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  Weekend Stock Market Analysis

(10/30/04)

As we have seen over the past several months the price of Crude Oil and the Dow have been going in opposite directions.  When the price of Crude Oil rises (points A to B) the Dow has dropped (points B to A) and when the price of Crude Oil drops (points B to A) the Dow rises (points A to B).  Another thing to notice is that the price of Crude Oil has been holding support near its 50 Day EMA (blue line) while remaining in a steady up trend during the past year.  Until we see the price of Crude Oil break solidly below its 50 Day EMA its longer term up trend will remain intact.

As far as the major averages the recent drop in the price of Crude Oil has helped the Dow.  In the near term the Dow is approaching its first area of significant resistance in the 10060 to 10100 range which is where its 50 Day EMA (blue line), 100 Day EMA (green line) and 200 Day EMA (purple line) come into play at.  If the Dow is able to break above 10100 its next level of upside resistance would be near 10275 which is along its downward sloping trend line (brown line) originating from the February high.  Meanwhile if the Dow is unable to break above 10100 and then comes under more selling pressure this could lead to an eventual retest of the low made early last week near 9700 at some point in the future.   

The Nasdaq which held support near 1900 during the month of October also rallied last week and is close to its downward sloping trend line (brown line) originating from the January high.  If the Nasdaq continues to rally the next area of upside resistance may occur around 2000 which is the 61.8% Extension Level (calculated from the January high to the August low).  If the Nasdaq rallies above 2000 then it may reach the 2060 area (point C) which coincides with its late June high and 76.4% Extension Level.  Meanwhile if the Nasdaq stalls out near its longer term downward sloping trend line and comes under some selling pressure the key support level will remain around 1900.

Meanwhile the Semiconductors will likely have an impact on the Nasdaq in the weeks ahead.  The Semiconductor Holders (SMH) have rallied back to their downward sloping trend line (brown line) originating from the January high.  If the SMH's can break above this trend line look for a move up to their 200 Day EMA (purple line) near 34 which will likely help the Nasdaq move higher.  Meanwhile if the SMH's stall out near there current level and begin to pullback look for short term support at their 50 Day EMA (blue line) near 31.  If the SMH's break below 31 then this could lead to an eventual retest of the August low near 28 (point D) which would likely have a negative impact on the Nasdaq.

The S&P 500 has rallied back up to where it was at in mid September (point E).  If it continues to rally look for possible resistance to occur at its early October high (point F) or June high (point G) in the 1140 to 1145 range.  Meanwhile if the S&P 500 stalls out near 1130 and begins to pullback look for initial support near 1115 or so which is where its 50 Day EMA (blue line) and 100 Day EMA (green line) reside at.

One thing I'm starting to keep an eye on is the 5 Day Average of the Put to Call Ratio.  Over the past two years when the 5 Day Average has reached dropped to .60 (points H) this has signaled a nearing top followed by either a sell off (Spring 2002 and Summer 2002) or sideways movement (Summer 2003 and Winter 2004).  Right now the 5 Day Average of the Put to Call Ratio is around .70 so it will be interesting to watch it over the next few weeks.

Some of you maybe wondering what the market did before and after the last election in 2000.  The chart of the Dow shows that it rallied strongly the last two weeks of October in 2000 (points I to J) leading up to the election and then sold off after the election during the month of November.  Meanwhile you will also notice that the Dow remained in a trading range from November of 2000 through January of 2001 roughly between 10300 and 11000. 

Finally if the market continues to rally focus on those stocks breaking out of a favorable chart pattern such as a Double Bottom.   VIP is a stock from our Stocks to Watch List which has formed a Double Bottom pattern and has now developed a 3 week Handle (H) with the Pivot Point at $115.

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.  

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