Peering Into the Future

GBS doesn't have a crystal ball, but he does his best to use technical analysis to guess where the Nasdaq's headed.
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I'm not in the crystal ball business. Really, truly.

Oh, you might think that, judging from the way I look at charts, peer into the future and tell you what I think will happen.

But, really, I'm more like one of those palm-reading charlatans who tells you what you already know. And if palm readers could place a bet that you will "take a trip," well, then you'd pretty much have Gary B. Smith in a nutshell. Yes, what I


do is wait for the big move to occur and then bet that there will be some sort of follow-up move. Hey, whatever works, right?

But, if I had a crystal ball, what would I want to know? Hmmm, let's see. For starters, I'm dying to know if


can crack 37 seconds in the 50-yard breaststroke (so far, no dice.) And, it'd also be interesting to know where


ends up going to college. (Any more report cards like her last one, and we can rule out



Technical Analysis: Join the discussion on


Message Boards.

And finally, yeah, I guess I'd like to know what happens with the market, particularly after this recent run-up. But, I don't have a crystal ball, unfortunately.

Still, that didn't stop me on the recent ""

TV show on

Fox News Channel

from peering into the future and giving my bold forecast of what would happen with the


. But, trust me, you can do this stuff at home, too, so let me walk you through my thinking and we can explore the mystic beyond together!

In short, I basically said we will hit 3800 by Feb. 1, then stall and not hit 4000 for another year. So, how did I come up with that? How reliable is it? And, most importantly, what should you do about it?

OK, first the how. If you go back to my

"Go-Dog-Go" column, you'll see a variation of that methodology. Measuring the "leg" formed from October '98 to January '99, and then thinking of the subsequent January '99 to October '99 move as sideways, I then added the length of the first leg to the breakout in late October and came up with a target of 3800.

Now, how did I come up February 2000 as the cutoff date? Same rationale: The first leg took about three months to complete. As a broad rule, the length of each leg and the time each takes to form, are at least within the same ballpark. So, about three months or so from the end of October takes us to the beginning of February.

For the last part of magic, I ruled out 4000, and said we'd stall for another year. Honestly, this is the murkiest part of my forecast, and I really had to call up the ghosts of those TA gurus




, along with


, to come through with this one. So, let's see if you buy my arguments.

First, 3800 takes us to the end of the leg, and after that, it's at least even money the rally runs out of steam. That's strike one against 4000.

Second, 4000 is a round number, and while it won't get the attention of Dow 12,000 or whatever, it should present somewhat of a hurdle.

Finally, the Nasdaq would have gone up nearly 70% in 12 months. Nothing wrong with that, but let's (and forgive me, gods of TA), throw in some fundamentals: This is with a constrictive


, skyrocketing P/Es and an environment that cries out for inflation.

Now, with these last few arguments, I'll be the first to admit I'm in way over my head, so if you think we get to 4000 quickly, you're certainly entitled to your opinion. But, again, 3800 I can live with; 4000 seems a stretch.

But, let's assume for a moment that my thesis is correct, and we stall after 3800. What happens after that? Let me paint two different scenarios, one decidedly ugly and one we all can live with.

The first is the ugly chart. The normal cause: the "unexpected event." And for this market, that could be anything: China aims a missile at us. The Fed throws in a 100 basis-point hike.


is elected president. (Whoops, just kidding!)

The second chart is much more palatable. Very


, as it's not so much a dreadful decline as a subtle rolling over, but with underlying strength.

OK, so there are two likely scenarios, with any number of iterations between them. The real question is: What should you do?

And if I can paraphrase many an athletic coach, I'd say, "Look alive!" That is, be ready for anything. If my email is any gauge -- and it's a pretty good one -- there is a lot of hubris out there. A lot of "Boy, this trading is so


" A lot of cheerleading. A lot of faith in plain old inertia.

Maybe it all continues, maybe it doesn't. Really, I have no way of knowing. So, given that, I have to be ready for anything. Because "anything" is usually what the market throws at us, and usually when it's least convenient. So, what can I say? Look alive because I can guarantee you this: We sure aren't going to go straight up forever.

Catch Gary B. Smith's chat on Yahoo! at 5 p.m. EST on Thursday, Dec. 2. Register to chat at: It's free!

Gary B. Smith is a freelance writer who trades for his own account from his Maryland home using technical analysis. At time of publication, he held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Smith writes five technical analysis columns for each week, including Technician's Take, Charted Territory and TSC Technical Forum. While he cannot provide investment advice or recommendations, he welcomes your feedback at