Working our way up into targets and resistance

Hi there, and welcome back to CRI's S&P 500 blog.



As per my most recent posts,
'the market is moving higher and I am looking for that to continue...and'...because the 13EMA is higher than the 30SMA we must be looking for higher prices for the time being. Should that relationship change, then our 'Investor' stance will change appropriately.' I am and will continue to be bullish on equities going forward. However I must raise a cautionary note to any new readers and/or new investors. This recent rally is, in my mind, a classic 'dead-cat-bounce' that has taken us from 'the brink' back into resistance. THIS IS NOT A BULL MARKET. Please understand this going forward.

This week I thought I would include a chart of the market (expressed through the S&P 500 depositor receipts, SPY) with an overlay showing the waves of this bull run (blue dotted line). One technician, R.N. Elliot, theorized that bull market moves happen in three waves. (learn more about Elliot wave theory on Wikipedia here). Considering where our target box is, a final climactic 'blow-off' top into the 120 area seems to make sense. My hunch is that will happen some time in the first quarter of 2010. That is several months away and I think a realistically achievable target. In the short term however, the market has moves substantially away from both the 13EMA and the 30SMA suggesting there is a growing risk of a short term correction. Since there are annual profits to be had by selling stock, investors may find a last minute 'rush to the exits' correction occurs because of nothing more than tax reasons...

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

Bounce off the bottom

Hi there, and welcome back to CRI's S&P 500 blog.



As per my most recent posts, the market is moving higher and I am looking for the market to move even higher still as we head into the end of 2009. Because the 13 EMA is higher than the 30 SMA we must be looking for higher prices for the time being. Should that relationship change, then our stance will change appropriately. Specifically the 120 level looks like it will represent the next significant resistance area as the upward pointing channels and the 200 weeks SMA are both in that vicinity.

This week I thought we would take a look at the market from a little longer time frame. Above is a 3 year chart of the SPY (S&P500 Index depository receipts - in essence, our best/easiest/least cost proxy on the US stock market). There are three things that jump out to me when I look at this chart and I thought we would take this week to review.

1. The bear market 'sell signal' was flashed back in Oct/Nov 2007 (The Weekly 13EMA crossed below the 30 SMA on Nov. 12th, 2007). Subsiquently the market put in a weekly double top and confirmed this formation the first week of January, 2008 when it moved below 135. So there is no doubt about it, 'the financial crisis' was telegraphed and anyone who was paying attention should have been properly positioned.

2. The bull market 'buy signal' was flashed back in early May (the week of May 4th, 2009) when the 13 EMA crossed back above the 30 SMA. The market later confirmed this signal when (in the week of July 20th) price 'broke-out' registering a bullish Flag-pole formation. Again, through the late spring and into early summer of 2009, it was clear the market was moving higher and that the bear slide was over for the time being.

3. The bear slide (from peak to trough) was almost exactly 18 months in duration. During that slide the market lost 56% of its value (from 151 to 66). The subsequent rally has been almost exactly 9 months in duration (about half of the bear market period) and has rallied about 70% - but more importantly - has rallied almost exactly 50% of the bear slide value. So the recent rally has been at almost exactly the same pace as the sell-off. Who says the market doesn't move symmetrically...

Conclusions: Nothing I have seen in the past few years leads me to believe that there is anything different to this current market vs. previous bear markets. Prices fall, then bounce, then retest the lows. Currently we are in the 'bounce' phase and I do believe that is nearing an end. Investors should temper their enthusiasm since we are still very well contained within a massive bear market and within a few percentage points of significant resistance.

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

Upside Targets Start to Emerge

Hi there, and welcome back to CRI's S&P 500 blog.



As this up move in the market reaches into its 8th month one gets the impression things are building to a climax. Government stimulus measures have been enacted, economies have responded and talk of new bubbles in some areas of the world have begun in earnest. With that being said, the charts have suggested being long the market (our signal line being when the 13ema crosses back above the 30sma - which I have talked about at length in previous blog entries) and are NOT flashing sell signals as of yet.

While I have suggested in my most previous blog entries that the market wants to move higher, I myself have been relatively neutral since we hit the two previously prominent upside targets (the gap at 107.5 and the 50% retracement level at 108). I continue to lean towards wanting to exit the broader stock market as I believe we are in the 7th or 8th inning of the most recent bull run. But just because we are near the end, doesn't mean we are at the end... So with all that being said, lets take a look at what is happening and consider what might happen given the market's recent bullish price action.

Indeed, now that the market has consolidated its recent gains and broken out higher, those previously significant resistance levels may now act as support going forward. Additionally, we have now established a secondary uptrend channel (Marked B. in solid blue on the chart) within a primary uptrend channel (Marked A. in light blue on the chart). This all points to a serious test of the 120 level in the not too distant future. As well as being the conjunction of two trend lines (the upper of B and the lower of A) the 120 area is where the 200sma currently sits. Notice the lows of early 2008 are also in this area too.

As far as I can see, its business as usual for the stock market...

