As I have commented on repeatedly of late, the broader US stock market (as measured by the S&P 500 stock index) has made an appropriate 'technical' bounce off its winter 2009 lows and is now beginning to look a little tired. There were two significant weekly technical targets (a 50% retracement of the entire 2 year bear market move and the very rare weekly Gap) near the 108 level and both of them have now been hit.
As per our very conservative (yet very reliable) moving average signal (13EMA vs. 30SMA) one should still be looking for higher prices in the weeks and months to come. This indicator turned positive last May and there isn't any sign of it turning negative in the short term. Having said that, we have recently broken through the bottom of the very steep uptrend channel (established when prices broke higher in the end of July) so one should be very reluctant to add to new positions until either a tradable double bottom comes in, or prices break the highs from three weeks ago. If that does indeed happen (and that is a very big 'if' right now) upside technical objectives would be the 200 SMA (currently near 120) and then the top of the price channel (at or near 140).
For those of you who believe such a rally couldn't happen, just take a look at the S&P 500 from the period of 1974 to 1976 (highlighted in the October issue of The Canadian Rational Investor newsletter). In this brief two year period the S&P went from 1100 to 670 and then right back to 1000.
While completely illogical, we must always be cognizant of the old saying: "markets can remain illogical far longer than any of us can remain solvent".
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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