Here comes the pull back

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



The seasonal rally into the spring/early summer has come and gone. We are now comfortably within what is known as the 'summer doldrums' where many stocks drift. On top of the seasonal weakness that lies ahead, the economic backdrop has not improved appreciably over the past six months. Indeed, many economists are suggesting that the past 'stimulus' packages have not done enough to turn the global economy around (and specifically North America). Politicians will only throw more money at the markets when they feel their jobs are at stake and that only happens when prices are in free fall. I hope for all our sakes it does not have to come to that again, but be warned, the best of the market for 2009 may be behind us.

Of note recently, the ever so slightly bullish breakout seen only a few weeks ago on the SPY has failed in earnest. Those that played that long trade should have been stopped out. I myself have been counseling to be short of stocks (my proxy has been GE Dec Put options) and long of Gov't bonds (again my proxy has been TLT Dec Call options). Both trades have performed very well so far and yet I do believe that there is more of the same price action to come. On top of the fact that the politicians at the G8 meeting have lost interest in 'stimulus' talk, we are heading into Q2 earnings season and it may just be very ugly.

My hunch has been to expect a test of the trading range established over the past 6 months and specifically a test of the 73.22 level on SPY. Once that has happened I believe we shall get a bit of a late summer rally to set us up for a climactic push lower some time in the fall.

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

Now entering the summer doldrums

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



The bullish turn in the markets (registered by the 13 WEMA crossing back above the 30 WSMA suggests the worst of the economic data may be nearing an end. Indeed, today the FOMC reiterated this sentiment and went so far as to suggest that deflation is no longer a primary concern of theirs. At the same time they did suggest that the economy shall remain weak for some time to come.

After a stunning 'V' shaped rally - the market has worked itself up into a resistance zone (represented by the Red downtrend line). Should the market continue its short term bullish breakout registered five weeks ago (with a break of the January & March highs) there is a realistic chance we may trade higher in the coming weeks but that bullish pattern is being tested now in earnest. A close below the May lows (88.15) would break that bullish pattern.

This is not an easy area of the market. Bulls & Bears each have their reasons for being so and the volatility will only get more intense as we head out of the seasonally strong period for equities and into a seasonally weak one. Personally, I feel we ought to trade back into the 70 to 75 area on the SPY and have been suggesting this for some time now. For the bulls sake, lets hope I am wrong. For my pocket book's sake, lets hope I am right.

Currently (as per the June edition of CRI newsletter) I am long GE Dec. Put options and long TLT (that's a proxy on the bond market) Dec. Calls. If I am to be short, my preference is to be short financially related issues. If I am to be long, it is in anti-stocks (ie bonds).

Currently I have no long equity exposure with more than 90% cash....

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

The bulls won....for the short term anyway

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

Because I belive we are nearing a key pivot point in the season trade I have included both the weekly and daily chart for reader reference. As of our last post it honestly looked like we were about to tip over. But in typical market fashion, we reversed off the lows and punched our way through the top of the 28 week trading range. The bulls indeed won the battle and have prevailed . The question is, does this represent a low risk buying opportunity or a potential trap?

Here then are the charts and my associated comments:





As a trader, I just want to go with the price action. As the daily chart included suggests, it looks like the market wants to push its way up into the 98 area (Bull flag formation on recent breakout). But the investor in me says, wow, that's a lot of risk to take (50% rule and Gap a long way down) for such a little reward. As well, momentum and volume have not moved higher on the recent breakout suggesting that the market isn't nearly as strong as price would lead you to believe. On top of that, we just left the month of May and the time tested cliche doesn't say 'buy in May', it says 'sell in May'....

Put it all together and I still believe we are in the process of topping out after a climactic 'V' bottom bounce. Notice that the rally has just now taken us back to the 200 day SMA. This 'cleaning-up' period may take the entire summer to play out - if not into the fall. And as previously stated, my target window on a correction will be a serious test of the 73 area. Yes there is upside potential still but now the market is quite risky again.