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

Grinding higher and heading into traffic

Hi there, and welcome back to CRI's S&P 500 blog.



As per my last few posts, the market continues to point higher - the 13 EMA is still very comfortably above the 30SMA suggesting higher prices are still ahead. The conservative adviser in me suggests one ought to be looking to take profits on positions picked up into the 2009 panic lows. The market has completed a 50% retracement of the entire two year bear market (by trading back above 108.755) and has filled in a very rare Gap on the weekly charts at about the same level. The 'easy' part of the dead-cat-bounce' phase of the market is now behind us and one ought to be very careful about having too much money on the long side of the market.

Since we are still in a bullish stance, upside targets ought to be considered going forward. As well as heading into a high traffic area on the chart (between 120 and 130), there are two significant technical targets in that area as well.
1. The bull flag pole formation target is currently at 125
2. The 200 period SMA is at 120

I expect this area (120 to 125) to represent the next major hurdle for the market as we head into 2009 year end. Since the EMA/SMA relationship is still pointing bullishly we have no choice but to keep looking for higher prices ahead. Once this relationship has turned negative we can look for prices to head back down but that seems to be a while down the road yet.

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

Inverted Head & Shoulders on S&P 500?

Hi there, and welcome back to CRI's S&P 500 blog.



Considering last week's commentary has changed little over the past five trading sessions, this week's chart on the SPY will look at a common price pattern that every trader (novice or veteran) should be very familiar with, the inverted Head & Shoulders Price Pattern.

As the chart above illustrates, the inverted head & shoulders price pattern is the classic head & shoulders price pattern turned upside down. Here the market sells off in a series of three spikes lower. The second being the most dramatic (head). Should the market rally back above resistance (neckline) there is a high statistical probability the market will carry on an equal distance (from head to neckline) higher. In this case, the market spiked lower to form the 'Head' at 66.31 (in March '09) then rallied back into resistance which formed the 'Neckline' at 99.65 (by June '09). The subsequent breakout through the 100 level suggested that what once was resistance ought to now become support. As well, it suggested that there ought to be a subsequent move back up into the 125 area.

Upside targets have been
1. a 50% retracement of the entire two year bear market move to 108.755 area (refer to previous blogs for more on this calculation).
2. The weekly gap needed to be filled in at 108.

Now that these primary targets have been hit the easy part is over. The classic 'dead-cat-bounce' has played itself out and it is now not a question of 'when' the market will move higher but really 'if' there is much more in the tank.

Since our simple (yet very effective) moving average signal (13EMA vs. 30 SMA) is still quite bullish, we must remain bullish. Should that relationship change we will change our stance appropriately.

With the above in mind, our next (and far more risky targets) are:
1. the 200 period SMA (which currently sits at or near 120).
2. the inverted head and shoulders price pattern target at or near 125.
3. And ultimately, the top of this very steep price channel (refer to last week's chart for the channel) at or near 140.

My hunch is we are in the 7th or 8th inning of this dead-cat-bounce so I shall be reluctant to put on new positions until a correction in earnest occurs. Yes, I will be looking for the market to move higher over the coming weeks but I just don't think its worth the risk...but I'm just conservative that way. :)

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

Tired yes - but no weekly top yet

Hi there, and welcome back to CRI's S&P 500 blog.



As I have commented on repeatedly of late, the broader US stock market (as measured by the S&P 500 stock index) has made an appropriate 'technical' bounce off its winter 2009 lows and is now beginning to look a little tired. There were two significant weekly technical targets (a 50% retracement of the entire 2 year bear market move and the very rare weekly Gap) near the 108 level and both of them have now been hit.

As per our very conservative (yet very reliable) moving average signal (13EMA vs. 30SMA) one should still be looking for higher prices in the weeks and months to come. This indicator turned positive last May and there isn't any sign of it turning negative in the short term. Having said that, we have recently broken through the bottom of the very steep uptrend channel (established when prices broke higher in the end of July) so one should be very reluctant to add to new positions until either a tradable double bottom comes in, or prices break the highs from three weeks ago. If that does indeed happen (and that is a very big 'if' right now) upside technical objectives would be the 200 SMA (currently near 120) and then the top of the price channel (at or near 140).

For those of you who believe such a rally couldn't happen, just take a look at the S&P 500 from the period of 1974 to 1976 (highlighted in the October issue of The Canadian Rational Investor newsletter). In this brief two year period the S&P went from 1100 to 670 and then right back to 1000.

While completely illogical, we must always be cognizant of the old saying: "markets can remain illogical far longer than any of us can remain solvent".


That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

The next 10 SPY point are going to be very tough

Hi there, and welcome back to CRI's S&P 500 blog.



