The Summer Doldrums.....starting to form a bottom?

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



Stuck in a massive downward pointing chanel, the US stock market (as measured through the SPY - The Standard & Poor's 500 Index's ETF) continues to grind through the summer. From the period of mid May through mid July, the SPY has lost roughly 20 points or about 15%. It puts the saying "sell in May and walk away" into perspective, doesn't it?

Regardles of the past we must be ever watchful for signs of what may come in the near future. Is there a significant bottom in the US stock market? No, we are no longer in a bull market and must therefore look at rallies as counter-trend at best. Is there a potential for a trade-able rally back into resistance (maybe near the May highs around $142.5)? Yes, counter trend rallies often take the market right back to test the previous pivot point and we are now starting to head into a seasonally good time of year for the stock market. For the next three months the market may have the wind at its back.

Lastly, this week I ought to bring back to mind the idea that energy prices are topping out. While just weeks ago the idea that energy prices were going to go down seemed outlandish, that notion is gaining ground in the marketplace. An earnest drop in energy prices is all the market needs to justify that counter trend rally I'm looking for. Read my special report (Opportunities In Options - Is it time to start building a short position in energy?) at http://www.the-rational-investor.com

that's all for this week,

Brian Beamish FCSI

the-rational-investor.com
the_rational_investor@yahoo.com

Lower highs & lower lows equals a bear market

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



The definition of a bear market is one where prices continually make lower highs and lower lows. Since the fall of 2007 we have seen exactly that from the S&P 500 index (represented above through the S&P depository receipts - SPY). The lows from winter 2008 were recently violated confirming this bearish trend and further suggesting this bear has more damage to do. For the near term one ought to be cautious and patient. Traders should take comfort in the fact that we are getting closer to the ultimate target of this down move ($118 area). Based on the bearish flag pole formation (discussed last week) and the wide downward pointing channel (seen above) significant support should be seen just below $120 on the SPY or 1200 on the index itself.

While there is no medium to long term buy signal anywhere in sight (and probably won't be for quite some time) I remain confident the market will find a tradable bottom in the coming weeks in preparation for the coming US election in the fall. Again - hurry up and do nothing for now

Brian Beamish FCSI
the_rational_investor@yahoo.com
http://www.the-rational-investor.com

A Big Test Failed

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

We here at The Rational Investor have been looking for a test of the winter lows some time here in June and we have now indeed got it. Unfortunatly, the market did not pass the test and has now confirmed a rather bearish looking chart pattern on the SPY.

In a classic Bear Flag formation, the market fell from $150 (A.) to $125 (B.) very quickly. It then consolidated back to $143 (C.). If the market breaks point B. (the low of $125) then one must look for a continuation of the first move - in this case down to point D. (at or near $118). As well, the break of the winter lows at $125 confirms the rather wide downward pointing trend channel (red and blue lines) which also happens to suggest there is support at or near the $118 level.

The SPY (and by default the broader US economy) is suggesting the weakness seen over the past months will continue for some time into the future. the US economy is in contraction - earnings are in contraction and costs just keep going up. Indeed, financial stocks have yet to bottom in earnest and energy prices have yet to top.

At best the market shall remain range bound between $118 to the downside and $143 to the upside for some time to come. At worst, we continue to trade to new lows building more and more resistance into the price charts.

Yes the market is very oversold in the short term (and a dead-cat bounce could take us right back up into the $140 area on the SPY). If that is to happen we need a reversal sometime within this week or early next week. More importantly though, the longer term implications of this significant technical failure suggest we are now firmly within a period of price consolidation rather than expansion.

Not the best report to make but hey, I gotta call 'em as I see 'em....

Brian Beamish FCSI

the_rational_investor@yahoo.com

http://www.the-rational-investor.com

Time for a big test

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


Those that did sell in May and walked away are feeling pretty good about themselves these days. The broader stock market continues to deal with rising energy prices and a poor relative earnings picture because of the housing debacle. While readers should be very comfortable with the idea that I believe energy is near a top, picking the exact top is never easy. As a result, violent price swings and calls for huge upside price targets should be expected. Keep in mind our basic rational investment policy - we wish to be sellin' when they are yellin and only buyin when they are cryin'. These days they are definetly yellin' in energy and simultaniously they are cryin' in the stock market.....enough said

Seasonally we should be looking for a bottom near the end of June. I believe this bottom is near and the chart above demonstraites that regardless of the prevailing market pesimism, we are just now getting back to an area of significant technical support. One should look for support in and around the $127 area on the SPY. Be very careful about initiating new short positions as we are oversold and could bounce very easily. While this won't represent a 'Buy' signal (as we need to see a double bottom in price before we can get outright bullish) short term traders may see a window of opportunity once the shorts are on the run.

That's all for this week and thanks again for your interest,

Brian Beamish FCSI
the_rational_investor@yahoo.com
http://the-rational-investor.com

Are we done correcting? Not yet I'm afraid

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

The late spring correction continues as expected. The SPY itself is now down 8.5% from its highs seen just last May 19th at $143.58. As in my previous posts, I fully expect the lows of March 17th, 2008 at $124.82 to be tested in earnest. What is most interesting is how and when this is occurring. Readers of my special report, Opportunity is Now Here, will remember that during typical US Presidential election years, the market does nothing for the first half, then dramatically outperforms for the second. Oil is (in my opinion) topping out, earnings are (in my opinion) starting to bottom out and the political stage is being set for a real showdown in November. Both Obama & McCain shall do anything they can to appeal to voters with regard to energy prices - that can't be oil friendly. Both candidates shall claim to have the appropriate fix for the housing crisis - that should help the financial sector. Even if the rhetoric is perceived as only a short term fix one can see why the market may do better going forward.

Currently the market is trending lower and one ought to remain cautious. As a rational investor though, I do believe we are NEAR an exceptional buying opportunity. Keep waiting patiently.

That's all for this week, enjoy,

Brian Beamish FCSI

http://www.The-Rational-Investor.com

the_rational_investor@yahoo.com

And the grind goes on

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

The old adage of Sell in May and walk away has so far been correct once again. As per my recent blog entries, one ought to expect a test of the $130 area on the SPY over the course of the next few weeks. That test in now underway. Worries over the financial sector and the associated housing crissis will prevent any further upside action for the time being. As well, the parabolic nature of the energy markets will act as both a dampener on economic activity and a stimulant for inflation. See RI's recent report, Opportunities in Options - Is it now time to start building a short position in Energy, for a further look into the potential profits in shorting oil (through the use of long term Put Options).

That's all for this week, enjoy,

Brian Beamish FCSI

http://www.The-Rational-Investor.com

the_rational_investor@yahoo.com

Looking for a late spring bottom

Hi there,

and welcome back to RI's S&P 500 blog.

The long slow process of correcting is apon us. As I have stated in previous posts, the old adage "Sell in May and walk away" suggests we ought to see some sort of pull back in the major stock indicies over the coming weeks. We are in the midst of that pull back with the SPY off 3% from the highs seen just three weeks ago. I am still looking for a serios test of the 1 year up trend line (at or near $132.50 on the SPY itself). Rocketing higher oil prices, more troubles from the financial sector and now a united Democratic party (behind B. Obama) shall stress the markets for the coming weeks.

Enjoy the show and don't be in a big hurry to buy anything for the time being.

Brian Beamish FCSI

www.the-rational-investor.com

the_rational_investor@yahoo.com