The market is testing the upper end of the recently established trading range of the broader market benchmark S&P 500 stock index (SPY range between 115.15 and 104.58). Since the 13 EMA is still above the 30 SMA we have no choice but to continue to look for higher prices heading into the seasonally strong time of year for stocks. There is an adage in the market that says, "Sell in May and walk away" and judging how risky this market is getting, that isn't such a bad idea.
Further to that point, notice the circled area on the chart above! Markets normally move in a zigzag pattern - rallying, then giving back, then rallying again. This ebb and flow in the market is healthy and normal. Investors move from optimistic to pessimistic and back again over the course of a normal business cycle. With the extreme disruption credit crisis often inject into the system, the past few years have seen this normal market psychology disrupted. Now, instead of normal monthly ups and downs, we are into quarterly and yearly ups and downs as recession/growth are priced into the market. Here is my point to this week's commentary - The last recession (2000 to 2002) saw the market move dramatically lower into the end of 2000 only to see a nice rally out of the winter of 2001. Then in September, 2001 the market moved back to new lows. We could very easily roll over at some point over the coming few months as this rally is more than twelve months old. And since there is very little zigzag to the chart above, it means there is little support should prices start to head back down again in earnest.
While this isn't the case in the short term (our 'investor' signal still remains bullish), one must appreciate the dangerous nature of recessions and how we ain't out of the woods yet!
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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