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Weekend Stock Market Analysis
(9/2/06)
There was some upside follow through this week leading up to the
Labor Day Weekend. However we are now moving into the weakest performing
month for the Dow dating back to 1900. Since 1900 the Dow has only ended
the month of September with a positive gain 37% of the time. Although
we still could see some more upside movement in the very near term there are a
few things to keep an eye on during the next few weeks. First the
Nasdaq could be developing a potential Head and Shoulders Top pattern especially
if it stalls out near the 2220 level which is where its 1st Shoulder occurred at
in July of 2005. 
Meanwhile the second concern I have
is with the Volatility Index (VXO) which is very close to nearing its 52 week
low around the 10 level. In the past when the VXO has dropped to around 10
(points A) this has been followed by some type of correction (points B to C) in the S&P
500. Currently the S&P 500 is only about 14 points away from its early
May high near 1325 and I believe if the S&P 500 is able to rise back to its
May high in the near term, and the VXO drops back to around 10, then this will be
followed by a correction in the major averages at some point in September.
Meanwhile in the near term it's
still possible the major averages may trend higher before we see a correction
develop. The Dow is still exhibiting a Double Bottom pattern (looks like
the letter W) and remains above its 20 Day EMA (blue line). The question
at this point is will the Dow be able to rise back to its May high near 11670
before a correction occurs? 
The Nasdaq has risen risen back
above its 200 Day EMA (green line) and is now close to its 50% Retracement Level
just below 2200. If the Nasdaq is able to continue higher in the near term
look for upside resistance in the 2220 to 2240 range. 
Remember the 2220 level is where the
1st Shoulder developed at back in July of 2005 while the 2240 level is where the
Nasdaq's 61.8% Retracement Level resides at in the chart above (point D).
I believe the Nasdaq will likely stall out somewhere in the 2220 to 2240 range
which will then be followed by a correction. 
Meanwhile the S&P 500 is also
exhibiting a Double Bottom pattern just like the Dow and is only 14 points
away from its May high near 1325. As mentioned above if the S&P 500 is
able to rally back to its May high in the near term I believe this will then be
followed by a correction at some point in September. 
Finally if the market can continue
higher in the near term focus on those stocks which are forming a favorable
chart pattern such as the "Cup an Handle". Currently AMT from
our Stocks to Watch List has developed a small 2 week Handle (H) after forming a
Cup. Generally I like to see a stock develop a Handle length of 3 weeks or
more before buying it as it moves above its Pivot Point. Thus let's see if
AMT can work on its Handle for one more week before attempting to breakout. 
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