The market has moved up nicely from the lows of last winter in classic 'dead-cat-bounce' fashion. After registering a buy signal last May (13 week EMA cross back above 30 week SMA) the market was poised to take back some of the previous two year's horrendous losses. Two significant technically bullish targets on the SPY have been met (the 50% rule of the entire bear move and the very rare weekly chart gap; both near 108) and the market is (as suggested over the past few weeks) looking very tired. Since the moving averages are still positioned bullishly one must remain bullish and look for further price appreciation. Should we get a further push higher in equity prices over the coming weeks one ought to expect significant resistance to come in near the 120 area on SPY. That is less than 10% higher and I might suggest that this is the area investors should get cautious and not greedy. Once the current Obama euphoria is gone, I fully expect prices to test (and probably go through) the lows we saw last winter as this recession plays itself out...

But the market has not rolled over yet so lets consider where the market may move to in the short term. I believe 120 shall represent a line in the sand for the stock market because of three reasons. 1. The bear market trend line that started more than two years ago sits in this area (red line on chart), 2. The top of the recent up channel is in this area (blue line on chart) and 3. The 200 week SMA (now pointing downward!!) is in this area.

Fundamentally, the market is trading again at very lofty PE ratio levels suggesting earnings are not supporting this recent move higher in prices. The perception of 'panic' in the financial system has eased and further support for equities from public sources seems to be waning. 10,000 has been breached on the Dow and investors are feeling like everything is alright, sounds like its time (or nearly time) to start thinking short again....

Still moving up but looking a little tired

Hi there, and welcome back to CRI's S&P 500 blog.



After filling in the noticeable gap on the weekly charts (and at the same time completing a text-book 50% retracement of the entire bear market run) the market has gone basically nowhere for the past 5 weeks. Currently, we are flirting with the bottom of the bullish price channel and a break back below it would suggest the market is correcting in the short term and may give those traders out there an opportunity to make some money on any quick price fall. And really, a period of consolidation isn't out of the ordinary for a market that has rallied almost 70% from the bottom.

For those investors out there, we are still very comfortably within a bullish price trend (as signaled by the 13 EMA crossing back above the 30 SMA last May) for the SPY. Until those moving averages cross bearishly again, I shall be looking for the SPY to rally up to the 200 SMA which would bring prices to the upper end of the bullish channel we are currently in. This would also bring prices back into the range they were in just prior to last years financial meltdown which may in itself bring more sellers back into the marketplace.

As for myself, while I sit on a substantial amount of cash I am patiently waiting for either a consolidation or an outright correction before placing any new money into the marketplace...


That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

The bull keeps charging on

Hi there, and welcome back to CRI's S&P 500 blog.



In very typical stock market fashion, prices turned on a dime last March and haven't looked back since. The very consistent 'investor' indicator (the relationship between the 13 week exponential moving average and the 30 week simple moving average) suggested the bear run was at an end last May when the 13EMA crossed back above the 30SMA. While our economy's underlying fundamentals remain poor and I fully expect the lows of last winter to be tested again in earnest (and most probably broken) the old cliche, The market can remain illogical far longer than anyone can remain solvent seems to be ruling the day. Exactly where the market stops is really anyone guess and as long as the 13EMA remains above the 30SMA I will continue to look for the market to move higher...

Conservative upside targets have been hit for the SPY. The market has filled in the gap at 107.52 and has completed a 50% retracement of the entire bear slide by trading back to 103.12. The next logical resistance area for the SPY is represented by the 200 week SMA which currently sits near 120. As well, this area represents a trading zone that I believe will bring sellers back into the market place. Having said that, the period of 1974 to 1976 saw the Dow move from 1000 down to 600 and then right back up to 1000. While there is no guarantee that this will repeat itself, there are plenty of reasons why one shouldn't be surprised if the same thing happens again...

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

The march higher goes on and on

Hi there, and welcome back to CRI's S&P 500 blog.



The broader market has shown considerable resilience as we head into the last weeks of the third quarter. The S&P 500 is now (as of printing) up almost 18% year to date as the perception of an end to the recession is being priced into the market. Considering the time of year, one has to ask if this rally is sustainable. Significant technical targets have been reached and the market is dramatically over bought on the daily charts. Specifically, the gap at 108.02 (from last winter) has just recently been filled in and the market has completed a 50% retracement of the entire bear market move that started in earnest in the fall of 2008.

Regardless of what may happen, what is happening is the market is moving higher so for those traders out there, enjoy the rally and be sure to be quick on the trigger should any sort of top come in.

Looking back in hindsight one can appreciate the significance of the cross of the 13 weekly EMA back above the 30 weekly SMA back in May. Currently this indicator is still bullish with little sign of breaking back down in the short term. Should the rally indeed continue, my next significant technical upside target will be the 200 weekly SMA (currently in the 120 area) and then the top of the current upward pointing channel at or near 130.

As suggested previously, I do believe a short term correction is needed to relieve the current daily over-bought condition. As a result, I personally can not and will not add to any long positions until this happens. I may just sit in cash but I am happy being safe rather than being sorry...

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

Full Steam Ahead into Labor Day

Hi there, and welcome back to CRI's S&P 500 blog.



