Full Steam Ahead into Labor Day

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



The market's direction is little changed since the last blog entry. The S&P 500 index [the index I like to use as a proxy on the broader stock market] continues it's relentless march higher into the Labor day holiday. Long standing targets are now within arms reach as we have slowly moved up over the past few months. So much so that we are now within 40 points of reaching into the gap between 105 and 108 and very close to the 50% retracement level of this entire bear market slide.

The very simple, yet quite consistent, timing indicator (13EMA vs. 30SMA) flashed a bullish signal in May when the short term average crossed back above the longer term moving average. These averages are now quite comfortably bullish and any correction in the seasonally weak fall period ought to be considered as a correction and nothing more for the time being. While I fully expect the lows of last March to be tested again in earnest, I do not think that will happen for some time (mid to late 2010 at the earliest) as the above mentioned moving average indicator takes many weeks (if not months) to go from bullish back to bearish.

Having said that, I fully expect some sort of pull-back heading into September/October as these are historically the worst performing months for equities generally. It ought to be noted that the current stock market rally is now more than 100 days old which in itself is a rather rare occurrence. The people at chart-of-the-day recently put out a piece speaking to this point (link: http://www.chartoftheday.com/20090828.htm?T)...

Short term traders ought to still be looking for the market to move higher into the holiday weekend while long term investors ought to sit tight on currently holdings and wait for the next pullback if considering any additional purchases...


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

The late summer grind higher continues

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



As has been the case for several weeks now, the broader US stock market continues to work its way higher into the late summer. The 13EMA/30SMA bullish signal from this past May was indeed correct and there are still two long standing targets on the SPY remaining to be hit (that being the noticeable gap on the weekly charts at 108.02 and the 50% retracement level at 108.765). Considering the typical seasonal strength we often see into the labor day weekend, it would not surprise me to see these targets hit over the coming few weeks. Once we are on the other side of the upcoming holiday (and hopefully those targets have been hit) all long side bets are off in my mind and I will be preparing in earnest for the upcoming fall. Having said that, there are still a few weeks ahead of us until that time and there are no 'sell' signals in place to speak of so I am still tilting towards the market moving higher in the short term.

It is interesting to see how both the Chinese stock market and the US government bond market are suggesting the equity rally may be running out of steam. The Chinese market broke first two years ago and while I don't see a 'crash' scenario just yet, I believe that market will lead the world in its direction again. For the record, I still do have on my short proxies in the US financial sector (long deep in-the-money GE puts & GS puts while being long TLT calls) and I will be more than happy to add to those positions on any serious breakdown as we head into the seasonally horrible time of the year (Sept. & Oct.)

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

Late summer strength may lead to long standing targets being hit

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



As previously stated, the market briefly broke down in the early summer and has reversed course and headed higher. While I myself am not overly bullish, one must respect the price action and go with the trend for the time being. It is interesting to point out how the very simple 'investor' timing signal (13 EMA vs. 30 SMA) suggested the bear slide that began two years ago, ended in May. As well, both the 50% level and a large gap sit in the 108 area on the SPY. Quite often I find that these two technical indicators coincide so seeing this isn't too big of a surprise. Can we get to that target before the seasonally weak period (September and October are historically the worst performing months for stocks generally) kicks in? Only time will tell, but for the time being the market is pointing higher so enjoy the rally. Once we get past Labor Day, all bets are off and I would fully expect some sort of pull-back. Currently a 50% retracement of the up move from the March lows sits ([66.62 + 100.86]/2 = 83.74) in the 84 area and that shall be my target for any significant sell-off over the coming 2 1/2 months.

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

A head fake & a move higher

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



Many of the recent tops in world equity markets have been broken to the upside. WCTS suggests equities in general ought to move higher through August as low volumes and bullish comments from central banks suggests there is little resistance to higher prices. One ought to be careful about getting too bullish in the short term as we are approaching significant technical resistance (both the gap and the weekly 50% level). As well, the September/October time frame is usually not very kind to stock prices. Having said that, we are moving higher in the short term so enjoy the rally...

Investors were given the 'All clear' signal in May (when the 13EMA crossed back above the 30 SMA) and while I have been reluctantly bullish that indicator has been correct. Traders have been given the all clear to be long on this week's break through the June highs. A word of caution though, the lows from March were "V" shaped suggesting that they ought to be tested in earnest a some point down the road. For the time being I will remain on my long tech./ short financial proxy and have added to that trade idea with the recent purchase of Jan '10 GS $120 put options. I will use the rally over the coming weeks to add to that trade as the chart below suggests that even a 50% correction of the massive rally over the past 6 months ought to bring prices back into the $110 area...



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

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