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Tuesday, June 15, 2004 9:20:49 PM
Amateur Investors Mid Week Market Analysis (6/15/04)
It has been really choppy the past few weeks with wild swings both to the downside and upside. Usually I show the chart of the S&P 500 Volatility Index (VIX) however today I'm going to show a chart of the Nasdaq Volatility Index (VXN). The VXN is approaching a value of 20 which has signaled a nearing top in the Nasdaq during the past 6 months (points A). If this pattern repeats itself again then we should be on the lookout for a potential top before much longer.
As far as the major averages the Dow is approaching a short term resistance area just below 10450 (point B). If the Dow can break above 10450 this could lead to a quick rally up to its April high near 10570 (point C). Meanwhile if the Dow stalls out near 10450 and reverses to the downside look for initial support near 10250 which is where its 50 Day EMA (blue line) and 100 Day EMA (green line) reside at.
The Nasdaq stalled out last week near its downward sloping trend line (solid black line) near 2025 but was able to hold support on Monday above 1960 which is a critical short term support area (point D). If the Nasdaq can rise back above its downward sloping trend line and clear the 2025 level then it could quickly rally up to the 2060 (point E) to 2080 (point F) range. Meanwhile if the Nasdaq is unable to clear the 2025 area and breaks below the key 1960 support level then look for a quick drop back to its 200 Day EMA (purple line) near 1925.
The S&P 500 has a short term resistance area just above 1140 (point G) and if it breaks above this level look for a quick move up to its April high just above 1150 (point H) or its March high around 1162 (point I). Meanwhile if the S&P 500 stalls out near 1140 and breaks below its 100 Day EMA (green line) just below 1115 then look for a drop back to its 200 Day EMA (purple line) near 1088.
As far as some sectors I'm watching the Semiconductor Holders (SMH) closely. On Monday the SMH's briefly broke below their small upward sloping trend line (point J) established from the early May low however they did rally on Tuesday. In order for me to become Bullish on the SMH's they will have to break above their longer term downward sloping trend line established from the January high and rise above the 39 level. Meanwhile if the SMH's drop below the 36.75 level this will be a Bearish sign which will likely lead to a retest of the early May low near 34.50.
A lot of you have asked me about the Gold and Silver sector (XAU). The XAU did rally today as it had become extremely oversold on a daily basis as the %K Line in association with the Slow Stochastics had dropped below 10 (point K). I still think there is a pretty good chance the XAU will have to retest the low made in early May near 77 (point L) before a meaningful bottom can occur.
Some of you have asked me how do you determine the left side of a Cup. A lot of times it can be very subjective an depend on how much longer term overhead supply there is in a stock. For example lets look at ALDN. In my opinion during the past 4 years ALDN has formed 3 "Cup and Handle" patterns after peaking in early 2000 with the rest of the market.
The 1st Cup (outlined in black) developed from April of 2002 through May of 2003 which was followed by a 6 week Handle (H). After breaking out in July of 2003 ALDN rose from about $3 to $9 (gain of 200%) where it then stalled out leading to its 2nd "Cup and Handle" pattern. The 2nd Cup started in October of 2000 (outlined in blue) and was completed in October of 2003 which was then followed by a 10 week Handle (H). ALDN then broke out of its Handle in early January of 2004 and then rose from $10 to $18 (gain of 80%) where it then briefly stalled out again leading to the formation of the 3rd "Cup and Handle" pattern. The 3rd Cup (outline in red) began in June of 2000 and was completed in March of 2004 which was then followed by small 3 week Handle (H). ALDN then broke out of its small Handle in late March and then rose from $18 to $28 for a gain of 56%.
Thus over the past year ALDN gave investors three different opportunities to buy it as it broke out of each "Cup and Handle" pattern. ALDN was first featured by us in December of 2003 in our Weekend Analysis for December 6th and again in March of 2004 in our Weekend Analysis for March 6th before it broke out of its "Cup and Handle" patterns.
