Year-End Rally

The stock market fell in October after the end of the quarter window dressing and the inflation peak revealed in the data in September Consequently, the market did not believe that the Fed's tightening cycle will end this year, and was afraid of stagflation. However, the third quarter earnings so far generally beat expectations, in what was expected to be a weak quarter, due to high energy prices.

Both monetary and fiscal policy remains stimulating. The FOMC raised the Fed Fund Rate from 1% to 3.75%, 25 basis on small movements over the past 16 months, along with a steady policy of "jawboning" to keep inflation expectations. Layer A neutral attitude may be higher than 5%. So, the FOMC continued good hone in next year. The Bush tax cuts are still intact, and the damage caused by Hurricane Katrina will increase public spending.

Oil prices fell below $ 60 a barrel last week, for the first time in about three months, and closed at $ 60.63 Friday. Economic growth has slowed to a more sustainable rate of approximately 3% real growth. The summer driving season and the worst of the hurricane season over. Heating oil prices will largely depend on winter weather in the Northeast. The price of oil can in the coming weeks to stabilize at just over $ 50 per barrel.

The chart below is a weekly SPX year-to-date overview. SPX was down for the year, in the lower range of a trading range, and somewhat oversold. The tolerances and CCI indicators, in particular, suggest the market will gather at the end of the year. It seems, SPX will continue to consolidate in the short term, over a number of strong (multi-year) support levels around 1165 (explained in previous articles) and then rally.

The recent high inflation data, a temporary phenomonen caused largely by transportation bottlenecks in the Gulf region after Hurricane Katrina. Also production and employment should pick up, temporarily, with a boost in government spending. Moreover, the lower energy prices shift consumption of energy in non-energy products and lower production costs.

It seems likely SPX will trade between roughly 1170 and 1200, short-term, and then retest the high (for the third time) at about 1250 later this year. However, a final "wash-out" in late October it is possible, where SPX closes the open holes in 1143 and 1138, before staging a strong rally. So, unless SPX drops below 1165, it may be best to volatile trading range with a stop at 1165.

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

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