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Technology Stocks : Semi Equipment Analysis

SOXX 296.74

+1.8%

Nov 28 4:00 PM EST

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To: Gottfried who wrote (46483)	1/16/2010 4:59:48 PM
From: Return to Sender	2 Recommendations of 95488

Amateur Investors Weekend Market Analysis (1/16/10) amateur-investor.net As I have mentioned before the two periods of time that most resemble the current action in the market are from the mid 1970's and further back in the late 1930's. Taking a closer look at the mid 1970's the Dow lost 47% from early 1973 through late 1974 which was then followed by a 56% gain before stalling out near its 61.8% Retracement Level (point A) calculated from the early 1973 high to the late 1974 low. This was then followed by a 15% pullback over the next few months before the Dow rallied an additional 31% through the middle part of 1976. Thus from late 1974 through the middle part of 1976 the Dow gained a total of 80% from the late 1974 low. After the Dow peaked in 1976 this was followed by a very choppy consolidation period for the next 6 years as support came in at or above its 61.8% Retracmenent Level (point B) calculated from the 1974 low to the 1976 high. Eventually by 1983 the Dow was finally able to break out of its choppy consolidation pattern which was followed by a Secular Bull Market from 1983 through 1999. Meanwhile taking a look at the current chart of the Dow so far it has gained 66% since the March 2009 low however it hasn't reached its longer term 61.8% Retracement Level just above 11230 (point C) calculated from the October 2007 high to the March 2009 low. Of course the question is if the Dow were to follow a similar pattern to the mid 1970's will it reach its 61.8% Retracement Level or not before undergoing a more substantial pullback? Meanwhile the other time period that looks similar to the current action in the Dow is from the late 1930's. During that period of time the Dow went through a 5 Wave pattern to the downside in which it lost 50% of its value in basically one year. This was then followed by an impressive 63% rally over a period of 8 months in which the Dow stalled out at its 61.8% Retracement Level (point D) in late 1938. After stalling out at its 61.8% Retracement Level the Dow then pulled back 24% over the next 5 months which was then followed by a rally back to near the 61.8% Retrace (point E) which stalled out just below the late 1938 peak. After stalling out for a second time the Dow then steadily declined over the next 3 years and eventually retested its prior 1938 low by early 1942 (point F) with a drop of 42%. When you look at the current chart of the Dow you can see a similar 5 Wave pattern to the downside that began with the October 2007 high and ended with the March 2009 low. Now if the Dow were to repeat the late 1930's pattern then it could still rise up to the 61.8% Retracement Level just above 11230 before a more significant pullback occurs. Meanwhile let's say the period from the late 1930's through the early 1940's ends up repeating itself which evolved into an ABC type corrective pattern. The longer term upward trend line (black line) connecting the 1932 low with the 1982 low could eventually come into play around 6000 if the C Wave becomes an elongated affair. Finally since the March 2009 low the Dow has been holding support on a weekly basis at or above its 10 Week EMA (blue line). I expect at some point we will see another test of the 10 Week EMA which is now nearing the 10400 level. If the 10 Week EMA were to be broken to the downside then a more substantial correction would likely occur with a potential drop possibly back to the 40 Week EMA (green line). Also notice the 23.6% Retracement Level from the March low to the most recent high also comes into play at the 40 Week EMA as well.

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