Hi there, and welcome back to CRI's S&P 500 blog.
As has been the case for eight weeks, the broader US stock market continues its recent consolidation. This correction came on the heels of a massive 20% appreciation in equity prices from the last significant 'investor buy signal' which was registered immediately after the US mid-term congressional elections, last fall.
last week's blog entry detailed: "For those 'investors' that were able to buy last fall, they should still be long with their respective stops moved up to just below the most recent pull back level (just below 124.74). Our time tested simple trending indicator (the relationship between the 13 EMA and the 30 SMA) is still very bullish so as 'investors' we are left with no change in our position - be long and stay long. Indeed, while the news headlines called for impending doom, little to no real technical damage was done suggesting that the correction was little more than an attempt by the market to wash out the 'weak-hands'. "
When I look at the chart above I get the impression of a classic seasonal top coming into the market. While the market has yet to 'break down' in earnest, one must appreciate the old addage "sell in may and walk away" Almost every market followed in CRI's WCTS is rallying into May and to me, things seems a little too rosy out there. Keep in mind, we just went through one of the biggest market corrections (where the SPY lost more than half its value) in about 2.5 years. It then seems logical that the 'dead-cat-bounce' ought to be somewhere in the neighborhood of 1.75 years (half the period of the sell-off). Considering that the market has rallied for about 2 years, one can argue that the 'dead-cat-bounce' has lived far longer than expected and that maybe we are getting a little over extended.
Of particular fundamental note today, one of the market darlings during this past run-up, Google, has been severely punished today for missing its earnings expectations. The stock itself is down more than 7% (down $44 at $534) as of writing this entry and clearly demonstrates to me that stocks can still be hurt very badly in a very short period of time. Additionally, if market darlings are starting to fail, how can the broader market stay up without any leadership.
As stated previously, the broader market HAS NOT broken down yet. So while I am cautious (and certainly not buying anything new at this point) one must respect the fact that we are still pointing higher. 'Investors' should still be long and stay long until our time tested indicator (that being the relationship between the 13 EMA and the 30 SMA) turns bearish OR the most recent stop point (a close below 124.74) is tripped.
These are dangerous time up here in the nose bleed section, but as long as the market keeps making higher highs and higher lows one must still be looking for higher prices. Needless to say, I shall be watching both the 134.11 (for a higher high) and the 124.75 (for a lower low) areas very closely...
That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com
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