Abigail F. Doolittle | abigail@peaktheories.

com

November 5, 2010

The Weekly Peak

The Game Changer
Yesterday I wrote once more about wanting to see the S&P 500 “charge upward” since “now it’s time for the S&P to set its sight on 1,221 and
Range 3 found between 1,221 and 1,250.”

Not only did this occur in a single day – yesterday – on the back of $600 billion of Federal Reserve liquidity and a severely declining dollar, but we’re
that much closer to the target of the confirmed Inverse Head and Shoulders pattern that we’ve been tracking since the end of August.

While this pattern’s target of 1,250 represented a 20% gain in late August, it offers us only 2% now and the seemingly improbable is now not only
probable but likely.

When I first started writing about this bullish pattern and the possibility of the S&P rallying significantly back in August, however, what seemed
both improbable and unlikely to me was not the index’s hitting the pattern’s target, but the fact that I was writing about such a possibility. Some
technical patterns stand out though and when 1,040 held, it seemed probable to me that this seemingly improbable target could be hit and so I
continued to do the improbable and follow the S&P’s then nascent Uptrend rather closely.

Today, I am taking the next logical step, in my view, and one I’ve talked about many times in this process of tracking the S&P’s Uptrend since late
August. I am setting targets and qualitative descriptions of my views in relation to the S&P 500 for various periods of time.

Relative to the next 3 to 6 months, my target for the S&P 500 is 1,300 and my view is constructive as opposed to bullish.

This action is based purely on technical analysis, I’ll talk multiples at another time, and it comes in the trail made by my many notes over the last 10
weeks about this rally including the note I posted on October 15 titled The Rally Rolls On in which I expressed my belief that the S&P will hit 1,250
and even possibly 1,300 as a Continuation of the cyclical bull market that began in March 2009.

Similar to what I expressed then, I think we are in the second leg of this cyclical bull market. While the first leg will be recorded as the most
significant marked by a gain of almost 80% between 677 and 1,217, this second leg will have offered investors a gain of almost 30% registered
between 1,023 and a little above 1,300 should it come to be.

The reason I believe that 1,300 represents the culmination of the second leg of the cyclical bull market is due to the combined picture of the weekly
2- and 3-year charts of the S&P 500.

While you could draw the trendlines differently in the 2-year chart above, I chose the more taxing way that shows the index’s intermediate trend as
up as it stretches for 1,300. Such a trend will remain in effect until proven beyond a doubt to have been reversed and while there is good reason
to believe such a reversal could come via the potential Double Top that I’ve been writing about, I believe that the rather strong resistance/support
levels offered at first 1,250 and then 1,300 will act as targets to the index in and of themselves.

Such “targeting” tends to happen around these types of critical levels and I believe this will be true here since both levels are supported by the
S&P’s Intermediate Uptrend and should 1,250 be reached it will make 1,300 that much more of a target to the index’s current trend movement.
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In addition, I am encouraged that this trend is more likely than not to continue considering that the S&P made the strong shot-like move into Range
3 and the final range of the confirmed Inverse Head and Shoulders pattern’s fulfillment phase found between 1,221 and 1,250. Such precision is
rarely a coincidence especially since there is no such thing except for the mathematical sort which is only unexplained perfection. I find this to be
especially true of technical analysis.

Before moving on, however, I would like to point out that the daily chart of the S&P 500 for the 1-, 2- and 3-year periods looks almost absurd after
yesterday’s “charge upward”. I am not exactly sure what to make of such aesthetics at this time, but I am going with the strength of the weekly
charts while the “charge” looks very good in the short-term charts and especially the 6-month chart.

In fact, when I began writing this note I was thinking that it was a bit ho-hum to set this near-term target after yesterday’s move, but in the context
of the daily charts and ahead of payrolls it may be as gutsy as it would have been a few weeks ago and perhaps more so in some ways.

Putting my courage, or previous lack thereof aside, and turning to what is actually interesting, or at least to me, is the next bit of business that
needs to be taken care of or setting a target for the S&P and a qualitative description of my view for the 6 to 36 month time frame.

For as I had indicated back in October, I think there is a very strong chance that we will see the S&P 500 crest back to 1,550, or approximately to its
previous historic high, driven by the psychological stoking of the Fed’s liquidity pump but more so by the possible Game Changer that I wrote about
back in early September. Specifically, in thinking about the then-nascent rally, I speculated that the one fundamental factor that could cause the
S&P 500 to move significantly higher and with some actual merit would be an extension of the Bush tax cuts.

Now that this is a possibility with the GOP’s takeover of the House and Obama conceding that he may be open to an extension of the Bush tax cuts
for everyone and not just the middle class, it seems we may have the very thing – the Game Changer – to drive the S&P 500 close to its previous
high of 1,550.

Such a move by the S&P 500 to 1,550 would represent a third leg of the cyclical bull market. If so, the third leg would be from about 1,315 to most
likely about 1,550 marking a gain of only 18% and on the disbelief of many.

