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Weekend Stock Market Analysis
(8/12/06)
Currently both the Dow and S&P 500 are trying to maintain
their potential Double Bottom patterns that have developed over the past few
months. If the Dow is going to maintain its Double Bottom pattern it needs
to hold support at or above its 200 Day EMA (green line) which is around the
11000 level. Meanwhile if the Dow were to drop below its 200 Day EMA then
it would likely retest the low made in mid July near 10700. 
The S&P 500 is also exhibiting a
potential Double Bottom pattern although the 2nd bottom was not as low as the
1st bottom so it's not a classic Double Bottom pattern from a technical point of
view. So far the S&P 500 has held support at its 200 Day EMA (green
line) just above 1260 and if it's going to maintain its Double Bottom pattern it
will need to continue to do so next week. If the S&P 500 were to break
below the 1260 level then it may eventually retest the 1220 to 1225 range which
corresponds to the lows made in mid June (1220)and mid July (1225). 
As for the Nasdaq so far it has been
unable to rally above its 50 Day EMA (blue line) after peaking in April (points
A & B). In the near term the Nasdaq has a minor support level around
2050 (point C) and this level must hold next week. If the Nasdaq were to
drop below the 2050 level then look for a retest of its mid July low near 2010. 
Meanwhile in the longer term if the
Nasdaq were to fall below the 2010 level it appears its next significant support
area would be near 1900 which corresponds to its longer term 38.2% Retracement Level
(calculated from the October 2002 low to the April 2006 high) and the low made
in April of 2005 (point D). 
As I have talked about before the
one sector that will continue to affect the Nasdaq is the Semiconductors.
During the past few weeks the SOX has attempted to rally but has encountered
resistance near its 50 Day EMA (blue line) and 23.6% Retracement Level
(calculated from the January high to its most recent low). The key thing
to watch over the next few weeks is if the SOX can rally above its 50 Day EMA,
which is nearing the 425 level, or whether it rolls over and eventually makes a
lower low. 
If
we look at a longer term chart of the SOX so far it has held support at its
longer term 50% Retracement Level (calculated from the September 2002 low to the
January 2004 high) near 385 (point E). However if the SOX were to take out
the 385 level then I would expect it to eventually drop back to its longer term
61.8% Retracement Level near the 345 level (point F). If the SOX were to
eventually drop back to the 345 level at some point in the future then I would
expect the Nasdaq to continue lower as well. Thus it's going to be
important for the SOX to hold support near the 385 level in the weeks
ahead. 
Finally from a historical
perspective usually from late Summer through early Fall is a weak period for the
market. In fact since 1900 the worst performing month for the Dow has been
September which has had a negative return 70% of the time. However
on the flip side the best performing month has been December which has had a
positive return 70% of the time since 1900. My best guess is that we will
see more weakness as we move into September which may lead to a meaningful bottom
sometime in October which will then be followed by a rally going into the end of
the year. Right now is a good time to start
noticing those stocks which are holding up the best and beginning to form a
favorable chart pattern as this may give you a clue to whom the next market
leaders will be as we possibly into a more favorable market environment later this
Fall into the end of the year. Currently here is a stock (CMCSK) from our
Top 100 List which has formed a longer term Double Bottom pattern. What we
would like to see now is for CMCSK to develop a constructive Handle over the
next 3 to 4 few weeks before attempting to move higher. 
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