Full steam ahead into November elections

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



As expected, prices have slowly worked their way higher as we get closer to the all important mid-term US Congressional elections to be held early this November.

Interestingly, (please refer to charts below) a web based futures contract trading service called InTrade.com has the House going to the Republicans fairly easily and the Senate literally a flip of the coin. While these are nothing more than projections at this time, one can't help but get the feeling the Democrats will not be in total control of the US government for much longer.



How this will effect Obama's remaining two years in his first term shall be seen but I wouldn't be surprised if things get mighty ugly. For instance, there are many Republicans in the House who are very interested in looking into Obama's actual birth records, it may be proven or drawn out over many months that Obama isn't a born American after all.....ugh!

Regardless of what may come, we must live in the here and now. With this in mind, the market is still pointing higher and I am very much long. While I am not in the SPY personally, OnlyDoubles subscribers will attest to the torrent of trading done recently and the plentiful opportunities out there to double your investments very quickly. I have been a metals bull for some time now and have found many Only Doubles trades to be done in the Junior mining market. But, of course, you will need to subscribe to the OnlyDoubles service to find out exactly where I'm putting money to work....

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

Late summer bottom pointing market higher

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



The double bottom that came in on the SPY over the late summer has indeed put a floor under stocks as we head into the mid-term US Congressional elections this November*. All major decisions regarding US Federal fiscal policy have been put off until the next Congress, and the US Federal Reserve has signaled that it will keep monetary policy loose for the foreseeable future and may even embark on yet more quantitative easing (which is just a fancy way of saying they may be printing more money). This has laid the current market backdrop.
1. The market believes inflation is not a threat
2. The market believes no-one is going to end the party until after the new year (and then there may be some really big changes)
Within this vacuum, prices ought to continue on their prevailing path. Stocks, bonds and commodities higher - US dollar lower. Ironically, this move could be quit dramatic considering the substantial bearish sentiment that was built up over the summer. Having said that, once on the other side of the event I would be reluctant to initiate any new positions. But hey, that is over three weeks away - and in that three weeks we may see some impressive moves...

Technical picture:
Two interesting developments through the month of September.
1. A double bottom in the price of the SPY was registered (refer to the A-B-C-D pattern outlined above). This price pattern (often refereed to as a 'W' price pattern) suggests there is substantial demand for stocks between 100 and 110. So much so that the supply has been overwhelmed and price has had no choice but to move higher in an attempt to find more supply. Traders will use this price pattern as an entry level. They will buy at the top of the range (in this case 112.58) and risk down to the bottom of the range (in this case just below point C or 103.73).

2. Our time tested moving average 'investor-signal' (that being the relationship between the weekly 13 EMA and the 30 SMA) is suggesting prices want to move higher and investors ought to participate. Interestingly here, the cross came at almost the same time as the double bottom. This in itself would be enough to pull me off the sidelines and I do believe investors ought to be long the market again. Specifically, one ought to be long from the 113 area. If not currently long then work open orders around this area.

So what does it all mean?
As has been the case since the late summer, one ought to be bullish and invested. I have talked extensively about the metal markets and that happens to be where my money is working currently (for more on these trades please refer to CRI's OnlyDouble's blog or CRI's CTS blog) but make no mistake....I'm long. I would not be surprised to see a dramatic blow-off top into this event and there is money to be made.
Specifically with regard to SPY, one ought to expect the 120 level to be tested in earnest and even broken. If this indeed happens, one ought to be looking for a continuation up into the 130 area but we will cross that bridge when we come to it...

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

*CRI course note:
Statistically speaking, when one sees a well defined double bottom price pattern [I have found over the past 20 years of doing this] that price will rise above 75% of the time. This is important because remember our '2 Rules of Investing' (1. use a system that is accurate 66% of the time and 2. don't risk more than 5% of your stake on any one single trade).

Selling eases ahead of US congressional mid-term elections

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



In a typical pre-election environment the stock market has taken a back seat to political rhetoric. I would be surprised if the market made any news of significance ahead of November. Once on the other side, all bets are off.

In a year when Democrats are making promises of further government spending (under the guise of 'stimulus') and the Republican party is literally imploding, the idea for change out of Washington is loosing momentum. While it is too early to call it, it would appear that it will be business as usual at least for a couple more years.

While the latest trader 'sell signal' has had its stop hit (113.18) our time tested 'Investor signal' is still bearish. Indeed, the 13 EMA is still below the 30 SMA. This suggests to me that the market is saying - don't be short......just be patient and wait.

If you must put the cart before the horse, one can make a trader buy argument. if you do decide the be long this market (and I don't) be long from the recent breakout at or near 113.20 with corresponding stops below the recent lows at or near 104.29. For those that need to trade, I would recommend looking at the gold (GLD) and silver (SLV) as these markets are in bull phases while SPY still isn't.

From a macro perspective, I believe the market can continue to move higher into the US election event but one should be very careful once it is over. Momentum is strong in the short term and volume is rising. On a side note, several cycle studies I have seen recently seem to back up the notion of a continuation of the most recent trends well into November.

But I must state again, once on the other side be very careful!

