For those that follow CRI's S&P 500 blog regularly, the dramatic drop seen recently should not have come as too big of a surprise. Nor should regular readers believe that the current bull run in the broader equity market is over either. For 'traders', profits should have been taken up top and the pull back should have represented a good re-entry point. For 'investors', the events of the past few weeks are literally a non-event. So the question one has to ask oneself is, what kind of stock purchaser am I?
Some interesting things to point out this week:
1. I find it incredible that the market dropped to 105.00 on the nose and that the latest weekly support point was (and still is) 104.16. In other words, the whole move was a non-event and we are still well contained within the weekly double bottom price pattern on SPY. This 'W' pattern was confirmed when the market broke-out (the week of March 8th) and moved above 114.67. Stops on that trade should have been set just below support at 104.16 and the dramatic move to 105 only meant that the trade was underwater, not closed. Those stops should now be moved to just below the recent low of 105.00. If that level is broken the the trade is over, but that hasn't happened yet.
2. Following the markets for over 20 years I have found that moves like this are not the end of the bull run. Rather, the quick move down has cleaned out the 'weak' hands and may lay the floor for another move higher. While my seasonal targets of 125 to 126 remain, I do believe we may be setting the stage for a substantial move higher over the coming quarters. Technically speaking, if the market can get back above the recent highs (122.12 on SPY) then one has to have an ultimate target up into the 137 area!
3. I couldn't believe how quickly the market pundits turning bearish. One would think that capitalism itself was coming to an end the way the media churned the story. So too about the Euro-currency. Stories of the end of the Euro and how the Euro system can't work have dominated the headlines. Yet all that is needed to calm the market's is some leadership. The Euro zone indeed 'stepped-up-to-the-plate' this weekend and the markets calmed appreciably.
So in summary then, traders got a great buying opportunity recently and investors are sitting long and enjoying the ride. Yes this consolidation in price may persist for a few weeks to come but no, the bull isn't dead 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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