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.