Amateur Investors Mid Week Analysis for May 16th

The major averages have become rather oversold especially the Nasdaq however so far we haven't seen much of a bounce develop. The Dow is still holding support above its 50 Day EMA (blue line) and longer term upward sloping trend line (black line) which is currently around 11200. As I mentioned over the weekend as long as the Dow can hold support at or above its upward sloping trend line then its upward bias will remain intact.

The Nasdaq has been acting the worst of the three major averages and has dropped below its 40 Weekly EMA (green line) near 2238. I still think we could see an oversold bounce develop in the Nasdaq before much longer with it potentially rising back to its 10 Weekly EMA near 2290. However if a bounce doesn't develop and the Nasdaq continues lower instead then look for its next area of support at its longer term upward sloping trend line (black line) near 2150.


One reason for the poor performance in the Nasdaq is tied to the Semiconductors which have been in a downtrend every since peaking in early January near 560. Historically when the Semiconductor Index (SOX) is acting poorly the Nasdaq will usually have problems as well. The SOX has now dropped back to a key area at its 38.2% Retracement Level (calculated from the September 2004 low to the January 2006 high) near 480. If an oversold bounce is going to develop in the Nasdaq the SOX will have to hold support near the 480 level and begin to rally. Meanwhile if the SOX is unable to hold support near the 480 level and continues lower then its next area of support would be at its 50% Retracement Level just below 460.

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