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Amateur Investors Weekend Stock Market Analysis (9/29/07)

http://www.amateur-investor.net/Weekend_Market_Analysis_Sep_29_07.htm

Well the market avoided a weak September mainly because the Federal Reserve cut interest rates. The question is now can the major averages follow through to the upside in October?

The Dow is nearing its mid July high which was just above the 14000 level however volume has remained well below its 10 Week Average (points A) during the past 6 weeks except for the 3rd week in September (point B). Keep in mind when the Dow made a substantial move higher last April through June (points C to D) volume was at or slightly above its 10 Week Average (points E) as it rose above its previous February high (point F). If the Dow rises back to its previous mid July high with volume remaining below average then this could lead to a potential Double Top pattern if it stalls out near the 14000 level. Meanwhile in order for the Dow to avoid a potential Double Top it will need to rise above the 14000 level accompanied by a substantial increase in volume much like we saw earlier in the year when it rallied strongly from April through June.



The Nasdaq also has been rising on below average volume (points G) with the only week reaching its 10 Week Average in the 3rd week of September (point H). When the Nasdaq made a significant move higher from April through June (points I to J) and broke above its previous February high (point K) volume came in well above its 10 Week Average (points L). If the Nasdaq is going to make a significant move higher in the coming weeks and rise well above its previous mid July high near 2525 volume better start to increase or else this could lead to a potential Double Top pattern.



As for the S&P 500 just like the Dow and Nasdaq volume has been below its 10 Week Moving Average (points M) as it has moved higher since the mid August bottom. In addition when the S&P 500 rallied strongly from April through June (points N to O) and rose above its previous February high (point P) volume (points S) came in at or above its 10 Week Moving Average. Currently the S&P 500 has stalled out near the 1540 level and could be potentially developing a Head and Shoulders Top pattern if its unable to rise above its 2nd Shoulder (2SH) near 1540. Meanwhile if the S&P 500 can rise above its 2nd Shoulder accompanied by a substantial increase in volume then that may lead to a significant move upward much like we saw from April through June.



Finally a chart of the Russell 2000 shows that it's also exhibiting a potential Head and Shoulders Top pattern as well. In order for the Russell 2000 to avoid this potential Head and Shoulders it will need to hold support at its 40 Week EMA (blue line) and then rise above the 830 level.



Meanwhile when looking for stocks to invest in focus on those with good Sales and Earnings Growth that are breaking out of a favorable chart pattern such as a "Cup and Handle" pattern.

For example notice EXM formed a 2 1/2 year Cup as it stalled out at its longer term 38.2% Retracement Level and then developed a 7 week Handle (H) before breaking out in June of this year.



Currently I'm are watching NWK which has just completed the right side of a 3 1/2 year Cup a now needs to develop a constructive Handle over the next 3 to 4 weeks.



Click Here to Signup for a "Free 4 Week Trial Membership" and see which additional stocks are currently developing a favorable chart pattern.

In addition I will show you an Indicator which has been accurate 96% of the time since 1987 in forecasting an average gain of 4.3% within 5 trading days in the S&P 500. So far in 2007 there have been "4" Buy Signals using this Indicator with the last one occurring on August 28th which was followed by a gain of 4.5% in the S&P 500 in just 4 trading days.