We are currently 4 weeks into a general market pullback with another 1 1/2 weeks to go. The anticipated 5 1/2 week correction in price has brought the broader market back into our 'trader' target zone (that being the gap at 106.42 and the 30 SMA at 106.25) and has relieved much of the over-bought condition that prevailed just a few weeks ago. This pull back should be considered 'healthy' as the market had been moving higher for more than 11 weeks in a row. The rubber band can only stretch so far!
Once this short term selling exhausts itself, I am expecting a rally to test the most recent highs. Markets very rarely go straight up and then straight down. Tops look more like 'M's than Tee-pees (refer to Chart Pattern Formation Trading seminar for more on this). As well, because the 13 week EMA is still above the 30 week SMA I have no choice but to continue to look for more upside action. Of course, should the moving averages' relationship change then I will have no choice but to change my stance as well.
As previously stated (refer to past blogs for more) many of the 'easy' upside targets coming out of the crash of 08' (Thanks Jr. Bush) have either been hit or exceeded. Significant resistance currently sits just above where we sit now. Those that could not sell on the initial breakdown (back in '08) have been given the opportunity to do so and will continue to do so should prices get back into that range (currently 117 to 121). I have stated previously that one ought to consider the current market as an opportunity to take profits in stocks bought during 'the crash' and in this market commentators opinion, The real battle in the marketplace has just begun!
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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