The market's direction is little changed since the last blog entry. The S&P 500 index [the index I like to use as a proxy on the broader stock market] continues it's relentless march higher into the Labor day holiday. Long standing targets are now within arms reach as we have slowly moved up over the past few months. So much so that we are now within 40 points of reaching into the gap between 105 and 108 and very close to the 50% retracement level of this entire bear market slide.

The very simple, yet quite consistent, timing indicator (13EMA vs. 30SMA) flashed a bullish signal in May when the short term average crossed back above the longer term moving average. These averages are now quite comfortably bullish and any correction in the seasonally weak fall period ought to be considered as a correction and nothing more for the time being. While I fully expect the lows of last March to be tested again in earnest, I do not think that will happen for some time (mid to late 2010 at the earliest) as the above mentioned moving average indicator takes many weeks (if not months) to go from bullish back to bearish.

Having said that, I fully expect some sort of pull-back heading into September/October as these are historically the worst performing months for equities generally. It ought to be noted that the current stock market rally is now more than 100 days old which in itself is a rather rare occurrence. The people at chart-of-the-day recently put out a piece speaking to this point (link: http://www.chartoftheday.com/20090828.htm?T)...

Short term traders ought to still be looking for the market to move higher into the holiday weekend while long term investors ought to sit tight on currently holdings and wait for the next pullback if considering any additional purchases...


That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

The late summer grind higher continues

Hi there, and welcome back to CRI's S&P 500 blog.



As has been the case for several weeks now, the broader US stock market continues to work its way higher into the late summer. The 13EMA/30SMA bullish signal from this past May was indeed correct and there are still two long standing targets on the SPY remaining to be hit (that being the noticeable gap on the weekly charts at 108.02 and the 50% retracement level at 108.765). Considering the typical seasonal strength we often see into the labor day weekend, it would not surprise me to see these targets hit over the coming few weeks. Once we are on the other side of the upcoming holiday (and hopefully those targets have been hit) all long side bets are off in my mind and I will be preparing in earnest for the upcoming fall. Having said that, there are still a few weeks ahead of us until that time and there are no 'sell' signals in place to speak of so I am still tilting towards the market moving higher in the short term.

It is interesting to see how both the Chinese stock market and the US government bond market are suggesting the equity rally may be running out of steam. The Chinese market broke first two years ago and while I don't see a 'crash' scenario just yet, I believe that market will lead the world in its direction again. For the record, I still do have on my short proxies in the US financial sector (long deep in-the-money GE puts & GS puts while being long TLT calls) and I will be more than happy to add to those positions on any serious breakdown as we head into the seasonally horrible time of the year (Sept. & Oct.)

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

Late summer strength may lead to long standing targets being hit

Hi there, and welcome back to CRI's S&P 500 blog.



As previously stated, the market briefly broke down in the early summer and has reversed course and headed higher. While I myself am not overly bullish, one must respect the price action and go with the trend for the time being. It is interesting to point out how the very simple 'investor' timing signal (13 EMA vs. 30 SMA) suggested the bear slide that began two years ago, ended in May. As well, both the 50% level and a large gap sit in the 108 area on the SPY. Quite often I find that these two technical indicators coincide so seeing this isn't too big of a surprise. Can we get to that target before the seasonally weak period (September and October are historically the worst performing months for stocks generally) kicks in? Only time will tell, but for the time being the market is pointing higher so enjoy the rally. Once we get past Labor Day, all bets are off and I would fully expect some sort of pull-back. Currently a 50% retracement of the up move from the March lows sits ([66.62 + 100.86]/2 = 83.74) in the 84 area and that shall be my target for any significant sell-off over the coming 2 1/2 months.

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

A head fake & a move higher

Hi there, and welcome back to CRI's S&P 500 blog.



Many of the recent tops in world equity markets have been broken to the upside. WCTS suggests equities in general ought to move higher through August as low volumes and bullish comments from central banks suggests there is little resistance to higher prices. One ought to be careful about getting too bullish in the short term as we are approaching significant technical resistance (both the gap and the weekly 50% level). As well, the September/October time frame is usually not very kind to stock prices. Having said that, we are moving higher in the short term so enjoy the rally...

Investors were given the 'All clear' signal in May (when the 13EMA crossed back above the 30 SMA) and while I have been reluctantly bullish that indicator has been correct. Traders have been given the all clear to be long on this week's break through the June highs. A word of caution though, the lows from March were "V" shaped suggesting that they ought to be tested in earnest a some point down the road. For the time being I will remain on my long tech./ short financial proxy and have added to that trade idea with the recent purchase of Jan '10 GS $120 put options. I will use the rally over the coming weeks to add to that trade as the chart below suggests that even a 50% correction of the massive rally over the past 6 months ought to bring prices back into the $110 area...



That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

Here comes the pull back

Hi there, and welcome back to CRI's S&P 500 blog.



The seasonal rally into the spring/early summer has come and gone. We are now comfortably within what is known as the 'summer doldrums' where many stocks drift. On top of the seasonal weakness that lies ahead, the economic backdrop has not improved appreciably over the past six months. Indeed, many economists are suggesting that the past 'stimulus' packages have not done enough to turn the global economy around (and specifically North America). Politicians will only throw more money at the markets when they feel their jobs are at stake and that only happens when prices are in free fall. I hope for all our sakes it does not have to come to that again, but be warned, the best of the market for 2009 may be behind us.

