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October 29, 2006

Potential Nasdaq Double-Top
by Arthur Eckart

Below is a Nasdaq weekly chart (candlesticks and right scale) with SPX (blue line and left scale). In May, Nasdaq topped at 2,378. Last week, Nasdaq reached 2,379 before pulling-back and closing the week at 2,350. The stock market rallied hard over an extended period without a breather. Consequently, Nasdaq may at least consolidate within the next few weeks between 2,300 and 2,380, which would be similar to the May consolidation. However, if Nasdaq rises significantly above 2,380, particularly on heavy volume, then the rally may continue, or if Nasdaq falls below 2,300, on heavy volume, a further fall will likely take place.

The overbought weekly indicators, above and below the price chart, suggest a fall below 2,300 is more likely. Given December is seasonally bullish, a quick fall may take place before the end of November. However, a pullback may be limited to the first quarter of 2006 consolidation area, between roughly 2,250 and 2,300. The catalyst for a pullback may be next month's inflation-related reports. The price of oil fell over $20 a barrel quickly, which resulted in low inflation-related data reported in October. Nonetheless, core inflation rates remain elevated, while the unemployment rate is low. Recently, the price of oil has risen somewhat and may stabilize around $60. Also, falling bond yields last week indicate heightened concern about slowing economic growth. So, a less optimistic view of the economy may be priced-into the market over the next few weeks.

Arthur A. Eckart
PeakTrader

Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998.

Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time. This methodology has resulted in excellent returns with low risk over the past three years.

Copyright © 2006 Arthur Eckart

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