Hi there, and welcome back to CRI's S&P 500 blog.
Not to sound like a broken record, but the seasonal peak we traders look for into the spring seems to be establishing itself once again. The cliche, Sell in May and Walk Away, isn't a cliche because it doesn't happen. Looking at the market from a one year perspective, we see that prices have been basically trapped within a rather steep upward pointing channel where only three times in the past year has price moved out of the channel.
The past week's failure through the very steep price channel (that was established earlier this spring) leads one to believe that the bottom of the one year trend channel is going to be tested in earnest over the coming weeks/months. Investors can take comfort in the simple fact that our time tested trend indicator (that being the relationship between the 13 EMA and the 30 SMA) is still very bullish. Traders on the other hand will be watching the 129.51 level as that is short term support. If broken, traders would have no choice but to move to the sidelines. For now we must remain relatively bullish but should price continue to deteriorate both investors and traders may be forced to change their respective stances.
Given the poor fundamental backdrop in North America (an already high unemployment rate coupled with historically low short term interest rates) and the rising tensions over European debt problems (and their associated austerity measures) maybe equity prices have gotten a little ahead of themselves. While we have not broken down yet, if we do indeed roll-over, serious support is a long way down from here (200 SMA currently near 112). Lets hope that doesn't happen (and that we basically trade sideways for a period) but if we do break in earnest, be prepaired for a potentially dramatic pull-back in price.
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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