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Sunday, November 11, 2007 7:28:39 PM
Amateur Investors Weekend Stock Market Analysis (11/10/07)
http://www.amateur-investor.net/Weekend_Market_Analysis_Nov_10_07.htm
As I have pointed out over the past few weeks two things were of concern involving the rise in the price of Crude Oil and the breakdown in the Semiconductor sector. As we have seen in the past each time there has been a significant rise in the price of Crude Oil (points A to B) the Dow has gone through a correction (points C to D) and vice versa.
Meanwhile the Semiconductors as tracked by the Semiconductor Index (SOX) have been selling off since July (points E to F). In the past each time the SOX has gone through a major correction (points G to H) the Nasdaq has followed shortly thereafter (points I to J).
As far as major averages the Dow has now dropped below its 200 Day EMA (green line) and also has failed to hold support at its 61.8% Retracement Level (calculated from the August low to the early October high). If the Dow continues lower the next support area for the Dow would be at its 76.4% Retracement Level near 12900.
The current drop in the Dow looks similar to what occurred from July into August when it initially sold off for a few weeks (points K to L) which was then followed by a one week bounce (points L to M). This was then followed by more selling pressure before a bottom occurred in mid August (points M to N). Thus we will see if the same pattern can evolve this time around however it will be important for the Dow to hold support around the 12900 level next week.
The Nasdaq really got clobbered this week and has fallen around 240 points in 7 trading days. If the Nasdaq continues lower in the near look for the next level of support either at its 200 Day EMA (green line) around 2590 or at its 61.8% Retracement Level near 2575.
As far as the S&P 500 it has fallen below its 200 Day EMA (green line) and has dropped back to its 61.8% Retracement Level near 1450. If the S&P 500 fails to hold support at the 1450 level then its next area of support would be at its 76.4% Retracement Level near 1420.
Meanwhile just like the Dow the S&P 500 is exhibiting a similar pattern that occurred last July and August. Notice how the S&P 500 initially sold off (points O to P) for a few weeks but then had a brief oversold bounce (points P to Q) before eventually going lower and making a bottom in mid August (points Q to R). If the S&P 500 can hold support at or above the 1420 level then we could see a similar pattern develop.
Over the next several weeks the market is likely going to remain very volatile which will lead to substantial moves in both directions on a daily basis. Thus your best opportunities will come from the Exchange Traded Funds (ETF) rather than individual stocks. One of the strong Buy Signals I will look for on a daily basis is when the Relative Strength Index (RSI) closes 3 days in a row below 65 with the last reading below 10. Some examples since August are shown below when the RSI has closed below 65 (3) days in a row with the last value below 10 (points A). The entry price is at the open of the next trading (points E) which occurred on 7/30, 8/16 and on 10/22. On 7/30 the SPY gained nearly $2 over the next 2 trading days while on 8/16 the SPY gained over $6 in (2) trading days. On 10/19 the SPY gained $3 in 2 trading days and nearly $5 in (5) trading days
http://www.amateur-investor.net/Weekend_Market_Analysis_Nov_10_07.htm
As I have pointed out over the past few weeks two things were of concern involving the rise in the price of Crude Oil and the breakdown in the Semiconductor sector. As we have seen in the past each time there has been a significant rise in the price of Crude Oil (points A to B) the Dow has gone through a correction (points C to D) and vice versa.
Meanwhile the Semiconductors as tracked by the Semiconductor Index (SOX) have been selling off since July (points E to F). In the past each time the SOX has gone through a major correction (points G to H) the Nasdaq has followed shortly thereafter (points I to J).
As far as major averages the Dow has now dropped below its 200 Day EMA (green line) and also has failed to hold support at its 61.8% Retracement Level (calculated from the August low to the early October high). If the Dow continues lower the next support area for the Dow would be at its 76.4% Retracement Level near 12900.
The current drop in the Dow looks similar to what occurred from July into August when it initially sold off for a few weeks (points K to L) which was then followed by a one week bounce (points L to M). This was then followed by more selling pressure before a bottom occurred in mid August (points M to N). Thus we will see if the same pattern can evolve this time around however it will be important for the Dow to hold support around the 12900 level next week.
The Nasdaq really got clobbered this week and has fallen around 240 points in 7 trading days. If the Nasdaq continues lower in the near look for the next level of support either at its 200 Day EMA (green line) around 2590 or at its 61.8% Retracement Level near 2575.
As far as the S&P 500 it has fallen below its 200 Day EMA (green line) and has dropped back to its 61.8% Retracement Level near 1450. If the S&P 500 fails to hold support at the 1450 level then its next area of support would be at its 76.4% Retracement Level near 1420.
Meanwhile just like the Dow the S&P 500 is exhibiting a similar pattern that occurred last July and August. Notice how the S&P 500 initially sold off (points O to P) for a few weeks but then had a brief oversold bounce (points P to Q) before eventually going lower and making a bottom in mid August (points Q to R). If the S&P 500 can hold support at or above the 1420 level then we could see a similar pattern develop.
Over the next several weeks the market is likely going to remain very volatile which will lead to substantial moves in both directions on a daily basis. Thus your best opportunities will come from the Exchange Traded Funds (ETF) rather than individual stocks. One of the strong Buy Signals I will look for on a daily basis is when the Relative Strength Index (RSI) closes 3 days in a row below 65 with the last reading below 10. Some examples since August are shown below when the RSI has closed below 65 (3) days in a row with the last value below 10 (points A). The entry price is at the open of the next trading (points E) which occurred on 7/30, 8/16 and on 10/22. On 7/30 the SPY gained nearly $2 over the next 2 trading days while on 8/16 the SPY gained over $6 in (2) trading days. On 10/19 the SPY gained $3 in 2 trading days and nearly $5 in (5) trading days
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