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2005: Mark This 'Measure Move'

The editors asked me to throw together a brief look at how we're going to fare in 2005. Well, here's one for you: How about we reach the all-time highs by Dec. 31, 2005?

Sounds far-fetched? Pollyannaville? Maybe, but a simple chart of the Standard & Poor's Depositary Receipts (SPY) tells a very bullish story.

For ease of use, I employed an arithmetic chart rather than a log chart. With an arithmetic chart, the difference between the numbers on the X axis is the same number. With a log chart, it's the same percentage. Log charts are useful when you're trying to compare two different stocks. But when you're trying to figure out how far a stock might run, an arithmetic chart is best.

Before I get to the chart, though, it's helpful to understand the basic premise of "measure moves." Simply, that premise is that stocks (or indices) tend to move up a set amount, pause, and then, once they break out from the pause, move up by a similar set amount.

So on the basis of that, looking at the chart below, you can see that if leg No. 2 ends up equaling leg No. 1, and each leg takes roughly the same amount of time to complete, that will take us to just about the old highs in a year or so.

I know. This kind of stuff gives the fundies fits. But to those of us in the know, it makes perfect sense!

Gary B. Smith is a freelance writer who trades for his own account from his Maryland home using technical analysis. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Smith writes a daily technical analysis column for RealMoney.com and also produces a daily premium product for TheStreet.com called The Chartman's Top Stocks -- click here for a free two-week trial. While Gary cannot provide investment advice or recommendations, he invites you to send your feedback to gsmith@thestreet.com.

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