Caught in a downward pointing channel

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



A substantial rally never materialized this summer to the great disapointment of the bulls. the 113.20 level held firm with the market failing at 113.18. Since that time we have quickly moved lower and are now in the process of testing the late June lows (101.13). To be blunt - as we head into the often precarious season of fall, the market is looking a little ill again.

Regular readers will of course be well aware that we were issued an 'investor sell signal' now almost three months ago and those out there that do consider themselves 'investors' oought to be sitting on the sidelines waiting for the market to clean itself up. Considering the last 'investor-sell-signal' was in November, 2007 and the next buy signal didn't come until the spring of 2009, investors out there may be sitting on the sidelines for quite some time.

As for where CRI thinks the market is going in the short term - A simple 50% retracement of the 14 month up-move seems like a logical place to start. So having said that, my price objective is the bottom of the current downward pointing channel which happens to coinside with the indicated 50% level (at or near 93.27 on SPY).

I don't think this is going to be a mind bending correction considering the important mid-term US elections coming up in November. I do believe there is a really good chance we are setting up for a mind bending correction for 2011....but we will cross that bridge when we come to it.

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

The late spring correction grinds on

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



As we make our way through the summer-doldrums the stock market has moved very little. As has been the case for some weeks now:
1. 'Investors' ought to be sitting on the sidelines in cash (from the most recent 'investor-sell-signal' issued 9 weeks ago) waiting for the 13 EMA to cross back above the 30 SMA.
2. 'Traders' ought to be short from the most recent breakdown (just below 103.89) with corresponding stops above resistance (just above 113.20). While I do think this trade is getting a little old, as long as we continue to see lower highs and lower lows one ought to stay with it. With this in mind, one ought to have moved their stop now to just above last week's highs (just above 113.18).

The market rallied into the July US Employment situation report only to fail. In fact, we came within .02 points of the significant resistance - talk about a close shave!. The fact that we came so close and then failed suggests that the 113.20 area is a significant pivot point for the market. So much so, that if the market can move back above it, I would fully expect a rally to test the most recent highs (at or near 121 area) and traders should act accordingly.

A rally such as this could easily materialize as we head into the Labour Day weekend. Quite often in low volume times such as these, traders will search out markets for 'stop-orders' to try and make a quick buck. I wouldn't be surprised to see them do the same thing to the 113.20 area in the hopes that if they can push prices up there a whole bunch of stop-buy orders will be triggered. With this in mind, SHORTS BE CAREFUL....

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

Market setting up for a big move...

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



After a short break on posting the S&P 500 blog CRI is back with a timely update. Considering the significant role employment figures play in both the political and economic arenas, it should come as no great surprise that the market has slowly worked its way back into resistance ahead of the July Employment situation report to be issued tomorrow by the US Federal Government.

Since the market broke down some eight weeks ago (as indicated by the crossing of the 13 EMA below the 30 SMA) investors have been best to sit on the proverbial sidelines. Indeed, even though short rates are at historic lows, if one had 'gone to cash' on that signal, they would be better off. Traders have been given multiple sell points on the way down with the most recent being a short entry signal back in the week of June 28th when prices broke back below 103.85 (with a corresponding stop just above 113.20). This stop has yet to be hit and traders should still be short.

Regular CRI readers will recall our S&P 500 'investor-sell' signal and CTS blog post in which we detailed various stock indicates rolling over. As well, because the options premiums were too expensive, no position on our part was taken.

Having said all that, we have a very important pivot point coming ahead of us. Since we are now at resistance (113.20) a solid move above will represent a break of the most recent sell pattern. A failure here would solidify this point as a top going forward. Consider too the significance of jobs to the upcoming US congressional elections this fall, and one can easily see why this point in the market is so important.

So, should we get a friendly number on Friday then I could realistically see this market moving right back up to the old highs. If however, we get an ugly number, we could break really hard. Since the 50% level is still very much in play, that would be my target (93.27) on any meltdown. Watch for any traps on the news release (give the market a good hour before making a decision....just my opinion)

Do you think anyone out in the broader public realizes the significance of this.....I doubt it....

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

Rally back into resistance

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



As has been the case now for some weeks, the broader US stock market (as measured by the S&P 500 depository receipts - SPY) has been and continues to point lower. While the past two weeks have seen an impressive rally of almost 8%, we have yet to get back up into significant resistance let alone break any existing trends. The current bear flag pole formation (that was confirmed when the market moved below 103.89) will be solidly in place unless prices can get back above 113.20 (POINT A on the chart above). And as long as that formation is in place, I will continue to look for a move to its respective target of 95.55 (Point B on the chart above). Coincidentally, a natural 50% retracement of the entire 14 month bull run would bring prices back to the 93.27 area.