It has been really choppy the past few weeks with wild swings both to the downside and upside. Usually I show the chart of the S&P 500 Volatility Index (VIX) however today I'm going to show a chart of the Nasdaq Volatility Index (VXN). The VXN is approaching a value of 20 which has signaled a nearing top in the Nasdaq during the past 6 months (points A). If this pattern repeats itself again then we should be on the lookout for a potential top before much longer.
As far as the major averages the Dow is approaching a short term resistance area just below 10450 (point B). If the Dow can break above 10450 this could lead to a quick rally up to its April high near 10570 (point C). Meanwhile if the Dow stalls out near 10450 and reverses to the downside look for initial support near 10250 which is where its 50 Day EMA (blue line) and 100 Day EMA (green line) reside at.
The Nasdaq stalled out last week near its downward sloping trend line (solid black line) near 2025 but was able to hold support on Monday above 1960 which is a critical short term support area (point D). If the Nasdaq can rise back above its downward sloping trend line and clear the 2025 level then it could quickly rally up to the 2060 (point E) to 2080 (point F) range. Meanwhile if the Nasdaq is unable to clear the 2025 area and breaks below the key 1960 support level then look for a quick drop back to its 200 Day EMA (purple line) near 1925.
The S&P 500 has a short term resistance area just above 1140 (point G) and if it breaks above this level look for a quick move up to its April high just above 1150 (point H) or its March high around 1162 (point I). Meanwhile if the S&P 500 stalls out near 1140 and breaks below its 100 Day EMA (green line) just below 1115 then look for a drop back to its 200 Day EMA (purple line) near 1088.
As far as some sectors I'm watching the Semiconductor Holders (SMH) closely. On Monday the SMH's briefly broke below their small upward sloping trend line (point J) established from the early May low however they did rally on Tuesday. In order for me to become Bullish on the SMH's they will have to break above their longer term downward sloping trend line established from the January high and rise above the 39 level. Meanwhile if the SMH's drop below the 36.75 level this will be a Bearish sign which will likely lead to a retest of the early May low near 34.50.
A lot of you have asked me about the Gold and Silver sector (XAU). The XAU did rally today as it had become extremely oversold on a daily basis as the %K Line in association with the Slow Stochastics had dropped below 10 (point K). I still think there is a pretty good chance the XAU will have to retest the low made in early May near 77 (point L) before a meaningful bottom can occur.
Some of you have asked me how do you determine the left side of a Cup. A lot of times it can be very subjective an depend on how much longer term overhead supply there is in a stock. For example lets look at ALDN. In my opinion during the past 4 years ALDN has formed 3 "Cup and Handle" patterns after peaking in early 2000 with the rest of the market.
The 1st Cup (outlined in black) developed from April of 2002 through May of 2003 which was followed by a 6 week Handle (H). After breaking out in July of 2003 ALDN rose from about $3 to $9 (gain of 200%) where it then stalled out leading to its 2nd "Cup and Handle" pattern. The 2nd Cup started in October of 2000 (outlined in blue) and was completed in October of 2003 which was then followed by a 10 week Handle (H). ALDN then broke out of its Handle in early January of 2004 and then rose from $10 to $18 (gain of 80%) where it then briefly stalled out again leading to the formation of the 3rd "Cup and Handle" pattern. The 3rd Cup (outline in red) began in June of 2000 and was completed in March of 2004 which was then followed by small 3 week Handle (H). ALDN then broke out of its small Handle in late March and then rose from $18 to $28 for a gain of 56%.
Thus over the past year ALDN gave investors three different opportunities to buy it as it broke out of each "Cup and Handle" pattern. ALDN was first featured by us in December of 2003 in our Weekend Analysis for December 6th and again in March of 2004 in our Weekend Analysis for March 6th before it broke out of its "Cup and Handle" patterns.
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