Hi there, and welcome back to CRI's S&P 500 blog.
near 6%Just when you least expect it....kaboom....a rally!
We here at the Canadian Rational Investor have been doing this so long that we could almost feel a rally coming as we headed into the pre-holiday trading period. The small failure at 130 and the subsequent bullish moment divergence on the 60 min chart led us to believe that a rally was imminent and sure enough, on almost no volume, they were able to bring the market back close to 6%. What is interesting is that we are just now back at the original top put in on the weekly charts with the outside downside reversal mentioned in previous posts.
So lets take a look at things from our trader/investor perspective.
Traders: Well, if you didn't take advantage of the 'dead-cat-bounce' then you really shouldn't consider yourself a trader! Daily charts were heavily oversold the put/call ratio and the short term trading index were at lofty highs and in very typical trader fashion, they were able to take the market up into the July 4th long weekend on very little volume. Traders should have been all over the trade on a move back above 130 (128.32 to be precise). I had someone ask me today about new long positions and I suggested that the risks now are almost 50/50 from here - the easy trade is gone....
Investors: If it is one thing I have come to rely upon it is the old time tested trending indicator (that being the relationship between the 13 EMA and the 30 SMA on the weekly charts) and it has proven its worth again. Regular readers will recall in our last post how we were getting worried that indeed the market may be rolling over. I stated, "...On the failure last week, the 13 EMA is just a fraction above the 30 SMA and unless there is some sort of explosive rally coming, that relationship will turn negative for the first time in six months." Well, the explosive rally did come and because of the rally, the moving average relationship is still bullish. Important here is the 'kiss' effect - what I mean by this is that whenever moving averages come together and 'kiss' but do not cross, we get an important pivot. Since the initial move lower was 'V' shaped (An inverted 'V' really) and we all know markets like to make 'M''s when they top, we didn't have alot of confidence that the market had indeed topped. Now that a rally has come, the market has found an important low and we know that if that low fails again, we are definitely heading lower. With all that said, investors can now, quite comfortably, move collective stops to just under the most recent sell-off's lows (in this case the low is 125.70...so something like 125.67) knowing that if the market breaks these levels an 'M' top will have been registered and that (in all likelihood) the moving average relationship will cross back into a bearish stance.
So in summary then, we got the dead-cat-bounce were looking for and an important new low has been registered. Our cycle analysis suggests this market still wants to go higher into the late summer so traders ought to be taking advantage of low volume spikes. Investors ought to still be long with the notion that a failure of the recent lows may be the big 'sell' signal we have been looking for. While the market is ok in the short term, one has to appreciate the building case for a modest correction to bring us back down into the 'support zone' highlighted on the chart above.
That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com
No comments:
Post a Comment