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