Monday, August 6, 2012

Summer rally back into resistance

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


It has been a few months since I have posted an SPY blog update. I have been so busy trading Crude Oil, I just haven't had the time to address this market in earnest. Additionally, the seasonal top has played itself out rather 'normally' so I didn't feel there was anything of note to mention. 

So without further delay, here is CRI's latest offering on the S&P 500 stock index (as measured by the S&P 500 depository notes, SPY).

Our last post (May, 2012) suggested the bulls needed to take a break heading into the anticipated seasonal peak of late spring. Indeed, the market did break down in the short term when we reached the upper channel trend line (refer to chart above). The correction itself was less than 50% of the run up which suggests the bull is stronger than price would suggest. Interestingly, through the entire correction process, our time tested 'investor' signal (that being the relationship between the weekly 13ema and the 30sma) did not flash any sell signals. While the moving average relationship is tight, it is still bullish and we would be remiss to step in the front of that. If and when it does turn negative, we shall be prompted to act. It has not, so we ought to sit on our long positions and enjoy the nice summer weather.

Trader Stance: Those wishing to trade the market are faced with a tough trade right at the moment. Over the past few weeks we have rallied right back up into significant resistance (original double top breakdown). Those that are long ought to look for a test of the highs (141.48) but I am not totally convinced we will break those highs. Should we fail at the top of the range here, I will be looking for a test of the summer lows going forward and an ultimate move back to the 50% level and to fill in the rather noticeable gaps left last winter. The market has yet to fail, so for the time being, be long and again....enjoy the nice summer weather.

Investor Stance: Unlike traders, Investors would have been best serviced doing absolutely nothing through the very normal seasonal top coming out of last spring and into early summer. As stated above, as long as our time tested 'investor signal' remains positive we would be best served staying long and (like our traders buddies) enjoy the nice summer weather...

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
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