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