Of note recently, the ever so slightly bullish breakout seen only a few weeks ago on the SPY has failed in earnest. Those that played that long trade should have been stopped out. I myself have been counseling to be short of stocks (my proxy has been GE Dec Put options) and long of Gov't bonds (again my proxy has been TLT Dec Call options). Both trades have performed very well so far and yet I do believe that there is more of the same price action to come. On top of the fact that the politicians at the G8 meeting have lost interest in 'stimulus' talk, we are heading into Q2 earnings season and it may just be very ugly.

My hunch has been to expect a test of the trading range established over the past 6 months and specifically a test of the 73.22 level on SPY. Once that has happened I believe we shall get a bit of a late summer rally to set us up for a climactic push lower some time in the fall.

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

Now entering the summer doldrums

Hi there, and welcome back to CRI's S&P 500 blog.



The bullish turn in the markets (registered by the 13 WEMA crossing back above the 30 WSMA suggests the worst of the economic data may be nearing an end. Indeed, today the FOMC reiterated this sentiment and went so far as to suggest that deflation is no longer a primary concern of theirs. At the same time they did suggest that the economy shall remain weak for some time to come.

After a stunning 'V' shaped rally - the market has worked itself up into a resistance zone (represented by the Red downtrend line). Should the market continue its short term bullish breakout registered five weeks ago (with a break of the January & March highs) there is a realistic chance we may trade higher in the coming weeks but that bullish pattern is being tested now in earnest. A close below the May lows (88.15) would break that bullish pattern.

This is not an easy area of the market. Bulls & Bears each have their reasons for being so and the volatility will only get more intense as we head out of the seasonally strong period for equities and into a seasonally weak one. Personally, I feel we ought to trade back into the 70 to 75 area on the SPY and have been suggesting this for some time now. For the bulls sake, lets hope I am wrong. For my pocket book's sake, lets hope I am right.

Currently (as per the June edition of CRI newsletter) I am long GE Dec. Put options and long TLT (that's a proxy on the bond market) Dec. Calls. If I am to be short, my preference is to be short financially related issues. If I am to be long, it is in anti-stocks (ie bonds).

Currently I have no long equity exposure with more than 90% cash....

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

The bulls won....for the short term anyway

Hi there, and welcome back to CRI's S&P 500 blog.

Because I belive we are nearing a key pivot point in the season trade I have included both the weekly and daily chart for reader reference. As of our last post it honestly looked like we were about to tip over. But in typical market fashion, we reversed off the lows and punched our way through the top of the 28 week trading range. The bulls indeed won the battle and have prevailed . The question is, does this represent a low risk buying opportunity or a potential trap?

Here then are the charts and my associated comments:





As a trader, I just want to go with the price action. As the daily chart included suggests, it looks like the market wants to push its way up into the 98 area (Bull flag formation on recent breakout). But the investor in me says, wow, that's a lot of risk to take (50% rule and Gap a long way down) for such a little reward. As well, momentum and volume have not moved higher on the recent breakout suggesting that the market isn't nearly as strong as price would lead you to believe. On top of that, we just left the month of May and the time tested cliche doesn't say 'buy in May', it says 'sell in May'....

Put it all together and I still believe we are in the process of topping out after a climactic 'V' bottom bounce. Notice that the rally has just now taken us back to the 200 day SMA. This 'cleaning-up' period may take the entire summer to play out - if not into the fall. And as previously stated, my target window on a correction will be a serious test of the 73 area. Yes there is upside potential still but now the market is quite risky again.

For those that where watching our potential sell signal from last posting ('on a move through 88.13') it never happened and so as a result I am still waiting patiently to put on a short position on the S&P 500. I notice too that the Dec 85 puts are slowly working their way lower in price. I would ideally like to buy 6 months of time, and we know roughly where this market may go on a correction, so I will move my attention to ROQ-XG wanting to buy at or near $2.50. Should the market come back to 50% level over the next 6 months this option will have an intrinsic value of $4 to $5 dollars or double what we want to pay. Currently they last traded $4.75...

So in summary then, the market has climbed the wall-of-worry. We have broken resistance and are pointing higher for the short term. At the same time, we have gone straight up from the bottom. Yes the longer term picture is looking better but a short period of cleaning up ought to occur. I am not buying this rally. I am using this rally to buy discounted 6 month Put options. While I do not currently have an SPY position, I would like to and will be watching closely for an entry signal.

While not specific to this board, it ought to mentioned I am building a Dec. put position in GE and a Dec call position in TLT (please refer to the June Newsletter - due out in 2 weeks for more on those trades).

And of course, please remember, option trades are for risk capital and (as options can expire worthless) buying calls and puts are considered by the investment industry as high risk trades!

Don't commit more than 5% of your 'stake' on any one play. If you do get filled be sure to have your order to sell (at least 1/2 position) working right away at your taret.

