As mentioned in the Weekend Market Analysis the Nasdaq appeared to be developing a favorable "Cup and Handle" pattern. Although I didn't think the Nasdaq would breakout this quickly it has and several stocks have followed along as well. However so far neither the Dow or S&P 500 are reacting as favorably and still haven't broken above their mid June highs.
If the Nasdaq continues to rally over the next several weeks its next major resistance level appears to be at its weekly 200 Day EMA (solid blue line) near 1933 (point A).
As for the Dow it currently is right at its weekly 200 Day EMA (blue line). If it can break above its mid June high near 9400 the next area of resistance would be at its 38.2% Retracement Level near 9533 (point B) calculated from the early 2000 high to the October 2002 low.
Meanwhile if the S&P 500 can break above its mid June high near 1015 its next area of significant resistance appears to be near 1065 (point C) which coincides with its weekly 200 Day EMA (blue line) and 38.2% Retracement calculated from the early 2000 high to the October 2002 low.
As mentioned above if the breakout in the Nasdaq is going to continue we really need to see the Dow and S&P 500 follow through as well. If they don't then the breakout attempt in the Nasdaq may fail to follow through so this will be something to keep an eye on over the next week or two.
When considering which stocks to buy make sure to focus on those that have developed a proper "Handle" before making a breakout attempt. RDWR provides a good example of a stock we mentioned in April to watch based on its developing "Handle". Notice how RDWR first formed a "Cup" from March of 2002 until March of 2003. Next it then developed a 4 week "Handle" (H) with a trading range between $10.50 and $12 before breaking above the top of its "Handle" on strong volume in late April (point D). Since breaking out in late April RDWR has appreciated nearly 70%.
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