This therefore then shall be my target window going forward: 95.55 to 93.27.

For those investors out there, you should recall just a few weeks ago that we were issued an 'investor sell signal' when the 13 EMA crossed back below the 30 SMA. The SPY was roughly 110 and that shall be our high water market going forward. For those investors out there, one ought to just sit in cash for the time being and either wait for a 'market-panic' (it will be obvious when it comes) to do some cherry picking or for the moving averages to cross back bullishly. Frankly, I don't know which scenario will play itself out, but I have found that listening to the market is sometimes the hardest thing to do........and the market isn't happy right now!


That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

Bearish momentum building

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



We are now entering our 5th week where the weekly 13 EMA is below the 30 SMA and the market has fallen 5% from that signal level. The typical seasonal top one should expect in the month of May has progressed into a cyclical top of the dead-cat-bounce that was initiated almost exactly one year ago. 'Investors' should be on the sidelines until this relationship corrects iself, 'Traders' should be cherry picking shorts as they become available...

Currently, the significant lows of just a few weeks ago (103.85) are being tested in earnest. Due to the five bearish fundamental circumstances listed in last week's blog, one ought not to be surprised to see lower prices and the trend for lower prices build. Along with the very simple 50% rule (suggesting real support in the short term exists near 93), a bearish flag pole formation is building. While not confirmed yet, a move through 103.85 would imply another 10% fall in the broader market. and would represent one of those cherry picker short positions a Trader might consider....

The recent G-20 meeting did little to calm the markets and may have even exacerbated the European debt crisis in that no clear direction can be seen by the group and even worse, European governments are stepping up 'austerity measures' when (according to Keynesian economic theory - Wiki link: http://en.wikipedia.org/wiki/Keynesian_economics) they should be doing the exact opposite.

With the stock market now no longer over sold and really on no-one's radar screen, it seems to this market participant there needs to be a great deal more monetary blood-shed before any further stimulus measures can gain political support.

Be careful of the danger of short term trades turning into long term investments...


That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

Rally to trendline within bearish consolidation

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



For three weeks now we have been flashing a bearish 'investor sell' signal warning for the broader US equity market (as measured by the S&P 500 depository receipts - SPY). This signal was confirmed with the second consecutive closing of the weekly 13 EMA below the 30 SMA last week and has been given further validity with another bearish close this week.

Five reasons why stocks may under perform for the next little while.
1. Year over year & Quarter over quarter earnings comparisons getting difficult
2. Short term credit crunch back underway
3. Seasonal window of stock strength over
4. Government stimulus ending
5. Regulation building

Because of these fundamental circumstances a capitalist ought to be cautious at best. Adding in the poor technical picture and any Rational Investor ought to just sit on the sidelines until the public is panicking once again...

As for downside objectives. A 50% retracement of the 1 year bull run would bring prices back into the 93 area. Additionally, a breakdown through the lows of just a few weeks ago would represent a bearish flag pole formation and suggest a target around 95. Because of these two technical objectives I shall be looking for the highs of June '09 to be tested in earnest over the coming months...

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

Overhead resistance is building

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



The market has rallied off the lows of last week back into resistance (13 EMA & 30 SMA). More importantly, the 'investor' buy signal (registered May, 2009) has reversed and is now in a bearish stance (where the weekly 13 EMA is below the 30 SMA). While it is ever so slightly negative it is negative and as a result all those who consider themselves 'investors' in stocks ought to seriously consider liquidating those long positions and siting in cash for the time being.

For those traders out there, I do anticipate some sort of rally to begin in earnest for the first two weeks of the third quarter (the first two weeks of July) as new money is placed in sectors that are considered to be growing. Some sectors will outperform while other will under perform [for more on this be sure to watch for CRI's First Two Weeks of the Quarter report usually published the third week of each quarter). As for the broader market (as measured by the SPY) I anticipate considerable resistance to show itself on any move into the 114 to 116 area (or about 5% higher). Resistance is well established from the rally peak in early January (at 114.67) and the 200 week SMA (at 116.32). and I will use this target window (114.67 to 116.32) for an anticipated summer rally.

Should this mini rally take place over the summer months, I can see a potential Head & Shoulders price pattern forming. Should it play itself out, a breakdown this fall through a neckline (at 104.67) would project prices back down into the 86 area ([122.12-104.15]-104.15) = 86.18). Similarly, if one were to take a 50% retracement of the one year bull run, the target would be in the 94 area [(65.31+122.12)/2 = 93.715]. With these two numbers in mind, my target window for this fall's anticipated correction ought to be from 94 to 86. Which happens to be the trading range from the summer of '09.

Incredible how these things all come together like that, isn't it...

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com