Weekend Market Analysis

(12/20/03)

The Market

Over the past four weeks the Dow and S&P 500 have been outperforming the Nasdaq as the technology sector has been under some selling pressure.  A look at the Semiconductors Holders (SMH) shows that this sector has been under selling pressure 5 out of the last 6 weeks accompanied by strong volume, however, so far the SMH's have been able to hold support at their 20 Weekly EMA near 38.50.  Meanwhile it also appears the SMH's could be undergoing a corrective 4th Wave for those that follow Elliot Wave Theory.  

Once again without getting too technical a brief example of a what an Elliot 5 Wave Pattern looks like is shown below.  Notice how Waves 1, 3 and 5 are upward moves with Wave 3 lasting the longest while Wave 5 is the shortest.  Meanwhile also notice that Waves 2 and 4 are corrective Waves which only last for a brief period of time before the upward trend continues.   If the SMH's are currently going through a corrective 4th Wave then based on Elliot Wave Theory there could be one more upward move (5th Wave) before a more substantial correction occurs.

If a 5th Wave does eventually develop in the SMH's and they can break above their previous resistance in the 44 area (point A) then in the longer term it's possible they could rally up to the 50-51 range (point B) which is the longer term 38.2% Retracement Level from the early 2000 high to the 2002 low.  In addition the 50-51 area also corresponds to the high made in 2002 as well.

Meanwhile if the SMH's fail to hold support at their 20 Weekly EMA near 38.50 then look for a quick drop back to their 40 Weekly EMA (purple line) just below the 36 level.

As mentioned in the beginning both the Dow and S&P 500 have been outperforming the Nasdaq over the past month.  The Nasdaq has been basically stuck in a trading range since October between 1880 and 2000.  Eventually the Nasdaq will break out of this trading range and make a substantial move in one direction or the other.  Of course the big question is which direction will it go?  At this point there are two possible scenario's.  If the Nasdaq can break above solidly above the 2000 level this could lead to a quick move up to the 2050-2100 range (point C).  The 2050 area corresponds to the longer term 23.6% Retracement Level calculated from the early 2000 high to the 2002 low while the 2100 level was near the high made in January of 2002.

Meanwhile if the Nasdaq breaks below the bottom of its recent trading range around 1880 which is also near its 20 Weekly EMA then it could quickly drop back to its 40 Weekly EMA (purple line) near 1760.   The Semiconductor sector will likely have a big impact on which direction the Nasdaq will trend in the weeks ahead so as talked about above watch the SMH's closely.       

As for the other two averages the Dow has been trending higher over the past 4 week and now has risen solidly above its longer term 61.8% Retracement (calculated from the 2000 high to the 2002 low) near 10000.  The Dow could run into some minor resistance near 10400 however there is a much more significant area of upside resistance near 10700 which is the longer term 76.4% Retracement Level and also coincides with the high made in 2002 (point D).    

Meanwhile it appears the Dow is still exhibiting a Wave 3 pattern and it will be interesting to see if it can rally up to the 10700 area in the longer term before a corrective 4th Wave occurs.  

The S&P 500 has risen solidly above its longer term 38.2% Retracement Level near 1065 and could run into some minor resistance as it approaches the 1110 area.   However there is a more substantial area of upside resistance in the 1155 to 1170 range (point E).  The 1155 area is the longer term 50% Retracement Level while the 1170 area was near the high made in 2002.

Meanwhile just like the Dow it appears the S&P 500 is also exhibiting a Wave 3 pattern and the question is will it undergo a corrective 4th Wave before it reaches the 1155-1170 area or after?

Stocks to Watch
(All charts are weekly unless denoted otherwise)

There still a number of stocks that are exhibiting a favorable chart pattern and if the Nasdaq can break out of its 10 week trading range to the upside I would imagine we will see quite a few breakouts in the weeks ahead.  Of course if the Nasdaq breaks out to the downside instead then there won't be many stocks breaking out to the upside.

For those of you that trade the Exchange Traded Funds (ETF's) I would pay close attention to the QQQ's which have also trading sideways over the past 10 weeks.  The QQQ's will likely gives us either a long or short entry before much longer.  If the QQQ's can break out if their trading range and above the 36 level then this would give you a long opportunity with a potential rise up to the 39-43 range.  The 43 level (point A) is the longer term 38.2% Retracement Level which is also coincides with the high made in the late part of 2001 and the early part of 2002. 

Meanwhile if the QQQ's break below the bottom of their trading range near 34 this may give you a good shorting opportunity as they will likely drop quickly back to their 40 Weekly EMA (purple line) near 32. 

As far as some individual stocks to watch ALDN has developed a 9 week Handle (H) with its Pivot POint near $10.

ATYT has developed a 14 week Handle.  Its Pivot Point remains around $16.50.

FNDT has developed a 7 week Handle (H).  Its Pivot Point remains around $8.50.

HANS is still exhibiting a Pennant pattern and needs to be watched for a breakout above $9.

MTXX has developed a 4 week Handle (H).  Its Pivot Point remains around $17.75.

NITE has developed a 10 week Handle (H).  Its Pivot Point remains around $15.25.

SCIX has developed a 3 week Handle (H).  Its Pivot Point remains around $5.50.

SCUR has developed a 6 week Handle (H).  Its Pivot Point remains around $15.75.

THER has developed an 8 week Handle (H).  Its Pivot Point remains around $19.

VTIV has developed a 5 week Handle (H).  Its Pivot Point remains around $10.

WIRE has developed a 7 week Handle (H).  Its Pivot Point remains around $18.50.

If you decide to take a position in any of these make sure they break above their Pivot Points first and also have a proper Stop Loss Order in place just in case the breakout attempt fails to follow through.   

 
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