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

Caught in a downward pointing channel

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



A substantial rally never materialized this summer to the great disapointment of the bulls. the 113.20 level held firm with the market failing at 113.18. Since that time we have quickly moved lower and are now in the process of testing the late June lows (101.13). To be blunt - as we head into the often precarious season of fall, the market is looking a little ill again.

Regular readers will of course be well aware that we were issued an 'investor sell signal' now almost three months ago and those out there that do consider themselves 'investors' oought to be sitting on the sidelines waiting for the market to clean itself up. Considering the last 'investor-sell-signal' was in November, 2007 and the next buy signal didn't come until the spring of 2009, investors out there may be sitting on the sidelines for quite some time.

As for where CRI thinks the market is going in the short term - A simple 50% retracement of the 14 month up-move seems like a logical place to start. So having said that, my price objective is the bottom of the current downward pointing channel which happens to coinside with the indicated 50% level (at or near 93.27 on SPY).

I don't think this is going to be a mind bending correction considering the important mid-term US elections coming up in November. I do believe there is a really good chance we are setting up for a mind bending correction for 2011....but we will cross that bridge when we come to it.

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

The late spring correction grinds on

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



As we make our way through the summer-doldrums the stock market has moved very little. As has been the case for some weeks now:
1. 'Investors' ought to be sitting on the sidelines in cash (from the most recent 'investor-sell-signal' issued 9 weeks ago) waiting for the 13 EMA to cross back above the 30 SMA.
2. 'Traders' ought to be short from the most recent breakdown (just below 103.89) with corresponding stops above resistance (just above 113.20). While I do think this trade is getting a little old, as long as we continue to see lower highs and lower lows one ought to stay with it. With this in mind, one ought to have moved their stop now to just above last week's highs (just above 113.18).

The market rallied into the July US Employment situation report only to fail. In fact, we came within .02 points of the significant resistance - talk about a close shave!. The fact that we came so close and then failed suggests that the 113.20 area is a significant pivot point for the market. So much so, that if the market can move back above it, I would fully expect a rally to test the most recent highs (at or near 121 area) and traders should act accordingly.

A rally such as this could easily materialize as we head into the Labour Day weekend. Quite often in low volume times such as these, traders will search out markets for 'stop-orders' to try and make a quick buck. I wouldn't be surprised to see them do the same thing to the 113.20 area in the hopes that if they can push prices up there a whole bunch of stop-buy orders will be triggered. With this in mind, SHORTS BE CAREFUL....

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

Market setting up for a big move...

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



After a short break on posting the S&P 500 blog CRI is back with a timely update. Considering the significant role employment figures play in both the political and economic arenas, it should come as no great surprise that the market has slowly worked its way back into resistance ahead of the July Employment situation report to be issued tomorrow by the US Federal Government.

Since the market broke down some eight weeks ago (as indicated by the crossing of the 13 EMA below the 30 SMA) investors have been best to sit on the proverbial sidelines. Indeed, even though short rates are at historic lows, if one had 'gone to cash' on that signal, they would be better off. Traders have been given multiple sell points on the way down with the most recent being a short entry signal back in the week of June 28th when prices broke back below 103.85 (with a corresponding stop just above 113.20). This stop has yet to be hit and traders should still be short.

Regular CRI readers will recall our S&P 500 'investor-sell' signal and CTS blog post in which we detailed various stock indicates rolling over. As well, because the options premiums were too expensive, no position on our part was taken.

Having said all that, we have a very important pivot point coming ahead of us. Since we are now at resistance (113.20) a solid move above will represent a break of the most recent sell pattern. A failure here would solidify this point as a top going forward. Consider too the significance of jobs to the upcoming US congressional elections this fall, and one can easily see why this point in the market is so important.

So, should we get a friendly number on Friday then I could realistically see this market moving right back up to the old highs. If however, we get an ugly number, we could break really hard. Since the 50% level is still very much in play, that would be my target (93.27) on any meltdown. Watch for any traps on the news release (give the market a good hour before making a decision....just my opinion)

Do you think anyone out in the broader public realizes the significance of this.....I doubt it....

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

Rally back into resistance

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



As has been the case now for some weeks, the broader US stock market (as measured by the S&P 500 depository receipts - SPY) has been and continues to point lower. While the past two weeks have seen an impressive rally of almost 8%, we have yet to get back up into significant resistance let alone break any existing trends. The current bear flag pole formation (that was confirmed when the market moved below 103.89) will be solidly in place unless prices can get back above 113.20 (POINT A on the chart above). And as long as that formation is in place, I will continue to look for a move to its respective target of 95.55 (Point B on the chart above). Coincidentally, a natural 50% retracement of the entire 14 month bull run would bring prices back to the 93.27 area.

This therefore then shall be my target window going forward: 95.55 to 93.27.

For those investors out there, you should recall just a few weeks ago that we were issued an 'investor sell signal' when the 13 EMA crossed back below the 30 SMA. The SPY was roughly 110 and that shall be our high water market going forward. For those investors out there, one ought to just sit in cash for the time being and either wait for a 'market-panic' (it will be obvious when it comes) to do some cherry picking or for the moving averages to cross back bullishly. Frankly, I don't know which scenario will play itself out, but I have found that listening to the market is sometimes the hardest thing to do........and the market isn't happy right now!


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