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

Bears taking over again?

Hi there, and welcome back to CRI's S&P 500 blog.



Regular readers will recall my oft use of market cliches and there is no bigger than 'Sell in May and walk away'. Needless to say, I have been taking profits myself and encouraging others to do so as well. Yes the longer term picture is finally starting to turn up, but a new 'bull market' is still some time away.

The chart above (and my comments from last week) suggest we may need to do some corrective work in the market place over the coming weeks. The 50% level of the recent move up currently sits near $80 on the SPY and I would be willing to bet that we will go to somewhere near there. The low from last November (a level that I think needs to be tested again in earnest) is 73.22.
I will be using this target window (73 to 80) for the SPY going into the early summer.

Technical Trading alert (short term traders only):
For those that do wish to trade this anticipated move, here is a Daily chart of the SPY that I have put a TTA (Technical Trading Alert) out on:



I especially like the August $85 put option on SPY. If the market goes to $80, they will have an intrinsic value of $5, if $73, $22....They have moved up a bit today with the breakdown in SPY (curr $4) so don't chase them. I have an open order to buy at $2.50 (1/2 of what I think they will be worth at the 50% level). There is a gap from yesterday's open at $90, if the market rallies into that window I ought to get my fill.

Remember, this is for risk capital and is a high risk trade!
If you do get filled be sure to have your order to sell (at least 1/2 position) working right away.

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

A Glimer of Hope

Hi there, and welcome back to CRI's S&P 500 blog.



Reader's of The Canadian Rational Investor Newsletter will remember our sector performance model (April, 2009 edition) and its suggestion that the financials would outperform during the 2nd quarter. Indeed that has been the case and has pushed the markets dramatically higher. The S&P 500 itself is up 40% from its lows!
Everyone enjoying the volatility?

While I have been reluctant to get too optimistic over the past quarters, there are early signs of a market bottom.
1. For investors, the 13EMA has finally crossed back above the 30SMA. Readers will remember the last cross came (bearish) in November, 2007 when the S&P was near 150! While the cross in itself is a poor timing tool, it is one indication that the 1 1/2 year bear market may finally have exhausted itself. Quite often though, I do find that just after a cross (either bearish or bullish) there is a counter trend move to test the market's resolve. Sometimes the test pushes a market to new lows sometimes not. It is far too early to say that this is indeed 'the bottom' but from this technical tool's perspective, things are getting better...
2. Because of 1. above (an expectation of a re-test of the lower end of the recent trading range in the coming weeks) if the market can test the November 17th low (at or near 73.22) and turn back up through the top of the recent trading range (at or near 93.88) we may be setting ourselves up for a dramatic upward push that may take the market right back up to the old highs.....that's right....right back up to the old highs!

What a world we live in. Indeed, an old broker buddy of mine (During the Bre-x days) used to say "you just can't write better fiction than reality"...so true Jack, so true....

To summarize then, I believe 'the crisis' in the US capital system is nearing an end ...for the time being... Investors may again look to invest in the US equities with some confidence that the broader market isn't working against them (QQQQ Monthly bottom!). Traders however are still assuming their short positions (Short from 73.22 with stops just above 93.88) and one should be prepared for a serious test of 73.22 level over the coming weeks/months....Short term traders can be selectively long but be warned....this is a very risky time to buy....remember the time tested cliche....Sell in May and walk away...

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

Maybe the panic isn't over yet

Hi there, and welcome back to RI's S&P 500 blog.



The previously reported breach of the upper end of the 'panic' bear chanel that was recently reported may have been a little haste. New confusion with regard to what are now being called 'legacy' assets by the big banks and an anticipation of poor earnings, have brought the recent rally into question. It seems ironic when one looks at the chart above and sees that the recent optimism hasn't even broken the most recently trading sell signal, go figure.

Considering too the upcoming cliche.....'sell in May and walk away', one shouldn't be too surprised if we indeed do have to take a pause here. Consider too the January Barometer and one also is left with the feeling that the market may have to move to the downside in the not too distant future. Lets hope I am wrong and we do indeed have a further upleg to go as we head into May...


As has been the case for some time, investors still have no reason to be invested in the S&P 500 (and US stocks in general). Weekly Traders should be short the US market from the indicated points and Daily traders should be very selectively long. While I do personally remain long a number of issues as we head into the anticipated seasonal peak in May (mostly in Venture Cap issues related to the metals markets), make no mistake, I plan to liquidate these short term trades soon, especially if I start seeing M tops...


That's all for this week,
Brian Beamish FCSI
the_rational_investor@yahoo.com
the-rational-investor.com

Panic is subsiding but no buy yet

Hi there, and welcome back to RI's S&P 500 blog.



