Sixth week of consolidation

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

It is so incredible to me to see how the world reacts and then re-reacts to technically meaningless events. I would argue that the past six weeks of trading for the broader US equity market (and really the world) has done little more than shake out the 'weak-hands' in the market. Regular readers of this blog will note that we turned cautious almost exactly at the top (134.11) as we came within a mere fraction of our long standing bullish upside target (136.09). At that time, our fast trend indicator (13 EMA) had moved dramatically away from our slow indicator (30 SMA) and CRI could see big divergences building on the daily charts. Indeed, over the past few weeks we have moved violently lower and then right back up to the top - basically going nowhere fast. Tragically, many may have been washed out on this violent move lower, even though there really hasn't been any technical damage done. Regular readers will note too that since our last 'investor buy' signal the market has moved just over 20% higher so a correction of some sort really shouldn't have been too unexpected. Additionally, that investor buy signal is still very much in place so Investors should be long and only now be moving their collective 'stops' to just below the recent trading lows (near 124.75).

For those slick 'traders' out there, stops should have been hit on a move through the 13 EMA which happens to correspond nicely with the lows of 129.79. While the market has come back over the past couple of weeks, traders still ought to be sitting on the sidelines waiting for a clean break of those old highs before they ought to get back in. For those 'investors' out there, the only thing the recent move lower represents is a new 'get out' point to move collective stops to (124.75). Should the market break back below the recent lows, one could argue for a weekly double top price pattern and some sort of failure fundamentally. While the later will remain a mystery until it comes to light, the former is a simple number to use to ensure that if 'all hell breaks loose' you are gone gone gone.

Fundamentally, CRI still sees consolidation rather than collapse. The yield curve is still quite healthy, the Japanese fiscal year end is over, and the crisis in Japan itself will act as a break on the world economy (which relieves the US Fed from having to raise short term interest rates any time soon). While this scenario isn't meltdown talk, it isn't really that bullish either. My hunch then is that we will continue to consolidate for some time to come. We may get another push higher into the typical seasonal peak of early May, but once that is out of the way, I would fully expect to see more consolidation through the summer months.

That's all for this week,

Brian Beamish FCSI

The Canadian Rational Investor

the_rational_investor@yahoo.com

the-rational-investor.com