Markets go boom....but its not as bad as you might think

Hi there, and welcome back to CRI's S&P 500 blog.

This is a special edition due to the dramatic swings seen today in the broader stock market.



Lets start off by stating, stocks rarely begin bear markets with one day's price action. As well, one ought to keep in mind that 400 plus point moves in the Dow are usually seen at the end of moves not the beginning.

With the above in mind, lets take a good look at what is happening today and try to put it into some context.

1. Yes the market is down big today. But what is most interesting is that we DID NOT break the significant low registered in February at 104.15.....They took the market down to 105.00 but no further. What does this mean? It means that the primary weekly uptrend is still in place. Should the 104.15 level get taken out then I will have no choice but to declare this latest bull run to be over....but that has not happened so one must still look for higher prices to come. On top of this, the weekly 13 EMA is still above the weekly 30 SMA - so from a technical perspective, this down-move (so far) is nothing more than a healthy correction.
2. My latest post (Tues. May 4th) suggested to readers that we where officially into May and one ought to be looking for a correction. Time and time again I have stated the simple market axiom....sell in May and walk away....so a correction in May should be no big surprise to anyone.
3. My latest post also suggested that there was a small gap at 110.29 that needed to be filled in and that a 50% correction of the move up (which starting in Feb.) ought to take prices back to the 113 area (the market is 112.61 as of writing this note!). I also suggested that a move back to these levels ought to represent a buying opportunity for traders.

So in conclusion, this big down move should not have come as a surprise to anyone. The market has held key support (for the time being) and as long as it does, I shall continue to use pullbacks like we saw today as buying opportunities for traders. Since the 13 EMA is still above the 30 SMA today's action ought to be seen from investors as a non event.

That's all for this special edition,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

p.s. indeed, stocks that I recently sold (like AOS-V and SSW-N) have fallen appreciable and I have started to buy them back :)