Saturday, January 17, 2009

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

Wednesday, January 7, 2009

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