Tuesday, October 20, 2009

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....

Tuesday, October 13, 2009

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

Tuesday, October 6, 2009

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