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