The broader market has shown considerable resilience as we head into the last weeks of the third quarter. The S&P 500 is now (as of printing) up almost 18% year to date as the perception of an end to the recession is being priced into the market. Considering the time of year, one has to ask if this rally is sustainable. Significant technical targets have been reached and the market is dramatically over bought on the daily charts. Specifically, the gap at 108.02 (from last winter) has just recently been filled in and the market has completed a 50% retracement of the entire bear market move that started in earnest in the fall of 2008.
Regardless of what may happen, what is happening is the market is moving higher so for those traders out there, enjoy the rally and be sure to be quick on the trigger should any sort of top come in.
Looking back in hindsight one can appreciate the significance of the cross of the 13 weekly EMA back above the 30 weekly SMA back in May. Currently this indicator is still bullish with little sign of breaking back down in the short term. Should the rally indeed continue, my next significant technical upside target will be the 200 weekly SMA (currently in the 120 area) and then the top of the current upward pointing channel at or near 130.
As suggested previously, I do believe a short term correction is needed to relieve the current daily over-bought condition. As a result, I personally can not and will not add to any long positions until this happens. I may just sit in cash but I am happy being safe rather than being sorry...
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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