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Weekend Stock Market Analysis
(3/18/06)
Over the past month the Dow has been acting the best while the
Nasdaq and S&P 500 have been lagging behind. Although the Dow has been
acting well of late its approaching a significant area of longer term upside
resistance in the 11350 to 11400 range. The 10350 to 10400 range is where
the Dow stalled out at three times in the 2000 to 2001 time period (points A)
after attempting to rally from oversold conditions. If the Dow does
continue higher in the near term look for it to potentially stall out in the
10350 to 10400 area. 
As for the S&P 500 it broke out
of its choppy two month trading range (TR) this week after trading between 1255 and 1295
for the past several weeks. 
Meanwhile if we look at a longer
term chart of the S&P 500 there is one level to watch in the near term which
could provide some resistance around the 1315 area (point B). The 1315
level is where the S&P 500 stalled out at in early 2001 after rallying from
oversold conditions. If the S&P 500 were able to rally above the 1315
area then its next significant area of upside resistance would be around 1360
(point C) which corresponds to its 76.4% Retracement Level (calculated from the
early 2000 high to the low made in late 2002). 
As for the Nasdaq it still remains
stuck in a two month trading range and has been trading between 2233 and 2333
during the past several weeks. Eventually the Nasdaq will break out of
this trading range and likely make a decent move in one direction or the
other. 
One reason why the Nasdaq hasn't
been
unable to break out of its trading range to the upside has probably been due to the weakness in
the Semiconductor sector of late. The Semiconductor Index (SOX)
encountered significant upside resistance at the 560 level in early January
which is where it previously stalled out at in early 2004 (point D) and has been
in a pullback mode since then. The
key level to watch over the next few weeks is around the 480 level which is near
its 40 Weekly EMA (blue line) and 38.2% Retracement Level (calculated from the
low made in the Fall of 2004 to where it recently stalled out at in
January). If the SOX can hold support near the 480 level and then begin to
rally this may allow the Nasdaq to break out of
its trading range to the upside. However if the SOX fails to hold support
near the 480 level and continues lower then the Nasdaq will likely have a
difficult time breaking out of its current trading range to the upside. 
Meanwhile a few other things to
watch which may have an impact on the market in general includes the price of
Oil which has recently been holding support at its 40 Weekly EMA (blue line) the
past four weeks. If the price of Crude Oil were to rise above the 66 level
then look for a rise back to its previous high made in late January just above
the 70 level (point E) which could have a negative impact on the major averages
as we have seen in the past. 
The
other thing that
really stood out this week was a significant drop in the Put to Call Ratio which
reached a level not seen in the past several years as it dropped well below 0.40
on Thursday (point F). Historically extremely low readings in the Put to
Call Ratio at or below 0.40 have sometimes been a precursor to a nearing top
followed by a correction. 
Finally with several thousand stocks
to potentially invest in it's never easy to determine which ones may end up
doing well versus those that may not. Generally the stocks to focus on are
those that have good Sales and Earnings Growth which are breaking of a favorable
chart pattern. For example HANS has been exhibiting strong Sales
and Earnings Growth for the past two years which has been reflected in its
performance as well as it has risen nearly 500% since the early part of
2005. Although many investors may have missed the initial upward move in
2005 when HANS rose from $20 to $50 (points G to H) it then developed a Flat
Base pattern from July of 2005 through October of 2005 before breaking out in
November. This was then followed by another significant upward move from
November through January in which HANS doubled in price from $50 to $100 (points
I to J). 
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