Stock Market Analysis for the Nasdaq

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A minor bounce occurred this week as the major averages had become somewhat oversold. The Dow rallied back to its 50 Day EMA (blue line) this week near 10520 but was unable to rise above it. At this point there are two possibilities for the Dow in the short term. The first possibility would be for the Dow to rise above its 50 Day EMA with a rally up to the 10650 to 10700 range. Meanwhile the second possibility would be for the Dow to break below the 10350 area leading to a drop back to its upward sloping trend line (black line) near 10200 which originates from the October 2004 low.

The Nasdaq has rallied back above its 50 Day EMA (blue line) after dropping below it last week. If the Nasdaq can hold support at its 50 Day EMA near 2130 and break above the 2160 area then it could rise up to its previous high made in early August near 2220. On the other hand if the Nasdaq were unable to hold support at its 50 Day EMA then I would look for support at its previous resistance level near 2100. If the Nasdaq were to break below the 2100 area then its next level of support would be at its 200 Day EMA (green line) near 2070.

One sector to keep an eye on which may have an impact on the Nasdaq in the weeks ahead is the Semiconductors. During the past three weeks the Semiconductor Holders (SMH) have been trading nearly sideways while holding support at their 50 Day EMA (blue line) near 36. At some point the SMH's are going to break out of this trading range and make a strong move in one direction or the other. If the SMH's breakout to the upside then this would have a positive impact on the Nasdaq. However if the SMH's broke below the 36 level then I would expect a quick drop back to their 200 Day EMA (green line) near 34.25 which would have a negative affect on the Nasdaq.

As far as the S&P 500 it has rallied back above its 50 Day EMA (blue line) as well. In the near term if the S&P 500 can hold support at its 50 Day EMA near 1220 and rally above the 1230 level then this could lead to a rally back to its previous early August high near 1243. However if the S&P 500 were to come under more selling pressure and break below the 1200 level then its next area of support would either be at its 200 Day EMA (green line) near 1190 or at its upward sloping trend line (black line) near 1170 which originates from the October 2004 low.

As I have mentioned before historically the month of September has been the worst performing month for the Dow going back to 1900 as nearly 70% of the time the Dow has ended the month with a negative return. Of course some years have been worse than others as can be seen during the past five years as the Dow was down 5% in 2000, 11% in 2001, 12% in 2002, 1.5% in 2003 and around 1% in 2004. Thus we shall see if September of 2005 will end up being another down month for the Dow.

If the market doesn't follow its historical trend of being down in September and actually does well this month focus on those stocks which have formed a favorable chart pattern. For example ARRS from our current Stocks to Watch List is still exhibiting a favorable "Cup and Handle" pattern.

Signup today for a "Free" 2 Week Trial Membership to amateur-investor.net and have access to our complete list of stocks which are currently developing a favorable chart pattern in addition to ARRS mentioned above.

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