For those that where watching our potential sell signal from last posting ('on a move through 88.13') it never happened and so as a result I am still waiting patiently to put on a short position on the S&P 500. I notice too that the Dec 85 puts are slowly working their way lower in price. I would ideally like to buy 6 months of time, and we know roughly where this market may go on a correction, so I will move my attention to ROQ-XG wanting to buy at or near $2.50. Should the market come back to 50% level over the next 6 months this option will have an intrinsic value of $4 to $5 dollars or double what we want to pay. Currently they last traded $4.75...

So in summary then, the market has climbed the wall-of-worry. We have broken resistance and are pointing higher for the short term. At the same time, we have gone straight up from the bottom. Yes the longer term picture is looking better but a short period of cleaning up ought to occur. I am not buying this rally. I am using this rally to buy discounted 6 month Put options. While I do not currently have an SPY position, I would like to and will be watching closely for an entry signal.

While not specific to this board, it ought to mentioned I am building a Dec. put position in GE and a Dec call position in TLT (please refer to the June Newsletter - due out in 2 weeks for more on those trades).

And of course, please remember, option trades are for risk capital and (as options can expire worthless) buying calls and puts are considered by the investment industry as high risk trades!

Don't commit more than 5% of your 'stake' on any one play. If you do get filled be sure to have your order to sell (at least 1/2 position) working right away at your taret.

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

Bears taking over again?

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



Regular readers will recall my oft use of market cliches and there is no bigger than 'Sell in May and walk away'. Needless to say, I have been taking profits myself and encouraging others to do so as well. Yes the longer term picture is finally starting to turn up, but a new 'bull market' is still some time away.

The chart above (and my comments from last week) suggest we may need to do some corrective work in the market place over the coming weeks. The 50% level of the recent move up currently sits near $80 on the SPY and I would be willing to bet that we will go to somewhere near there. The low from last November (a level that I think needs to be tested again in earnest) is 73.22.
I will be using this target window (73 to 80) for the SPY going into the early summer.

Technical Trading alert (short term traders only):
For those that do wish to trade this anticipated move, here is a Daily chart of the SPY that I have put a TTA (Technical Trading Alert) out on:



I especially like the August $85 put option on SPY. If the market goes to $80, they will have an intrinsic value of $5, if $73, $22....They have moved up a bit today with the breakdown in SPY (curr $4) so don't chase them. I have an open order to buy at $2.50 (1/2 of what I think they will be worth at the 50% level). There is a gap from yesterday's open at $90, if the market rallies into that window I ought to get my fill.

Remember, this is for risk capital and is a high risk trade!
If you do get filled be sure to have your order to sell (at least 1/2 position) working right away.

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

A Glimer of Hope

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



Reader's of The Canadian Rational Investor Newsletter will remember our sector performance model (April, 2009 edition) and its suggestion that the financials would outperform during the 2nd quarter. Indeed that has been the case and has pushed the markets dramatically higher. The S&P 500 itself is up 40% from its lows!
Everyone enjoying the volatility?

While I have been reluctant to get too optimistic over the past quarters, there are early signs of a market bottom.
1. For investors, the 13EMA has finally crossed back above the 30SMA. Readers will remember the last cross came (bearish) in November, 2007 when the S&P was near 150! While the cross in itself is a poor timing tool, it is one indication that the 1 1/2 year bear market may finally have exhausted itself. Quite often though, I do find that just after a cross (either bearish or bullish) there is a counter trend move to test the market's resolve. Sometimes the test pushes a market to new lows sometimes not. It is far too early to say that this is indeed 'the bottom' but from this technical tool's perspective, things are getting better...
2. Because of 1. above (an expectation of a re-test of the lower end of the recent trading range in the coming weeks) if the market can test the November 17th low (at or near 73.22) and turn back up through the top of the recent trading range (at or near 93.88) we may be setting ourselves up for a dramatic upward push that may take the market right back up to the old highs.....that's right....right back up to the old highs!

