We are now entering our 5th week where the weekly 13 EMA is below the 30 SMA and the market has fallen 5% from that signal level. The typical seasonal top one should expect in the month of May has progressed into a cyclical top of the dead-cat-bounce that was initiated almost exactly one year ago. 'Investors' should be on the sidelines until this relationship corrects iself, 'Traders' should be cherry picking shorts as they become available...
Currently, the significant lows of just a few weeks ago (103.85) are being tested in earnest. Due to the five bearish fundamental circumstances listed in last week's blog, one ought not to be surprised to see lower prices and the trend for lower prices build. Along with the very simple 50% rule (suggesting real support in the short term exists near 93), a bearish flag pole formation is building. While not confirmed yet, a move through 103.85 would imply another 10% fall in the broader market. and would represent one of those cherry picker short positions a Trader might consider....
The recent G-20 meeting did little to calm the markets and may have even exacerbated the European debt crisis in that no clear direction can be seen by the group and even worse, European governments are stepping up 'austerity measures' when (according to Keynesian economic theory - Wiki link: http://en.wikipedia.org/wiki/Keynesian_economics) they should be doing the exact opposite.
With the stock market now no longer over sold and really on no-one's radar screen, it seems to this market participant there needs to be a great deal more monetary blood-shed before any further stimulus measures can gain political support.
Be careful of the danger of short term trades turning into long term investments...
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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