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Weekend Stock Market Analysis
(1/10/04)
As I mentioned in the Mid Week Analysis the market is due for
some type of correction/pullback and it appears after Friday's action that we
could be in
the beginning stages of one. The
Nasdaq has become stretched significantly away from its 50 Day EMA (blue line) and
is also very overbought, based on the stochastics, which shows the %K line well above 80
(point A). Meanwhile since last March when the %K line has risen well
above 80 (points A) and the Nasdaq has gained over 150 points this has usually
led to some type of correction/pullback varying from 70 to 130 points. Thus it
wouldn't be too surprising if the Nasdaq drops at least 70-80 points from the
intra day high made on Friday near 2113, in the short term, as this has been a
common theme since last March. If the Nasdaq does drop around 80
points or so this would take it back to its 38.2% Retracement Level near 2030
(calculated from the December low to the intra day high on Friday). In
the longer term view the Nasdaq did break out of its 3 month trading range just
over a week ago after holding support above its 20 Weekly EMA (green
line). However as I have mentioned before there was a potential upside
resistance area near 2100 which corresponded to the Nasdaq's intra day high in
early 2002 (B). As mentioned above if
the Nasdaq does undergo a correction/pullback I would look for initial support
around the 2030 level. Meanwhile the Dow also had a reversal day
on Friday and if it goes through a correction/pullback I would look for initial
support near 10350 which is close to its 23.6% Retracement and 20 Day EMA (blue
line). If the Dow drops below 10350 then the next support area would be in
the 10100 to 10200 range which corresponds to its 38.2% Retracement (10200) and
50 Day EMA (green line) near 10100. Looking
at a longer term chart of the Dow shows it has gotten stretched way above its 10
Weekly EMA (same as 50 Day EMA on a daily basis) much like occurred last
June (point C). This was then followed by a 450 point drop over the next week
and a half. If the Dow undergoes a similar drop this would take it down to around
10150 or so which is close to its 10 Weekly EMA (blue line). As or the S&P 500 if it also
goes through a correction/pullback in the near term look for initial support in
the 1095 to 1100 range which coincides with its 38.2% Retracement Level (1095)
and 20 Day EMA (near 1100). If the S&P 500 drops below 1095 then
its next level of support would be around 1080 which is where its 50 Day EMA
(green line) and 50% Retracement Level come into play at. Considering
how well the major averages have performed since late November some type of
correction/pullback shouldn't be much of a surprise and could eventually clear
the way for another move higher down the road. Also keep in mind two
heavyweights in the technology sector (Intel and Yahoo) report earnings next
week which could have substantial affect on the market and lead to a lot of
volatility as the market overreacts to their earnings reports. Finally
keep focusing on those stocks which are showing increasing Sale and Earnings
Growth that are developing a favorable chart pattern as those stocks will be the
ones to watch in 2004. An example of one our featured stocks in 2003 that
did very well was RIMM. Notice how RIMM began
exhibiting strong Sales and Earnings Growth during the past 2 quarters
(highlighted in red) as it was
developing a longer term Cup and Handle pattern. RIMM then broke out of
its 10 Week Handle in December accompanied by strong volume and then quickly
doubled in price over a short period of time. How can a Premium Membership to amateur-investor.net
benefit you as an investor? We focus on stocks which are exhibiting
favorable Sales and Earnings Growth that have developed a favorable chart pattern such as a "Cup and Handle",
"Double Bottom" or "Flat Base". These stocks are then
included in our "Stocks to Watch List" which gives investors a
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