What a world we live in. Indeed, an old broker buddy of mine (During the Bre-x days) used to say "you just can't write better fiction than reality"...so true Jack, so true....

To summarize then, I believe 'the crisis' in the US capital system is nearing an end ...for the time being... Investors may again look to invest in the US equities with some confidence that the broader market isn't working against them (QQQQ Monthly bottom!). Traders however are still assuming their short positions (Short from 73.22 with stops just above 93.88) and one should be prepared for a serious test of 73.22 level over the coming weeks/months....Short term traders can be selectively long but be warned....this is a very risky time to buy....remember the time tested cliche....Sell in May and walk away...

That's all for this week,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

Maybe the panic isn't over yet

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



The previously reported breach of the upper end of the 'panic' bear chanel that was recently reported may have been a little haste. New confusion with regard to what are now being called 'legacy' assets by the big banks and an anticipation of poor earnings, have brought the recent rally into question. It seems ironic when one looks at the chart above and sees that the recent optimism hasn't even broken the most recently trading sell signal, go figure.

Considering too the upcoming cliche.....'sell in May and walk away', one shouldn't be too surprised if we indeed do have to take a pause here. Consider too the January Barometer and one also is left with the feeling that the market may have to move to the downside in the not too distant future. Lets hope I am wrong and we do indeed have a further upleg to go as we head into May...


As has been the case for some time, investors still have no reason to be invested in the S&P 500 (and US stocks in general). Weekly Traders should be short the US market from the indicated points and Daily traders should be very selectively long. While I do personally remain long a number of issues as we head into the anticipated seasonal peak in May (mostly in Venture Cap issues related to the metals markets), make no mistake, I plan to liquidate these short term trades soon, especially if I start seeing M tops...


That's all for this week,
Brian Beamish FCSI
the_rational_investor@yahoo.com
the-rational-investor.com

Panic is subsiding but no buy yet

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



Here is the cover commentary from this quarter's RI newsletter:

"Hello again from the Rational Investor. The first quarter of 2009 is now behind us and it is time to look forward into the spring. As is often the case, the markets are enjoying a seasonal bounce off of the lows made last fall. This time around, we seem to be ‘climbing the wall of worry’ regarding the economy and the duration of the current recession. Ironically, it is at the time when the talking-heads are most pessimistic one ought to be interested in the market. And only when they turn bullish should we consider exiting. How long this current rally can last is anyone’s guess but considering the bearish economic backdrop, the horrible January Barometer reading, and a market that has now relieved the oversold condition it was in a few months ago, a seasonal top may materialize sooner rather than later. Regardless, the market is moving higher so as one pier use to tell me, “make hay while the sun’s shining my boy”…"
(for your subscription to the rational Investor please visit the web site at http://www.the-rational-investor.com)

I think this sums up the market well. As investor optimism gowns into the typical seasonal peak one ought to look for a serious test of the current stop point somewhere near the 95.00 area on the SPY. Once the seasonal top is in I would expect the lows of the winter to be tested once again. It would only be at the point where the market tests that low (and it is not breached) and the reverses and turns back up through whatever high we register over the coming weeks to truly believe the market (and the economy) has turned the proverbial corner.


Considering the January Barometer's reading (go to the web site for that article) traders are not expecting this market to bottom just yet. Until this 'W' pattern does come in, I will temper my enthusiasm. Having said that, as the above commentary says...there are few periods of the year when the bullish sentiment pushes the market higher. We are in that kind of period now. For those bullish traders out there -enjoy it while it lasts. Once the seasonal window closes (I am using the June deadline for the conversion from analogue to digital TV service as my catalyst) I shall once again look back to the downside as we head into both the summer doldrums and then the fall.

That's all for this week,
Brian Beamish FCSI
the_rational_investor@yahoo.com
the-rational-investor.com