Daily bottom comes in at bottom of weekly channel

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



The long awaited Beijing Olympics have begun. The trends we have talked about over the past four to six years in many commodities look to be changing as the 'build-out' of the Chinese economy has hit its zenith. The Chinesse consider 08/08/2008 to be a very signficant date and I am starting to believe it too! Could this be the pivot point for the commodity markets? From a short term perspective, not less than 13 new commodity trends establish themselves this past week (please refer to WCTS posted at http://www.the-rational-investor.ocm/WCTS080808.pdf).

One result, the S&P 500 index looks to have bottomed amid the commodity market meltdown. On cautionary note - commodity prices themselves are very volatile. After these markets settle down, one ought to expect some sort of test of the old highs. As well, most bottoms require a retest of the initial low. Looking at the chart above one can see how the SPY rallied sharply from its recent lows at $120. When the commodities retest their recent highs I will be expecting a test of the $120.02 area again on the SPY - but hey lets enjoy the rally while it lasts.
We have hit the short term 50% level and are flirting with the fast moving average at $130, should we consolidate and then break higher, one ought to expect a test of the medium term bear market trend channel at or near $140.00....

Enjoy the bounce while it lasts. That's all for this week,

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

Establishing A Trading Range

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The well established bearish channel that began at the end of 2007 continues. Currently we sit very close to the bottom of that channel and the bearish sentiment in the street is quite high. Should either $129.15 or $120.02 be broken one should act accordingly. From a strictly technical/Short term oriented basis, the 200 day on the SPY is currently just above $136 suggesting there could be an 8% rally just to get us back to resistance. Consider too our US Presidential election year thesis (read Opportunity Is Now Here, a special report by The Rational Investor), one ought to see at least a consolidation in prices if not an outright rally over the coming weeks and months. One often is greeted with a sense of euphoria come inauguration day (early January 2009) and by that time one ought to look for a higher market. Ironically, that will probably be the time we will be looking for a top. So to take profits when others are euphoric one must have the guts to be buyers when others a pessimistic. As suggested, the market is quite pessimistic right now. We DO NOT have a buy signal yet! But one must be prepared for such an event. Be patient and vigilant.

That is all for this week,

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

Bearish wheels keep on spinning

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The bearish sentiment on the street is almost getting palatable. Government bailouts of Fannie Mae & Freddie Mac coupled with talk of GM going out of business are the classic ingredients for a bear market. They are not the ingredients for a good short trade though. Those that had the gumption to sell (or even to go short) in May and walk away are the smart ones, those that sell (or even go short) now are just asking for trouble. As previously stated, the longer term picture is indeed bearish (lower highs and lower lows is the definition of a bear market) but the market is very oversold in the short term. A trade back above $130 would flash a daily buy signal (notice the double bottom forming over the past four weeks). That has not happened yet but should it, there may be quite a rally based more on short covering rather than any new fundamental buying opportunity. Shorts BE CAREFUL!

That is all for this week,

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

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

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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

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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