Here is the cover commentary from this quarter's RI newsletter:

"Hello again from the Rational Investor. The first quarter of 2009 is now behind us and it is time to look forward into the spring. As is often the case, the markets are enjoying a seasonal bounce off of the lows made last fall. This time around, we seem to be ‘climbing the wall of worry’ regarding the economy and the duration of the current recession. Ironically, it is at the time when the talking-heads are most pessimistic one ought to be interested in the market. And only when they turn bullish should we consider exiting. How long this current rally can last is anyone’s guess but considering the bearish economic backdrop, the horrible January Barometer reading, and a market that has now relieved the oversold condition it was in a few months ago, a seasonal top may materialize sooner rather than later. Regardless, the market is moving higher so as one pier use to tell me, “make hay while the sun’s shining my boy”…"
(for your subscription to the rational Investor please visit the web site at http://www.the-rational-investor.com)

I think this sums up the market well. As investor optimism gowns into the typical seasonal peak one ought to look for a serious test of the current stop point somewhere near the 95.00 area on the SPY. Once the seasonal top is in I would expect the lows of the winter to be tested once again. It would only be at the point where the market tests that low (and it is not breached) and the reverses and turns back up through whatever high we register over the coming weeks to truly believe the market (and the economy) has turned the proverbial corner.


Considering the January Barometer's reading (go to the web site for that article) traders are not expecting this market to bottom just yet. Until this 'W' pattern does come in, I will temper my enthusiasm. Having said that, as the above commentary says...there are few periods of the year when the bullish sentiment pushes the market higher. We are in that kind of period now. For those bullish traders out there -enjoy it while it lasts. Once the seasonal window closes (I am using the June deadline for the conversion from analogue to digital TV service as my catalyst) I shall once again look back to the downside as we head into both the summer doldrums and then the fall.

That's all for this week,
Brian Beamish FCSI
the_rational_investor@yahoo.com
the-rational-investor.com

A Bounce In A Bear

Hi there, and welcome back to RI's S&P 500 blog.



The definition of a bear market is one that makes lower highs and lower lows and one that has moved more than 20% lower from its peak. As the chart above clearly demonstraights, we are now down more than 50% from its peak of more than one year ago and we continually make lower highs and lower lows. In a simple sentence - this is a bear market and will be until the market can establish a pattern of higher highs and higher lows and one that stops going down!

Having said that, we here at the RI, we have been looking for an ultimate move lower into the high 50's on the SPY. This target was established when the market confirmed the bear-flag-pole formation - refer to blog from March 10th - 'To give us an idea of a possible downside target one only need to look at the bearish flag-pole formation. (where the market peaked last Aug. near 128 - then fell dramatically down to a low near 82 in Sept. - then rallied back up to 105) . A break of 82 (which happened in Nov.) suggests prices need to fall down to the 59 level.'

What does this mean, traders ought to be short on a break of the recent lows (at or near 73.74) with stops just above the recent peaks (at or near 95.00). Investors have no business even looking at the US stock market for now. Current downside targets suggest the 59 area on SPY should be tested in the coming months.

That's all for this week,

Brian Beamish FCSI

the_rational_investor@yahoo.com

the-rational-investor.com

Lower highs and lower lows defines a bear market

Hi there, and welcome back to RI's S&P 500 blog.



The bear grinds on and on....

Looking at the above chart one can't help but feel a little depressed. We are now down 50% from the peaks amid 30 year highs in unemployment and a frozen banking system.

As a leading indicator, the push lower (and a break of the important fall low at 73.74) suggests we are not out of the woods yet. And the January Barometer (please visit website at http://www.the-rational-investor.com for your copy of this handy report) suggests there is further price deterioration ahead. Ugh!

Again, referring to the chart above, we are now comfortably within a steep downward pointing channel (deep red lines). This is bearish and will remain so until we start seeing higher highs and higher lows. As well, the moving averages are very comfortably bearish (13EMA < 30 SMA) also suggesting we will remain bearish for some time to come.

Should a rally come (very remote at this time!), my ultimate upside target for the present will be the gap (gaps don't like to be left open - especially on weekly charts) between $105 to $110. This would represent a move back to 10,000 on the Dow and a big psychological target going forward too.

What does this mean, traders ought to be short on a break of the recent lows (at or near 73.74) with stops just above the recent peaks (at or near 95.00). Investors have no business even looking at the US stock market for now. Current downside targets suggest the 59 area on SPY should be tested in the coming months.

That's all for this week,

Brian Beamish FCSI

the_rational_investor@yahoo.com

the-rational-investor.com

The Painful Road Lower

Hi there, and welcome back to RI's S&P 500 blog.



The important 73.74 has been broken on the SPY suggesting there is further downside price pressure in our future (ugh!).

As stated previously, weekly signals are still very much bearish so there is no reason for an 'investor' to be even looking at the stock market.

Traders should indeed be short from these levels with your associated stop just above the recent highs at or above 94.55...

