Nasdaq Could Crack the 2200 Ceiling

This column was originally published on RealMoney on Nov. 4 at 11:14 a.m. EST. It's being republished as a bonus for TheStreet.com readers.

The dramatic advance of the Nasdaq Composite through 2003 ended in January 2004 just shy of 2200. Since then, the tech bulls have pushed the envelope on a few different occasions. Each time, 2200 has held firm. Why? Does everybody start looking at charts and decide to sell their four-letter symbols at the same level they did before? Perhaps it's just some type of broad market overvaluation that I'm not aware of.

While nobody knows why the Nasdaq fails at 2200, I have a thesis that makes sense to me. And it makes me think that we may see this ceiling on the Nasdaq crack soon.

I think the chart represents the general balance of emotional commitment between the bulls and bears -- which side is more aggressive, and which is more passive. This natural ebb and flow of emotions is seen in price patterns. There's nothing magic about the patterns themselves. Rather, they simply reflect the interplay between the various factions in the crowd. As long as the pattern repeats, all is well. But when the unexpected occurs, all bets are off and the dynamics change completely. That is the stuff that breakouts and breakdowns are made of. ...