Due to being unavailable, CTS was not published this week at it's regular time and date. I have published this special weekend edition to bring readers up to speed with my thoughts on the broader equity markets...
The highs of early May are looking farther and farther away and the old time tested adage....Sell in May, and walk away seems more validated with every passing day. Traders, of course, got their sell signal when the rally failed at key daily support (just below 120) four weeks ago but investors haven't been given any new signals other than to be long and stay long.
The current correction is five weeks old and comes on the heals of an eleven week rally. According to cycle analysis, corrections are often half the duration of the primary move. So one may extrapolate that we are quickly approaching the end of the correction cycle window. Interestingly this week, we took out the lows of last week and the lows of three weeks ago but then quickly reversed to close up a little bit on the week. As well, we have not yet moved through the significant lows of last February at 104.15. What does all this mean? I don't think we are going lower. I think a substantial base is being formed at or near 104. Having said that, it also means that IF we do trade back below 104 now, the market may move down very hard.
Form a bigger picture perspective, I find it interesting that almost all of the equity markets followed in The Canadian Rational Investor's weekly Commodity Trend Spotlight have moved into STOP positions. This means that while the trend may still be pointing higher, CTS doesn't recommend being in the market. And frankly speaking, the futures markets are WAY too volatile for anyone to be trading the markets in earnest right now.
For more on this weekly service, please visit http://www.the-rational-investor.com/RI_Tradents.php#wklysumm
Continuing that theme, I thought I would add a 50% retracement of the lows of '09 to the recent highs to see where a correction in earnest ought to find support. While I don't have enough confirmation to really believe the bull run is over, the fact that CTS is flat on the S&P 500 (as well as many other equity futures markets) coupled with the fact that we are currently 10-15 percent above the 50% rule level, suggests to this market participant that at worst our expected seasonal top is officially 'in' and at best our upside objectives ought to be tempered for the time being.
Since our time tested 'investor signal' (that being the relationship between the 13 EMA and the 30 SMA) is still positive I must remain relatively bullish and will still look for the highs of May to be testing in earnest over the coming weeks/months and an ultimate test of the 126 area some time down the road. Should the 13EMA/30SMA relationship change I will change my investor stance. But lets not put the cart before the horse.
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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