The market has rallied off the lows of last week back into resistance (13 EMA & 30 SMA). More importantly, the 'investor' buy signal (registered May, 2009) has reversed and is now in a bearish stance (where the weekly 13 EMA is below the 30 SMA). While it is ever so slightly negative it is negative and as a result all those who consider themselves 'investors' in stocks ought to seriously consider liquidating those long positions and siting in cash for the time being.
For those traders out there, I do anticipate some sort of rally to begin in earnest for the first two weeks of the third quarter (the first two weeks of July) as new money is placed in sectors that are considered to be growing. Some sectors will outperform while other will under perform [for more on this be sure to watch for CRI's First Two Weeks of the Quarter report usually published the third week of each quarter). As for the broader market (as measured by the SPY) I anticipate considerable resistance to show itself on any move into the 114 to 116 area (or about 5% higher). Resistance is well established from the rally peak in early January (at 114.67) and the 200 week SMA (at 116.32). and I will use this target window (114.67 to 116.32) for an anticipated summer rally.
Should this mini rally take place over the summer months, I can see a potential Head & Shoulders price pattern forming. Should it play itself out, a breakdown this fall through a neckline (at 104.67) would project prices back down into the 86 area ([122.12-104.15]-104.15) = 86.18). Similarly, if one were to take a 50% retracement of the one year bull run, the target would be in the 94 area [(65.31+122.12)/2 = 93.715]. With these two numbers in mind, my target window for this fall's anticipated correction ought to be from 94 to 86. Which happens to be the trading range from the summer of '09.
Incredible how these things all come together like that, isn't it...
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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