Reader's of The Canadian Rational Investor Newsletter will remember our sector performance model (April, 2009 edition) and its suggestion that the financials would outperform during the 2nd quarter. Indeed that has been the case and has pushed the markets dramatically higher. The S&P 500 itself is up 40% from its lows!
Everyone enjoying the volatility?
While I have been reluctant to get too optimistic over the past quarters, there are early signs of a market bottom.
1. For investors, the 13EMA has finally crossed back above the 30SMA. Readers will remember the last cross came (bearish) in November, 2007 when the S&P was near 150! While the cross in itself is a poor timing tool, it is one indication that the 1 1/2 year bear market may finally have exhausted itself. Quite often though, I do find that just after a cross (either bearish or bullish) there is a counter trend move to test the market's resolve. Sometimes the test pushes a market to new lows sometimes not. It is far too early to say that this is indeed 'the bottom' but from this technical tool's perspective, things are getting better...
2. Because of 1. above (an expectation of a re-test of the lower end of the recent trading range in the coming weeks) if the market can test the November 17th low (at or near 73.22) and turn back up through the top of the recent trading range (at or near 93.88) we may be setting ourselves up for a dramatic upward push that may take the market right back up to the old highs.....that's right....right back up to the old highs!
What a world we live in. Indeed, an old broker buddy of mine (During the Bre-x days) used to say "you just can't write better fiction than reality"...so true Jack, so true....
To summarize then, I believe 'the crisis' in the US capital system is nearing an end ...for the time being... Investors may again look to invest in the US equities with some confidence that the broader market isn't working against them (QQQQ Monthly bottom!). Traders however are still assuming their short positions (Short from 73.22 with stops just above 93.88) and one should be prepared for a serious test of 73.22 level over the coming weeks/months....Short term traders can be selectively long but be warned....this is a very risky time to buy....remember the time tested cliche....Sell in May and walk away...
That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com
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