Sunday, May 30, 2010

Peering over the edge

Hi there, and welcome back to CRI's S&P 500 blog.



Due to being unavailable, CTS was not published this week at it's regular time and date. I have published this special weekend edition to bring readers up to speed with my thoughts on the broader equity markets...

The highs of early May are looking farther and farther away and the old time tested adage....Sell in May, and walk away seems more validated with every passing day. Traders, of course, got their sell signal when the rally failed at key daily support (just below 120) four weeks ago but investors haven't been given any new signals other than to be long and stay long.

The current correction is five weeks old and comes on the heals of an eleven week rally. According to cycle analysis, corrections are often half the duration of the primary move. So one may extrapolate that we are quickly approaching the end of the correction cycle window. Interestingly this week, we took out the lows of last week and the lows of three weeks ago but then quickly reversed to close up a little bit on the week. As well, we have not yet moved through the significant lows of last February at 104.15. What does all this mean? I don't think we are going lower. I think a substantial base is being formed at or near 104. Having said that, it also means that IF we do trade back below 104 now, the market may move down very hard.

Form a bigger picture perspective, I find it interesting that almost all of the equity markets followed in The Canadian Rational Investor's weekly Commodity Trend Spotlight have moved into STOP positions. This means that while the trend may still be pointing higher, CTS doesn't recommend being in the market. And frankly speaking, the futures markets are WAY too volatile for anyone to be trading the markets in earnest right now.

For more on this weekly service, please visit http://www.the-rational-investor.com/RI_Tradents.php#wklysumm

Continuing that theme, I thought I would add a 50% retracement of the lows of '09 to the recent highs to see where a correction in earnest ought to find support. While I don't have enough confirmation to really believe the bull run is over, the fact that CTS is flat on the S&P 500 (as well as many other equity futures markets) coupled with the fact that we are currently 10-15 percent above the 50% rule level, suggests to this market participant that at worst our expected seasonal top is officially 'in' and at best our upside objectives ought to be tempered for the time being.

Since our time tested 'investor signal' (that being the relationship between the 13 EMA and the 30 SMA) is still positive I must remain relatively bullish and will still look for the highs of May to be testing in earnest over the coming weeks/months and an ultimate test of the 126 area some time down the road. Should the 13EMA/30SMA relationship change I will change my investor stance. But lets not put the cart before the horse.


That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

Tuesday, May 11, 2010

A big scare but no breakdown yet

Hi there, and welcome back to CRI's S&P 500 blog.



For those that follow CRI's S&P 500 blog regularly, the dramatic drop seen recently should not have come as too big of a surprise. Nor should regular readers believe that the current bull run in the broader equity market is over either. For 'traders', profits should have been taken up top and the pull back should have represented a good re-entry point. For 'investors', the events of the past few weeks are literally a non-event. So the question one has to ask oneself is, what kind of stock purchaser am I?

Some interesting things to point out this week:
1. I find it incredible that the market dropped to 105.00 on the nose and that the latest weekly support point was (and still is) 104.16. In other words, the whole move was a non-event and we are still well contained within the weekly double bottom price pattern on SPY. This 'W' pattern was confirmed when the market broke-out (the week of March 8th) and moved above 114.67. Stops on that trade should have been set just below support at 104.16 and the dramatic move to 105 only meant that the trade was underwater, not closed. Those stops should now be moved to just below the recent low of 105.00. If that level is broken the the trade is over, but that hasn't happened yet.
2. Following the markets for over 20 years I have found that moves like this are not the end of the bull run. Rather, the quick move down has cleaned out the 'weak' hands and may lay the floor for another move higher. While my seasonal targets of 125 to 126 remain, I do believe we may be setting the stage for a substantial move higher over the coming quarters. Technically speaking, if the market can get back above the recent highs (122.12 on SPY) then one has to have an ultimate target up into the 137 area!
3. I couldn't believe how quickly the market pundits turning bearish. One would think that capitalism itself was coming to an end the way the media churned the story. So too about the Euro-currency. Stories of the end of the Euro and how the Euro system can't work have dominated the headlines. Yet all that is needed to calm the market's is some leadership. The Euro zone indeed 'stepped-up-to-the-plate' this weekend and the markets calmed appreciably.

So in summary then, traders got a great buying opportunity recently and investors are sitting long and enjoying the ride. Yes this consolidation in price may persist for a few weeks to come but no, the bull isn't dead yet....

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

Thursday, May 6, 2010

Markets go boom....but its not as bad as you might think

Hi there, and welcome back to CRI's S&P 500 blog.

This is a special edition due to the dramatic swings seen today in the broader stock market.



Lets start off by stating, stocks rarely begin bear markets with one day's price action. As well, one ought to keep in mind that 400 plus point moves in the Dow are usually seen at the end of moves not the beginning.

With the above in mind, lets take a good look at what is happening today and try to put it into some context.

1. Yes the market is down big today. But what is most interesting is that we DID NOT break the significant low registered in February at 104.15.....They took the market down to 105.00 but no further. What does this mean? It means that the primary weekly uptrend is still in place. Should the 104.15 level get taken out then I will have no choice but to declare this latest bull run to be over....but that has not happened so one must still look for higher prices to come. On top of this, the weekly 13 EMA is still above the weekly 30 SMA - so from a technical perspective, this down-move (so far) is nothing more than a healthy correction.
2. My latest post (Tues. May 4th) suggested to readers that we where officially into May and one ought to be looking for a correction. Time and time again I have stated the simple market axiom....sell in May and walk away....so a correction in May should be no big surprise to anyone.
3. My latest post also suggested that there was a small gap at 110.29 that needed to be filled in and that a 50% correction of the move up (which starting in Feb.) ought to take prices back to the 113 area (the market is 112.61 as of writing this note!). I also suggested that a move back to these levels ought to represent a buying opportunity for traders.

So in conclusion, this big down move should not have come as a surprise to anyone. The market has held key support (for the time being) and as long as it does, I shall continue to use pullbacks like we saw today as buying opportunities for traders. Since the 13 EMA is still above the 30 SMA today's action ought to be seen from investors as a non event.

That's all for this special edition,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

p.s. indeed, stocks that I recently sold (like AOS-V and SSW-N) have fallen appreciable and I have started to buy them back :)

Tuesday, May 4, 2010

Traffic near our targets

Hi there, and welcome back to CRI's S&P 500 blog.



We are now officially into the month of May and I shall be looking for a seasonal top in the coming weeks. For nine weeks now we have had two primary upside targets [The trading range breakout suggesting prices wanted to move an equal distance above the old range: 125.19 & the highs from Aug. 2008: 126.24]. While these specific numbers have yet to be hit, the market did rally to a high of 122.12 (or 3 points below our first target) just last week. Should this represent the seasonal highs, I would consider this to be a 'close-enough' move to satisfy our objectives.

If this indeed is the start of a short term correction one ought to expect at least a 50% correction of the most recent move higher. Our 'Investor' stop still sits just below the lows of February of 104.14. Add this to the most recent high (122.12) and divide the result by 2. The 50% level then is 113.13. As well, I do notice that there is a small gap at 110 that ought to be filled at some point down the road.

For the record, there are no specific sell signals with this current consolidation. Traders ought to look at this as an opportunity to buy stock on a pull back while 'investors' ought to just sit tight. The relationship between the 13 EMA and the 30 SMA still looks bullish and we shall remain 'investor' bullish until these moving averages cross again...

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com