Irrational Exuberance Once Again?

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

The brief consolidation that followed the post mid-term US Congressional election rally (try saying that 10 times fast!) has resolved itself bullishly. So much so that one has to realistically expect to see much higher prices in the weeks to come. Indeed, if the bullish flagpole formation (that has been registered with a move above 122.95) is to be believed, then our target must be in the 137 area or more than 11% higher than current prices.

Regular readers will of course be well aware of CRI's bullish stance on SPY (specifically when the SPY crossed back above 112.58 confirming a double bottom breakout AND an 'Investor' buy signal was registered when the 13 EMA crossed back above the 30 SMA) as of the middle of September. The most significant development of the three week consolidation is it has allowed those that bought the breakout at 112.58 to finally have a new support zone to move their collective stops to (actually just under the support zone....like 117.64 for instance). 


So what might be going on fundamentally to prompt such a move? CRI's opinion has been that the triple effect of QE2 ($600 billion of 2-5 year US government bonds by the US Federal Reserve through Q1'11) , relatively strong corporate earnings and the balancing of power within the US Federal Government has laid the ground work for a 'perfect storm' for stock appreciation.


So where is this $600 billion going? CRI publishes a report every quarter that helps in determining where new money is flowing: 1st 2 weeks of Q4'10 Report. The last report suggested money was moving primarily into the Basic materials, Energy and Tech. sectors. Indeed, these areas have done well and CRI shall be concentrating efforts for the remainder of the month to trade these sectors accordingly. For an idea of what CRI is buying right now, subscribe to CRI's OnlyDoublesNewTrades to get the low down on what CRI likes right now.

That's all for this week,

Brian Beamish FCSI

The Canadian Rational Investor

the_rational_investor@yahoo.com

the-rational-investor.com