Seasonality Dominating The Bears

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

As has been the case for seven weeks, the broader US stock market continues its recent consolidation. This correction came on the heels of a massive 20% appreciation in equity prices from the last significant 'investor buy signal' which was registered immediately after the US mid-term congressional elections, last fall.  


For those 'investors' that were able to buy last fall, they should still be long with their respective stops moved up to just below the most recent pull back level (just below 124.74). Our time tested simple trending indicator (the relationship between the 13 EMA and the 30 SMA) is still very bullish so as 'investors' we are left with no change in our position - be long and stay long. Indeed, while the news headlines called for impending doom, little to no real technical damage was done suggesting that the correction was little more than an attempt by the market to wash out the 'weak-hands'. 


For those 'traders' out there, one gets the impression that the market does want to continue higher so a close above the recent closing high (133.95) would signal a re-entry point and confirm another massive bullish flag formation. As the chart above suggests - real resistance comes in about another 10 points higher on the SPY and considering the seasonal nature of the market, an exhaustive push into May shouldn't be too unexpected. As all good traders know, we are very over-extended on the trade, so any failure should signal an immediate exit. While I personally think this is a very risky long trade (200 SMA is more than 20 points lower!) I can justify playing the momentum - but if that momentum fails (which it ought to do in May) get out quick.

That's all for this week,

Brian Beamish FCSI

The Canadian Rational Investor

the_rational_investor@yahoo.com

the-rational-investor.com