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Weekend Stock Market Analysis
(9/17/05)
Although the major averages came under some selling pressure
this week they did hold up fairly well. The price of Crude Oil is back
near a key support area near 63 which is just below its 50 Day EMA (blue
line). If the price of Crude Oil breaks solidly below the 63 level then I
would expect it to drop back either to its July low in the upper 50's (point A)
or back to its 200 Day EMA (green line) in the mid 50's. If this were to
happen then the major averages may get a boost to the upside. On the other
hand if the price of Crude Oil holds support near 63 and then begins to rally
this could allow for more selling pressure to occur in the major averages. 
As far
as the major averages the Dow still has a significant upside resistance area
just above 10700. If the Dow were to break solidly above this level then I
would expect it to rise up to the 10850 to 11000 range. Meanwhile if the
Dow is unable to break above the 10700 level and comes under more selling
pressure look for initial support either at its 10 Weekly EMA (blue line) near
10550 or at its 40 Weekly EMA (green line) near 10475. If the Dow were to
take out the 10475 level at some point then its next area of support would be in
the 10350 to 10250 range which corresponds to its late August low (point B) and
longer term upward sloping trend line (brown line) originating from the October
2004 low.
 The Nasdaq which
came under some selling pressure this week was able to hold support at its 10
Weekly EMA (blue line) near 2145. If the Nasdaq continues to hold support
near its 10 Weekly EMA and eventually is able to rise above the 2190 level then
this would likely lead to a rally back to its previous early August high near
2220. Meanwhile if the Nasdaq breaks below its 50 Day EMA then its next
level of support would be around 2100 which was a previous upside resistance
area.
 One sector to watch
that may have an affect on the Nasdaq is the Semiconductors. During the
past 9 weeks the SMH's have been stuck in a trading range (TR) generally between
36 and 38. At some point the SMH's will probably make a significant move
in one direction or the other which will likely affect the Nasdaq. If the
SMH's were to break solidly above the 38 level then they could quickly rise into
the lower 40's as that is where their 76.4% Retracement Level (calculated from
the January 2004 high to the September 2004 low) resides at. If this were
to happen this would have a positive affect on the Nasdaq. However if the
SMH's were to break below the 36 level then I would expect them to drop back to
either their 40 Weekly EMA (green line) near 34.50 or their late June low near
33.75 (point C). If this were to happen then this would likely have a
negative affect on the Nasdaq.
 As far as the
S&P 500 it was able to hold support at its 10 Weekly EMA (blue line) this
week near 1223. However the S&P 500 still has an upside resistance
area at its previous early August high near 1245. If the S&P 500 is
unable to rally above the 1245 level and comes under more selling pressure look
for initial support around the 1223 area. If the 1223 level is taken out
then its next level of support would either be at its late August low near 1200
or at its 40 Weekly EMA (green line) near 1193.
 Meanwhile if the
S&P 500 is able to break above its early August high near 1245 there is a
significant longer term upside resistance area near 1254 (point D) which
corresponds to its 61.8% Retracement Level (calculated from the early 2000 high
to the late 2002 low). If the S&P 500 does manage to rally up to this
level it may have a difficult time rising above this significant longer term
Retracement Level much like occurred in 2004 when the S&P 500 got stuck in a
trading range (TR) between its 50% and 38.2% Retracement Levels. 
Finally recognizing
what type of chart pattern a stock is exhibiting can give you an idea of whether
you should invest in it or not. For example during the past year CELG has
exhibited two different types of chart patterns before moving higher.
Earlier in the year CELG formed a Cup and Handle (H) pattern before breaking out
in April and eventually rose from $36 to $48. Meanwhile when the market
started to correct during the month of August we noticed CELG was developing a
Flat Base pattern and added it to our Stocks to Watch List. CELG then
broke out in late August and has risen from the upper $40's into the upper $50's
the past few weeks. 
Thus this is why
it's important to keep watching stocks during market corrections to see which
ones are holding up well and developing a favorable chart pattern such as the
"Cup and Handle" or "Flat Base" before moving higher.
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