Hi there, and welcome back to CRI's S&P 500 blog.
A basic reiteration of our most recent posts - the market is moving higher into the typical seasonal peak time period of May. This year seems to be little different from previous in that investors are quite euphoric as we head into the spring in earnest. As the chart above illustrates, we have been trending higher now for close to five months and if one followed our simple time tested 'investor' buy signal - one ought to be long from 111.50 with stops moved up to the most recent pull-back point (124.74) or on a cross of the 13 EMA back below the 30 SMA. Neither has happened so one must continue to be long and stay long.
For an idea of a short term upside objective, this week I have included a blow-up of the past 11 weeks to see the potential bull flag formation developing. For more on this type of price pattern, please feel free to visit CRI's free on-line seminar - Chart Patterns & Formations. This is a typical 'bull flag' formation where the low of 124.74 represents the bottom of the flag pole and 134 represents the top. If one takes the difference (9.23) and adds it to the consolidation low of 129.51 we get a nice target of 138.77. This target is of course dependent on a break of the high 10 weeks ago at 134.11 but given seasonal pressure, a relatively positive earnings season and a very bullish yield curve, I see no reason why the 134 level can't be taken out over the coming days/weeks.
A cautionary note - I think it is important to make clear that we are entering a dangerous time of year for the broader market. While I might be inclined to 'trade' this breakout (maybe an option or a futures contract position) we are getting very old in this market rally and this DOES NOT represent a good 'investment' point. As pointed out previously, this rally is now entering its 5th month and is really due for a consolidation of somesort. Having said that, there is no sell signal at present but it is important to keep the big picture in mind as we leave April and head into the dangerous month of May.
The cliche - sell in May and walk away - isn't a cliche for no reason!
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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