Bearish momentum building

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



We are now entering our 5th week where the weekly 13 EMA is below the 30 SMA and the market has fallen 5% from that signal level. The typical seasonal top one should expect in the month of May has progressed into a cyclical top of the dead-cat-bounce that was initiated almost exactly one year ago. 'Investors' should be on the sidelines until this relationship corrects iself, 'Traders' should be cherry picking shorts as they become available...

Currently, the significant lows of just a few weeks ago (103.85) are being tested in earnest. Due to the five bearish fundamental circumstances listed in last week's blog, one ought not to be surprised to see lower prices and the trend for lower prices build. Along with the very simple 50% rule (suggesting real support in the short term exists near 93), a bearish flag pole formation is building. While not confirmed yet, a move through 103.85 would imply another 10% fall in the broader market. and would represent one of those cherry picker short positions a Trader might consider....

The recent G-20 meeting did little to calm the markets and may have even exacerbated the European debt crisis in that no clear direction can be seen by the group and even worse, European governments are stepping up 'austerity measures' when (according to Keynesian economic theory - Wiki link: http://en.wikipedia.org/wiki/Keynesian_economics) they should be doing the exact opposite.

With the stock market now no longer over sold and really on no-one's radar screen, it seems to this market participant there needs to be a great deal more monetary blood-shed before any further stimulus measures can gain political support.

Be careful of the danger of short term trades turning into long term investments...


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

Rally to trendline within bearish consolidation

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



For three weeks now we have been flashing a bearish 'investor sell' signal warning for the broader US equity market (as measured by the S&P 500 depository receipts - SPY). This signal was confirmed with the second consecutive closing of the weekly 13 EMA below the 30 SMA last week and has been given further validity with another bearish close this week.

Five reasons why stocks may under perform for the next little while.
1. Year over year & Quarter over quarter earnings comparisons getting difficult
2. Short term credit crunch back underway
3. Seasonal window of stock strength over
4. Government stimulus ending
5. Regulation building

Because of these fundamental circumstances a capitalist ought to be cautious at best. Adding in the poor technical picture and any Rational Investor ought to just sit on the sidelines until the public is panicking once again...

As for downside objectives. A 50% retracement of the 1 year bull run would bring prices back into the 93 area. Additionally, a breakdown through the lows of just a few weeks ago would represent a bearish flag pole formation and suggest a target around 95. Because of these two technical objectives I shall be looking for the highs of June '09 to be tested in earnest over the coming months...

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

Overhead resistance is building

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



The market has rallied off the lows of last week back into resistance (13 EMA & 30 SMA). More importantly, the 'investor' buy signal (registered May, 2009) has reversed and is now in a bearish stance (where the weekly 13 EMA is below the 30 SMA). While it is ever so slightly negative it is negative and as a result all those who consider themselves 'investors' in stocks ought to seriously consider liquidating those long positions and siting in cash for the time being.

For those traders out there, I do anticipate some sort of rally to begin in earnest for the first two weeks of the third quarter (the first two weeks of July) as new money is placed in sectors that are considered to be growing. Some sectors will outperform while other will under perform [for more on this be sure to watch for CRI's First Two Weeks of the Quarter report usually published the third week of each quarter). As for the broader market (as measured by the SPY) I anticipate considerable resistance to show itself on any move into the 114 to 116 area (or about 5% higher). Resistance is well established from the rally peak in early January (at 114.67) and the 200 week SMA (at 116.32). and I will use this target window (114.67 to 116.32) for an anticipated summer rally.

Should this mini rally take place over the summer months, I can see a potential Head & Shoulders price pattern forming. Should it play itself out, a breakdown this fall through a neckline (at 104.67) would project prices back down into the 86 area ([122.12-104.15]-104.15) = 86.18). Similarly, if one were to take a 50% retracement of the one year bull run, the target would be in the 94 area [(65.31+122.12)/2 = 93.715]. With these two numbers in mind, my target window for this fall's anticipated correction ought to be from 94 to 86. Which happens to be the trading range from the summer of '09.

Incredible how these things all come together like that, isn't it...

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

Has the party come to an end?

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



The seasonal top of early May has developed into a broader cycle top (as measured by the SPY - S&P 500 depository receipts - also known as the SPDR's ETF).

For several weeks now we have cautiously watched the market take back the rally that started in February (from 104.15). While this important level has held, several technical problems have developed over the past week that lead this market participant to believe that the one year bull run off the '09 lows has come to an end.

These include:
As well as failing to hold the 200 week SMA (in late April) the market has broken back below both the weekly 13 EMA and the 30 SMA. In essence, there is very little holding this market up going forward. So where is support, you ask? For help with this we ought to refer to the simple time tested 50% rule. This is where one takes the highs and lows of the last year and add them together (in this case 65.31 + 122.12) and then divide the result by two. Currently the 50% rule suggests that real support currently sits around 93.71 or some 14% lower than where we currently are. Additionally, our time tested 'investor' indicator (the relationship between the weekly 13 EMA and the 30 SMA) has now turned negative (as of printing 13 EMA at 112.14 and 30 SMA at 112.19).

While the market from a Daily perspective is quite oversold, I am now of the belief that any rallies going forward shall meet significant resistance in the 112 to 117 area. Should we be given an opportunity, one ought to consider a move into this area (over the course of the summer) to be a selling opportunity.

At the same time, those who are not inclined to 'trade' the market ought to just get out now. Indeed, this is a bold statement, but time and time again, I find that the charts tell you to act well in advance of the 'melt-down' and I do believe we are being given advanced warning that the party may indeed be over...


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