In addition, technically-speaking, as I wrote before, such a crest back to 1,550 would point to the likelihood of the index’s being trapped in a severe
Triple Top structure with the two previous tops having been recorded at 1,550 each, very roughly speaking, and just as I wrote above that major
resistance/support levels tend to act as targets in and of themselves so would it be the case here.

And while the photo on the new PTR web site is rather amusingly but quite accidentally of three mountain peaks, the combination of these factors
is not enough for me to overlook the opposite mid-term possibility of 880 and assign a target of 1,550 to the S&P for the mid-term at this time.

Rather, I will watch this possibility technically while monitoring the fundamentals and act as is appropriate and in what I hope will be a timely
manner. In the interim and it shall not be a long one, I am leaving my 6 to 36 month target for the S&P 500 open.

Before turning quickly to my more familiar long-term view, I would like to note gratefully that it was the disciplined methodology of one of my
favorite market commentators, Mark Hulbert, who unbeknownst to him has made it possible, in part, for me to have adopted my constructive
near- and intermediate-term views on the S&P and the corresponding target with perhaps another to come.

For back in the summer, Mr. Hulbert put out a very excellent article about challenging a bullish newsletter author to determine what his objective
tells would be for changing his mind and becoming bearish in the then-bearish environment. I put myself up to a similar test in one of my notes
and came up with three factors that could cause me to adopt a positive but not bullish view on the S&P in the context of my then-expectation for
the S&P to dive to 880 and then lower.

One has been hit – the S&P is at 1,220 – while the second is the target I discussed today – the S&P 500 at 1,300 – and the third will occur should the
S&P 500 hit that 1,550 level. I noted in that piece that becoming bullish would be a whole different matter since it is a state of mind and heart
beyond technical aspects, but I will be closer to that shift in mentality should the S&P move to 1,625 because the potential Triple Peak will have
been more than negated.

Mr. Hulbert’s article was a major influence on my having been able to adopt a flexible and objective view over the last two and a half months and
this has made it not only an exciting thing to be a part of but more profitable too. Most important, however, has been the satisfaction of having
learned an important lesson at this point in my career and I hope that this learning will help me in the future too.

In fact, this learning makes me open to the possibility of something that I literally could not fathom just three months ago or the idea that perhaps
my long-term view of the S&P 500 will turn out to be wrong as I very much hope will be the case.

For at this time, I remain bearish long-term and I still believe that the S&P 500 will collapse to 425, or even lower, due to the world’s debt storm of
the last 30 years and all current attempts to erase it via more debt but of another sector.
November 5, 2010
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I am pressed to see that shifting the world’s unsustainable private sector debt load to the shoulders of the public sector will make it sustainable.

I also believe that the likely failure of this shift, regardless of what form it may take, is reflected in the either grotesque but massive Double or
Triple Top in the S&P 500. But as I have come to learn recently never say never.

Sam’s Stash, Gold, and the S&P

This is a little bit of a cop-out at this moment, but I plan to devote copious amounts of time to the topic in the coming weeks so I am going to
breeze over Treasurys and say that I continue to believe these securities will move down in price or value as yields move up in the near- to
intermediate-term and in the face of the Fed’s support.

In short, I expect to see the 10-year back to above 3% if not 3.5% prior to yields moving back down on some unknown flight to safety drive. I will
leave my longest-term views out of the equation today.

Of real interest at this moment is one of the main drivers to the first and second legs of the S&P’s cyclical bull market or the declining dollar.

After correcting course in early September and saying that it no longer seemed the dollar was set to move up as I wrote about in August, I have
stuck pretty firmly to the view that the dollar index is trapped in a Descending Triangle pattern that carries a target of 71.

I have been writing with even more certainty around the dollar index hitting what appears to be its next good level of support found at 74.25. In
addition, I started writing about a potential Double Top in the dollar index back in May/June that confirms right around that 74.25 and its target is
60. I clearly lack natural talent around identifying successful Double Tops, however, and let’s hope that will be the case here too for if the dollar
index does move to 60 to fulfill that potential pattern, the long-term chart suggests it may have a hard time recovering from such a move.

Putting aside that potential longer-term move to the downside, I will reiterate that the dollar index appears poised to move to 74.25 and then to 71
and actually a bit lower most accurately.

In turn, gold, silver and “everything else” simply continue to move up on the weak dollar and even in a frighteningly steep fashion.

November 5, 2010
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The Weekly Peak

I have heard, however, of some who believe that the current trading environment in the precious metals is only the set up for the actual
“parabolic” move higher and so it should be interesting to watch if that possibility turns out to be the case.

Will we see such a dramatic move up in the S&P 500? Perhaps we will.

Such a move would be in the intermediate-term but until there’s greater evidence of its likelihood, I am going to watch a bit more before
committing to this possibility and especially in the context of what I continue to believe remains the worst bear market of our collective lifetime.

S&P Targets and Qualitative Views for Various Time Periods November 5, 2010

3 to 6 Months 1,300 Constructive

6 to 36 Months TBD TBD
36 Months+ 425 Bearish

As always, thank you for taking the time to read this week’s piece.

November 5, 2010
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The Weekly Peak

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November 5, 2010
Please see important disclosure statements at the end of this document. www.peaktheories.com