Don't get caught up in the frenzy

Hi there,
and welcome back to Stock Charts R US blog.

After a healthy rally back into resistance the SPY has put in a weekly Key Reversal (where the market opens higher than the previous week but then closes lower than the two previous weeks' lows). A bearish signal in itself (refer to technician's minimanual for help with Bearish Key Reversals) this price pattern suggests a downside target of $130.70 [($144.30-$137.50)-$137.50] should the $137.50 level be broken. That corresponds roughly with the convergance of the two year uptrend line and the six month downtrend line (marked with a big circle). Considering the robust energy sector and the lackluster financial sector, a correction back into the $130 area on the SPY shouldn't be too big of a surprise going forward.

Brian Beamish FCSI

The Rational Investor

http://www.geocities.com/the_rational_investor

the_rational_investor@yahoo.com

Sell in May and do something....

Hi there,

and welcome back to Stock Charts R US blog.

As the old adage goes, Sell in May and walk away...

Oil is pushing higher by the day and the stock market (and the economy too) is starting to feel the pinch. Couple this with an already weak financial sector and we have the makings for yet another seasonal top in the merry month of May. Hold off on any big purchases for the next little while and look for a test of the 130 area into June-July.

With regard to energy prices - exactly how high can crude oil can go is anyones guess. Parablic moves in commodities are quite common. They occur near the end of moves and can be quite violent. Crude supplies themselves are not dramatically changed and the seasonal trade in Unleaded Gas has come and gone. The only other market moving event on the horizon is the 60th birthday of Isreal and it would seem energy prices are being pushed higher because of this 'fear' event rather than on any solid fundamental news. 200 day moving average on July Crude is near $90/barrel - Oil Bulls beware!

They don't say 'Sell in May and walk away' for nothing.

Brian Beamish FMA FCSI

Maybe a little back filling is in order

Hi there,
and welcome back to Stock Charts R US blog.


The S&P depository receipts (SPY) is our proxy on the US stock market and really the broader US economy too. The recent 'double bottom' is significant because it suggests there is demand for US stocks as market participants believe there is some 'light at the end of the tunnel' with regard to the recent housing crisis. The 12 percent rally seen since the March lows (almost a text book 50% retracement of the down move!) is one part of the bottoming process. After the 'dead cat bounce' one ought to expect some sort of test of the double bottom itself. If the economy is turning the lows of the winter will hold. Watch for a test of the 130 area into June-July.

They don't say 'Sell in May and walk away' for nothing.

Brian Beamish FMA FCSI

Time to start climbing the 'wall of worry'

Hi there,
and welcome back to Stock Charts R US blog.

The double bottom we have been waiting for has finally come in. Over the course of the past four months the market has sold off, rallied away, tested the sell-off low and then turned around and closed higher than the rally peak. This is a classic technical 'double bottom' and suggests there is good buying support for stocks at or near these levels. As well, the market has broken the down-trend (red dashed line) that represented the bear run since the fall of last year. We are still very early in the bottoming process though as the moving averages are still pointing lower and the market is getting overbought from a daily & intraday basis. However, the general message should be clear, Instead of looking for further downside targets (as the market made lower highs and lower lows) we now can start pondering upside targets.

If one draws a channel from the bottom of '06 to the recent bottom and then project that same angled line off the top (market peak in late '07) we see a nice upward sloping trend. For further confirmation of this trend we would like to see a serious test of the lower trend line soon. Considering market seasonality (Sell in May and walk away) and what a typical US Presidential election year looks like (market bottoms near end of Nomination process), one shouldn't be surprised to see that test come in over the next month or two. Ideally, the peak in selling would occur at or near where the red dashed down-trend-line and the blue solid up-trend line meet.

Should this massive channel hold, one might consider a test of the '07 highs as one target and then ultimately a test of the upper channel line as another somewhere down the road. For the short term however one ought to be looking for a pullback into the 'summer doldrums'.

Brian Beamish FMA, FCSI