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Amateur Investors Weekend Stock Market Analysis (5/31/08)

http://www.amateur-investor.net/Weekend_Market_Analysis_May_31_08.htm

During the past several years there has been a common theme in the S&P 500 which involves its 12 Month EMA (blue line). Notice from the middle part of 2003 through 2007 each time the S&P 500 dropped below its 12 Month EMA that it closed back above it by the end of the month (points A) as it remained in a longer term up trend. This trend was broken in January of this year (point B) as the S&P 500 failed to close back above its 12 Month EMA after dropping below it. Meanwhile from late 2000 through 2002 notice each time the S&P 500 rallied from oversold conditions it failed to close back above its 12 Month EMA (points C) as it remained in a longer term down trend. During the month of May the S&P 500 did rise back above its 12 Month EMA (point D) however it failed to close above it by the end of the month. Thus the question is will the failure of the S&P 500 to close above its 12 month EMA eventually lead to another substantial downward move over the next month or two?



In the near term the major averages rallied to end the month of May with the Nasdaq and Nasdaq 100 acting the best. The Nasdaq bounced off a key short term support level around 2430 (point E) which coincided with its upward sloping trend line (brown line) from the mid March low. It's possible the Nasdaq may rally up to where it stalled out at in mid May near 2550 (point F) which may act as a significant upside resistance area next week. If the Nasdaq does stall out near the 2550 level next week and then pulls back look for initial support at its 200 Day EMA (green line) near 2460 which also coincides with its upward sloping trend line.



The Nasdaq 100 bounced off a key short term support level near 1950 (point G) which coincided with its upward sloping trend line (brown line) from the mid March low. It's possible the Nasdaq 100 may encounter resistance next week where it stalled out at in mid May around the 2050 level (point H). If the Nasdaq 100 does stall out near this level and then pulls back look for initial support around 1980 which corresponds to its 20 Day EMA (purple line) and upward sloping trend line.



The Dow found support early in the week just above its 50% Retracement Level near 12430 (calculated from the March low to the May high) and rallied back to its 50 Day EMA (blue line) near 12700. If the Dow attempts to move a little higher early next week I expect it will encounter resistance at its 200 Day EMA (green line) near 12800. Overall the Dow is still exhibiting a potentially bearish looking Double Top pattern (looks like the letter "M").



As far as the S&P 500 it bounced off its 50 Day Moving Average (blue line) this week and if it attempts to move a little higher early next week look for upside resistance to occur at its 200 Day Moving Average (green line) just above 1420. If the S&P 500 stalls out near the 1420 level and begins to pull back once again look for support to occur at its 50 Day Moving Average which is now around 1380.