Has the party come to an end?

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



The seasonal top of early May has developed into a broader cycle top (as measured by the SPY - S&P 500 depository receipts - also known as the SPDR's ETF).

For several weeks now we have cautiously watched the market take back the rally that started in February (from 104.15). While this important level has held, several technical problems have developed over the past week that lead this market participant to believe that the one year bull run off the '09 lows has come to an end.

These include:
As well as failing to hold the 200 week SMA (in late April) the market has broken back below both the weekly 13 EMA and the 30 SMA. In essence, there is very little holding this market up going forward. So where is support, you ask? For help with this we ought to refer to the simple time tested 50% rule. This is where one takes the highs and lows of the last year and add them together (in this case 65.31 + 122.12) and then divide the result by two. Currently the 50% rule suggests that real support currently sits around 93.71 or some 14% lower than where we currently are. Additionally, our time tested 'investor' indicator (the relationship between the weekly 13 EMA and the 30 SMA) has now turned negative (as of printing 13 EMA at 112.14 and 30 SMA at 112.19).

While the market from a Daily perspective is quite oversold, I am now of the belief that any rallies going forward shall meet significant resistance in the 112 to 117 area. Should we be given an opportunity, one ought to consider a move into this area (over the course of the summer) to be a selling opportunity.

At the same time, those who are not inclined to 'trade' the market ought to just get out now. Indeed, this is a bold statement, but time and time again, I find that the charts tell you to act well in advance of the 'melt-down' and I do believe we are being given advanced warning that the party may indeed be over...


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