Retesting the Top

A multi-level is a strong level. SPX is making his third attempt to keep the low 1,250 s. Perennial resistance However, the coming weeks are volatile, because of the FOMC announcement Tuesday, profit warning season in late September, the end-of-quarter "window dressing," new money at the beginning of the quarter, and earnings reports in October.

The SPX daily and monthly charts below show the major resistance between the mid 1240's and mid 1250's, ie the two previous four-year high in 1246 and 1243, the 61.8% Fibonacci level (or 38.2% retracement) from the top 2000 on the 2002 trough in 1253, and the monthly upper Bollinger Band in 1251.

There is more uncertainty about the FOMC meeting Tuesday than other recent meetings, because of the impact Hurricane Katrina on the economy. It is uncertain whether the FOMC will pause to new economic data showing the effects of Hurricane Katrina, or that it will continue to tighten in a "measured" pace (small steps).

NYSE volume has recently been tough, which is typically bullish. Volume was extremely heavy on Friday, because the end of the quarter expiration of futures and options (quadruple witching). The heavy volume on the NYSE, suggests SPX may rise in the 1250's in a few weeks.

Nevertheless, in the longer term, there are bearish indicators. The SPX to U.S. Dollar ratio is near an all-time high, suggesting SPX will fall and the dollar will rise (because there is an inverse relationship). In addition, the Utility and Transport Indices to VIX had relationships parabolic rise in the past two years, and they are now back to near their all-time highs. Moreover, large cap to small cap ratios indicating near all-time lows large institutions are not convinced that the cyclical bull market will continue.

The U.S. economy is slowing after 2 1/2 years of above-trend (and unsustainable) growth. U.S. real GDP growth will slow from 4% in 2004 to about 3 1/2% in 2005. I suspect, will slow in 2006. U.S. economic growth further to below 3% However, there is a negative correlation between employment and income. Hurricane Katrina slowed employment growth. So, it seems, is the market betting profit growth will pick up, at least in the short term.

Oil prices fell from about $ 71 per barrel three weeks ago to just over $ 63 Friday. However, OIH (a basket of stocks) declined from about $ 122 per share three weeks ago to just $ 119.50 Friday. Gasoline prices fell more than oil prices. Energy stocks are about 15% of SPX's market capitalization, which is one reason why the SPX remains high.

It is uncertain how the next week will play out. However, if SPX rises in the low 1,240 s Monday morning, the pullback to the mid 1230's, and then to rise in the low 1,240 s again before the FOMC announcement Tuesday afternoon. If SPX is Monday, at the low 1230's, it could take up to Tuesday. However, it is uncertain how much the settlement of options Friday leaning towards.

If the FOMC breaks that may initially bullish, bearish and then, because large institutions will be skeptical. If the FOMC tightens, it may initially bearish, and then slightly bullish, although the market will profit warning season (preannouncements) next week to enter. Normally the real market trend occurs within two or three days after an FOMC announcement.

The market does not like uncertainty. So, Mondays are particularly volatile. But I expect to be volatile. Most of next week There are opportunities to make calls with OEX and SPX puts profits early next week. However, later in the week, it may be best to focus on a few top individual stocks, eg buying long term.

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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.