Down side trading targets: The recent failure of the market at 73.74 suggests lower prices going forward. To give us an idea of a possible downside target one only need to look at the bearish flag-pole formation. (where the market peaked last Aug. near 128 - then fell dramatically down to a low near 82 in Sept. - then rallied back up to 105) . A break of 82 (which happened in Nov.) suggests prices need to fall down to the 59 level

That's all for this week,

Brian Beamish FCSI

the_rational_investor@yahoo.com

the-rational-investor.com

And The Bear Grinds On

Hi there, and welcome back to RI's S&P 500 blog.
(The is a re-post of the missing blog from Feb 25th, 2009)



The recent trading range is being tested to the downside. Among further talk of bank failures in Europe and North America, the selling on Wall Street continues.

Because this a re-post and not the original post (lost somewhere) I will keep comments to a minimum.

Traders should look to go short on a move in earnest through the fall lows at 73.74 on SPY. Should that trade occur, place you stops just above the high of the range at or just above 94.95.

Since the 13EMA is well below the 30SMA, investors shouldn't even look at the market. We are very much in a bear market with lower price expectations for the future.


That's all for this re-post and lets hope next week's blog isn't lost,

Brian Beamish FCSI

the_rational_investor@yahoo.com

the-rational-investor.com

Here comes another Big Test

Hi there, and welcome back to RI's S&P 500 blog.



One might say the honeymoon is now officially over!

After a month of love over the new US President partisan politics have once again taken over Washington. As a result, we have now come to the first big test of the new Obama administration.

On concerns about over spending (of all thing!) the recently proposed 'stimulus' package has now come in doubt. As the current bill has been delayed in the US Senate, equity prices (and specifically bank stocks) have fallen. Should the market believe the package will fail to meet its' needs prices will break support (currently near $80) and a new sell signal will be established for the US equity markets.

The true irony of this situation is the fact that the now 'fiscally conservative' Republican party are the same politicians that saw the total US debt more than double over the course of the Jr. Bush years. Now the remaining Republicans in the US Congress have abandoned the new President - suggesting that his proposals are nothing more than waist-full spending, how pathetic! Remember too, not a single Confederate state voted for Obama last Novemeber, who say's race isn't an issue any more......

I'll get off the soap box now.

Summary: Short term traders may look to play a break of the recent trading range (as noted on the chart above). Investers have no business even looking at the stock market now.

That's all for this week,

Brian Beamish FCSI

the_rational_investor@yahoo.com

the-rational-investor.com

The Bottoming Process Grinds On

Hi there, and welcome back to RI's S&P 500 blog.



The short term bottom we thought was in the market last post has been broken. While we know the medium term trend remains down and shall be so until the 13 EMA crosses back above the 30 SMA, there were indications we might get a rally into the Obama inauguration (Jan 20th). The January Options expiry proved to be too much supply and the little uptrend that was in place was indeed broken. Notice too that the market rallied up to the 13 EMA and then backed off [Technician's note: This is a great little timing tool on its own as well]. Should we put in any type of top over the coming weeks it shall suggest the lows of the fall will need to be tested in earnest.

We are once again left sitting on the sidelines for the time being. As previously stated, medium & long term investors have no business even looking at the stock market yet, but traders shall (at some point) be given an entry point on a long trade that I believe will ultimatly take us back to the 50% level (near 113). Considering the seasonality, I wouldn't be surprised if that occurs some time into the spring. Unfortunaly, that trade isn't here yet, so once again we are left to sit on cash and watch the fireworks.

That's all for this week,

Brian Beamish FCSI

the_rational_investor@yahoo.com

the-rational-investor.com

A Bull run amid a Bear trend

Hi there, and welcome back to RI's S&P 500 blog.
Hope all had a good Christmas and a happy new years

Now on to the market!


After months of enduring one sell signal after another, we can finally call a bull trading signal and suggest traders ought to take the appropriate stance. Considering the seasonality, the poor investor sentiment and the anticipation of a new stronger leadership (along with billions of dollars of stimulus) one should not be surprised to see a tradable bottom come in.

Having said that, this can only be viewed as a short term bullish signal, the medium term down trend is very well in place and a rally in the short term shall only take us back into the actual down trend channel. As well, the lows of fall ($73.74) were never really tested in earnest leading me to believe this level will need to be retested again in the future. It may take months, maybe even years, but this level shall be tested again.

With the market (and the SPY in particular) closing above the previously stated upper trading range mark ($92.38) the market confirmed a short term bull flag formation and now has an initial upside price object of $103.44. Coincidentally, we have the gap from September to be filled near this level, and the bottom of the down trend channel rests near this level as well. Adding to the bullish case, the bearish spread between the 13EMA and the 30SMA is very wide and while this in itself isn't a reason for the market to move higher, this relationship should come back into normal levels. And lastly, the steep down trend channel in place since the gap lower in September has been broken and now represents support rather than resistance. Again, this in itself doesn't suggest higher prices, butit does suggest support should the market need to pull back.

Put it all together and I think we have something quit normal. Seasonality, sentiment and short term euphoria are all contributing to an oversold rally within a long term bear market. For those that make a living from the stock market, make your money now because once the rally is over, we will probably head right back into doing nothing.

That's all for this week,

Brian Beamish FCSI

the_rational_investor@yahoo.com

the-rational-investor.com