Consolidation Period

The economic data reported Fri showed continued above trend growth with disinflation (at the core level, excluding food and energy) in the second quarter. Real output growth has so far this year has been delayed by about 4% in 2003 and 2004 to just over 3 1/2%, while core inflation fell from 3% last quarter to 2%. Consumption growth slowed from 3.5% to 3.3%, investment growth rose 9%, and net exports increased more than 12%. Also, business inventories fell.

Nasdaq has rallied 310 points in three months, and hit high Friday morning in 2201 a new four-year. The economic data suggest market pullbacks will be limited, although we have entered. The seasonally weak period in July, August and September after a big run-up Consequently, there is a period of consolidation rather than a correction in the coming months.

The first chart below is a Nasdaq monthly chart. The long Price-by-Volume bar (on the left side of the graph) is a "sticky" area, between 1750 and 2250, which is difficult for Nasdaq up or down to break. However, Nasdaq may break and hold above the 80 month MA in 2257, then keep it to 2645, the 38.2% Fibonacci level. Rally Nasdaq has an open hole in 1905, and the monthly Parabolic SAR buy signal (green dots) is currently in 1904 which are support levels.

The second graph is an SPX daily year-to-date overview. SPX has resistance to 1,253, which is a multi-year Fibonacci level. The rising 10 day MA, currently in 1232, has recently support. There are many support levels between 1185 and 1225. However, the 50 and 200 day MAs are important levels. If SPX close below the 200 day MA, then close it. Gaps in 1174, 1143 and 1138

It is unlikely Nasdaq will hold 2200 shortly. However, if that is so, then in 2257 is another important resistance level. Also, it is unlikely that SPX 1253 will hold in the short term, which is a multi-year resistance level. I expect a more volatile trading range below these levels, given the volatility indices are so low. Consequently, the SPX 20 days to test MA, next week, and lower levels in test August

Next week's economic reports are: Mon: ISM Index and Construction spending, ie: Personal Income, Personal Spending, Factory Orders and Auto Sales, Wed: ISM Services, Thu: Unemployment Claims, and Fri: Non-farm payrolls, hourly earnings, and the unemployment.

Notable earnings next week: Monday: TEVA HUM, ie: CMCSA SIRI, Wed: PRU NT CI CVS DUK CPN HL TWX SINA, Thu: G OATS THROUGH TO UL TOL SLE ONXX GFI CLX CQB, Fri: CBJ

I plan to trade put on my "predictable" stocks, including two index ETFs, biotech, and Internet continue. A If the market rises higher, there are several large cap banking stocks and drugs to perform, with less risk than most other files on pullbacks. See PeakTrader.com Top Stock Picks section for more information.

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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 minimizing risks developed at the same time. This methodology has resulted in excellent returns with low risk over the past three years.