Massive resistance suggests top is within sight

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

The broader US stock market (as measured by the S&P 500 index and its associated exchange traded fund SPY) suggests there is mounting evidence that a seasonal top could be forming. This week's price chart has what I believe to be the three dominant price channels drawn on it. Channel A represents the weekly up trend established off the breakout lows from last falls mid-term US congressional elections. Channel B represents the monthly up trend established when the market broke the spring '10 highs near 120. And finally, channel C represents the daily breakout established just three weeks ago apon the news that the Fed would continue its QE2 program into June '11. These channels seem to intersect just above where we are now (right about the 138-140 level). Regular readers will recall that CRI's most recent bullish price target happens to be right in that area too (138.77). The price action of the past few weeks has been up and down but as these three chanels suggest, we are still very much within the confines of a bullish market. A last testament to that underlying bullishness, our time tested 'investor' signal (that being the relationship between the 13 EMA and the 30 SMA) is still pointing higher.

For those 'investors' out there, your last buy signal came 35 weeks ago (and now some 30% ago!). Your position should still be long from about the 111 area with stops just under the most recent significant pull-back (near or just below 125). Be long and stay long until either the 13 EMA moves back below the 30 SMA or your stops are taken out.

For those 'traders' out there, your last buy signal came just 3 weeks ago with the confirmation of the short term bullish flag pole formation [(134-124.74)+129.51 = 138.77]. Please refer to the  S&P 500 blog from two entries ago for a detailed look at that target. Stops for traders ought to be just below the bottom of the flag (at or near 129.51 area).

In conclusion

We are getting very close to some major technical resistance in the market. Additionally, we are coming close to the US Fed's stated end of QE2 of June, 2011. Lastly, the cliche seems very appropriate that one ought to seriously consider 'Selling in May and walking away' becuase they don't call it a cliche because it never happens!

That's all for this week,

Brian Beamish FCSI

The Canadian Rational Investor

the_rational_investor@yahoo.com

the-rational-investor.com