns such as those shown above.  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.  

Click Here to signup for a "Free" 2 Week Trial Membership

Amateur-Investor.net