So here we are at the end of another year. 2012 is almost behind us but doesn't seem to want to go out without a bang. As was posted in our last entry, stocks themselves looked to be 'climbing-the-wall-of-worry' heading into and now out of the 2012, US Presidential elections. Historically, markets often do quite well coming out of October and into the end of the year and because of the US Presidential cycle's influence it seemed as though this year would be very much like others of the same ilk. Indeed, prices have slowly chopped their way higher over the past month or two and there still is no solid reason to abandon what has turned out for investors, to be a very fine trade. Regular readers will remember that our 'investor camp' was given the 'buy' signal (based on our time tested weekly 13ema/30sma cross over system) a little over a year ago. The capital gain on the trade alone is more than 18% and if you included dividends it is well over 20%. As long as that moving average relationship remains bullish then we are best to just sit back and leave the trade alone. Having said all that, one must respect the 'nose-bleedy' territory the market is currently within. As the chart above illustrates, we recently bumped up against a resistance line (red dotted line) and failed. Should we reverse and start closing below the support lines (blue dotted lines) we may see the end of this current rally. Given that backdrop, it should also be noted, price are indeed currently over-extended. A 50% retracement of the last year's rally represents almost a 15% correction in price from current levels. Notice too how far away our 200 week sma (or our 4 year business cycle moving average) is. Real support in price ironically is back around where our 'investor camp' last bought in. Should a correction in earnest occur through the early part of 2013 (fiscal cliff worries et all) we may see our 'investors' get a chance to buy their investments back at the prices they paid a little over a year ago.
Trader Stance: Traders were given a shorting opportunity on the double top and subsequent break of the weekly 13 ema about eight weeks ago. That pattern was quickly reversed when prices rejected the weekly 30 sma touch and we have basically rallied since then. Traders may consider OTE Short SS entries at or near a 70.5% retracement of the recent trading range [0.705(147.32-134.7)+134.7=143.59]. Stops would be at least 10 ticks above those highs at 147.32 and targets would have to be at least two times risk. Should one take the OTE short, traders would be well advised to take partial profits on a test of recent support at or near 134.70.
Investors Stance: This camp has been well advised to be long and stay long for more than a year now. Those that took last year's investor 'buy' signal are well into double digits returns (if not more) considering dividends. As long as the 13ema remains above the 30sma I see no reason to touch long positions at the moment. Be long and stay long as we collectively climb the 'wall of worry'.
That's all for this post,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
http://www.therationalinvestor.ca/RI_Tradents.php#sp500bloglink
http://www.therationalinvestor.ca/RI_Tradents.php#sp500bloglink
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