The bottoming process continues

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



Calmer heads seem to be prevailing on Wall Street as the sheer panic atmosphere is now be replaced with realization that governments around the world are getting a grip on the banking crisis and that the ridiculous overspending by the US consumer may have finally come to an end.

There is no doubt that the recent technical damage done is significant. Ironically enough, markets are often most volatile tops and bottoms and I do believe the recent volatility, coupled with the negative sentiment and seasonal issues suggests we are in that bottoming process.

As the chart above illustrates, we have now established a trading range (83.58 to 99.10) to work with. Should the market move through either of these points we shall be given a new signal to work with. One should trade accordingly.

My hunch is we shall break higher once the US election is out of the way in early November. The market has been tentatively promised a stimulus package by the new congress and at that point there should be some clarity of leadership with the US executive office as well.

Should the seasonal bottom come in as expected one may find significant resistance at the bottom of the old trend channel. As pointed out in last weeks offering, there are three significant technical barriers at or near $110 on the SPY.

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

No conclusion to down move yet

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



The long process of waiting for a bottom to form in the stock market has begun. The days of limitless spending and ridiculous notions of second and third homes, Cadillac escalates and showing your 'bling' have passed and the days of belt tightening, rationing and evictions are now here.

Regardless of the long term implications for our society, we must now take the time to clean up the mess George Bush's policies have created. From a traders perspective, we may be in a long holding period with regard to US equities as doubt has been cast on the 'American' model of capitalism. Ironically, it will only be after a large majority of our population swears never to buy another stock again, can we realistically begin to believe some sort of 'bottom' is in.

As for what is happening today, stock prices are still under quite a bit of pressure. As the today's chart illustrates, there are three significant technical barriers to rallies going forward (The gap at 109.68, the 13 EMA at 111 and the bottom of the trend channel at or near 115). These hurdles will need to be cleared before any rally can resume in earnest. My hunch is that they will pose too much of a challenge for the time being.

For the mean time, we remain flat with regard to positions. After being short and having our down side targets hit, one ought to sit on the sidelines with a nice pile of 'dry powder' and continue to wait for some sort of bullish tone to re-emerge. Yes we should get some sort of seasonal bounce into the spring, but that is the spring and we are just now heading into the winter.

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

Did they just throw the baby out with the bathwater?

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



Can you say 'Kaboom!'

Here at The Rational Investor we have been bearish for quite some time. In fact, I had been looking for a climactic selloff to signal a potential bottom - and boy did we get it! Our most recent downside target had been $107 on the SPY and on 10/06 that target was hit. At that time it was recommended to take profits on the short trade (Please refer to our message board on Silicon Investor for recommendations and notifications from RI. You can find it here: http://siliconinvestor.advfn.com/subject.aspx?subjectid=57519 ).

For the time being (and probably for a few weeks to come) we shall be sitting on the sidelines watching for a new consolidation. Monday's price action was indicative of the proverbial 'dead-cat-bounce'. Yes it was dramatic and yes it was on some fundamental news but in all honesty - one day a new bull market does not make. Rational Investors will be looking for confirmation of the bottom. We ideally want to see a solid test of the lows from last week and then a subsiquent rally through whatever highs we are registering now (ie. the price action should look like a W). As well, it should be noted that there remains a gap to be filled at the closing low from Friday (at or near $88.50).

The market has paniced and shorts were very profitable. Seasonally we should be looking for a bottom. Looking does not mean we have found one though. For now we sit and wait - period.

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

The fear is almost palatable

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



Once again we sit on the edge of our collective seats wondering if the US government will come to the rescue of the markets. The last attempt ended poorly and it looks like investors aren't taking the chance this time around and selling beforehand. What is most interesting (and quite often the case) is that investors are selling into support. For a few weeks our target has been $108 on the SPY and there is no reason why that won't be hit. As the chart above illustrates, there are a number of technical reasons why one ought to look to take profits from short trades and to look for a rally ahead rather then a further declines. One might even consider the current market psychology as one of "selling on the rumor and then buying on the news". Look out for a considerable technical bounce to the upside should the market get a clear signal from Washington that the worst of the problems are now behind us. While this will be in no way a medium term buy point, it may represent a nice seasonal long trade into the end of the year.

As I have indicated before, the bearish sentiment is getting rather high. The Vix index was recently above 50 (indicating significant fear in the marketplace), bearish news is dominating the general media and the majority of world equity markets are moving lower in unison. From a contrarian perspective, Smart money is buying (Buffett's recent purchase of GS as an example). And lastly, on a US PBS News service it was suggested that this was not the same as other market corrections, that indeed this time 'it was different'.

These are all classic signs of a market bottoming process. It is the market's goal to take the stock out of the investing publics 'weak' hands and to put it back into the 'strong' hands. It is painful, often dramatic, but very predictable.

It is during these times we can be thankful there are ways to figure out where the 'strong' hands (often referred to as Insiders) are buying. For more information on this please visit the website and take the mini-seminar on technical analysis and model based trading.

On a final note, it is important to keep in mind that the bailout of the US housing sector during the Great Depression was a very profitable venture for the government in the long run. Most people paid off their mortgages over time. So too now, most of the 'bad paper' will eventually be repaid and once calmer heads prevail, there will even be a secondary market for these loans. Not today, maybe not even a year or two from now, but one day it will be so.


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