Hi there, and welcome back to CRI's S&P 500 blog.
While the world awaits some sort of climactic finish to the European debt situation, corporate earnings have come to the market's rescue. Indeed, given the relatively stellar performance from a wide variety of sectors, one can now understand the relative ferocity of the October bounce. The pros knew earnings were going to be good and stocks were bid up into the event. Unfortunately, that event is now almost done and macro economic events may start to dominate the investment stage once again. While we have yet to break back into the 'glass half empty'' side of this correction (dominated by doom and gloom) we are consolidating right on the pivot line. Should we fail through these consolidation lows, a revisit of the 50% level (and more importantly the gap left on the weekly charts just under it) seems highly likely. Given too our fear of the rising 'Ted spread' (and more importantly its' accelerating trend) investors are still well advised to sit on the sidelines, pay off all your debts and ride this current market out.
Investors: As has been the case for some time, investors were well advised to 'get-out' through the end of July/beginning of August. Out time tested 'investor' indicator (that being the relationship between the 13 EMA and the 30 SMA) turned bearish the week of July 25th and the market broke its most recent support the following week. Since then, the moving averages have been pushed to extremes but still remain bearish. Until that relationship changes (as seen through the correction of 2010) one is best to keep investment dollars in a nice safe place.
Traders: This market isn't for the faint at heart. If you can consistently make money in these markets then congrats to you - but enough commentary, on to the trade. After the sizable bounce through October, we are now entering the 3rd week of consolidation. Through this period that market has been bounded by the 30 SMA on the upside and the 13 EMA on the downside. The market tested the 13EMA again this week and it held. We finished the week back above the 30 SMA and are now within shouting distance of a breakout. Should the 129.42 level be breached one could realistically see a test of the summer highs in earnest. Conversely, should we fail through last week's lows of 121.52, one ought to expect a move back to the weekly 50% level and the rather noticeable gap left just below it. Either way, stops (and here I mean risk) on the trade would be rather wide and may not be worth the potential profit. As I said earlier, this market ain't for the faint at heart. I myself may just leave the whole thing alone for a little while. Check in on CRI's Day Trading Blog to see if and where I am doing any day-trading at all.
That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
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