Sixth week of consolidation

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

It is so incredible to me to see how the world reacts and then re-reacts to technically meaningless events. I would argue that the past six weeks of trading for the broader US equity market (and really the world) has done little more than shake out the 'weak-hands' in the market. Regular readers of this blog will note that we turned cautious almost exactly at the top (134.11) as we came within a mere fraction of our long standing bullish upside target (136.09). At that time, our fast trend indicator (13 EMA) had moved dramatically away from our slow indicator (30 SMA) and CRI could see big divergences building on the daily charts. Indeed, over the past few weeks we have moved violently lower and then right back up to the top - basically going nowhere fast. Tragically, many may have been washed out on this violent move lower, even though there really hasn't been any technical damage done. Regular readers will note too that since our last 'investor buy' signal the market has moved just over 20% higher so a correction of some sort really shouldn't have been too unexpected. Additionally, that investor buy signal is still very much in place so Investors should be long and only now be moving their collective 'stops' to just below the recent trading lows (near 124.75).

For those slick 'traders' out there, stops should have been hit on a move through the 13 EMA which happens to correspond nicely with the lows of 129.79. While the market has come back over the past couple of weeks, traders still ought to be sitting on the sidelines waiting for a clean break of those old highs before they ought to get back in. For those 'investors' out there, the only thing the recent move lower represents is a new 'get out' point to move collective stops to (124.75). Should the market break back below the recent lows, one could argue for a weekly double top price pattern and some sort of failure fundamentally. While the later will remain a mystery until it comes to light, the former is a simple number to use to ensure that if 'all hell breaks loose' you are gone gone gone.

Fundamentally, CRI still sees consolidation rather than collapse. The yield curve is still quite healthy, the Japanese fiscal year end is over, and the crisis in Japan itself will act as a break on the world economy (which relieves the US Fed from having to raise short term interest rates any time soon). While this scenario isn't meltdown talk, it isn't really that bullish either. My hunch then is that we will continue to consolidate for some time to come. We may get another push higher into the typical seasonal peak of early May, but once that is out of the way, I would fully expect to see more consolidation through the summer months.

That's all for this week,

Brian Beamish FCSI

The Canadian Rational Investor

the_rational_investor@yahoo.com

the-rational-investor.com

The Trader Battle Is On!

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

The weight of civil war in the middle east, and now a historic earth quake in Japan has brought the prospects for continued global growth into question and brought equity prices back to a short term support area on the weekly chart. In the past month we came within 1.5% of our initial upside bull flag target (136.09 was the target and we hit 134.69 on Feb 18th) so I'm not too concerned if we need to consolidate the gains seen over the past few months. Please keep in mind, we are still very much in a bull market with the last 'investor buy signal' being registers almost six months ago and some 16% ago. So for now I am considering the current price action a Traders Battle contained within a broader bull market. To that end, I have included below the daily price chart so you can get an idea of what traders are looking at in the short term. If and when prices do come back into short term support (118 area), one might argue a longer term buy may look very attractive.

When we look at the Daily price chart we see that there is indeed a lot of reason for this market to cool off a bit. On top of the fact that we have been issued 3 separate double top breakdown sell signals of late, the 13 EMA is now crossing the 30 SMA bearishly. Put it all together and we see that supply is overwhelming demand and prices have no choice but to fall. The question now is, where might prices correct to. To answer this - I like to refer to, first, the 50% rule (currently near 125) and then to see where there are gaps (very big gap near 118) and lastly to see where the 200 SMA is (currently near 118). My downside targets therefore ought to be 125, then ultimately 118. I will keep these targets in mind until we either see the stops taken out (massive resistance just below 134) or a new double bottom price pattern comes in. Either way, this may take some time to happen so I'm not in a big hurry. 

The daily chart analysis seems to correspond to the weekly chart in that solid support for this market doesn't really exist until we get back down into the 118 area. The sheer magnitude of the rally off last falls bottom needs to be appreciated coupled with the fact that we live in a very volatile world. The exact bottom price is of course anyone's guess but my hunch is we will be setting a base for yet another push higher in the months and quarters to come. 

So to all 'investors' out there, be long, stay long and enjoy the ride.

A pullback - yes, a breakdown - no

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

In typical market fashion, as soon as one gets lulled into a state of complacency problems start to develop. I would argue that is exactly what has happened of late. Interestingly, even though the selling has been a bit abrupt, there appears very little technical damage being done. In fact, one might argue that some sort of pull back was long overdue and that prices are now just getting back to an area of support on the charts.

So, as rational investors, lets take a look at both the fundamental and technical views to see if our market stance needs to change.

Fundamentals

From this perspective, the market is quite healthy. Recently, Ben Bernanke suggested to the US congress that further stimulus would be needed from the Fed. To that end, Fed purchases of shorter term US government maturities will continue for the foreseeable future. Additionally, inflationary pressures within the US economy are still relatively low suggesting there isn't a great need for a tightening of credit for some time to come. This is very much the same message as has been the case for a few quarters (if not years) and there doesn't seem to be any change in the trend. Couple this Macro backdrop with the fact that US corporations are both flush with cash and are producing solid earnings growth (from a yield curve perspective as well as from a friendly US dollar trend perspective) and one has the makings of further price appreciation down the road. Ironically enough, the rising oil price (due to non-market forces) may help prolong the current economic expansion since the US Fed won't need to raise short term interest rates (protecting yield curve earnings) as long as commodity prices continue to climb.

Technicals

From this perspective, the market is very healthy. The recent break above the spring '10 highs (120 on SPY) suggests the market wants to go higher (MUCH HIGHER!). While this is a longer term price pattern (taking months if not quarters to play out) the ultimate target for this breakout is 155 [(120-65) + 100]. This is my late summer / early fall '11 target and suggests SPY will rally another 19% higher from current levels! From a shorter term perspective, a pullback was a little overdue. The short term bullish price pattern (the A-B-C-D pattern noted above) had a price target of 136.09. We hit 134.69 (or about 1.5% away!) and if that is the ultimate top for this bull wave then I will be happy. I think we have way more upside to come, but maybe we ought to take a few weeks and clean things up a bit. Considering that our 'investor buy signal' was registered more than five months ago (and almost 20 points lower than where we are now!) a period of consolidation seems more than realistic. There is NO 'investor sell signal' anywhere in sight so investors ought to just sit back and be long.  Traders ought to be long from three different points (112 area, 122 area and 130 area) stops on these positions could either be just below the lows registered 7 weeks ago (124 area) or use last week's low as your new stop. Either way, if we break back below last weeks lows (which happens to be right at the 13 EMA and the bottom of the trend channel) I think we are going lower.

Summary

"Beware the ides of March"

Like Caesar, investors ought to be aware of the seasonal pivot that often accompanies the ides. Equity markets love to rally into the spring, earnings are still robust and short term interest rates are historically low. With this backdrop, I see no reason to believe we are coming to an end of this bull run. Having said that, markets never move in a straight line forever and a period of a few weeks of consolidation may lay the ground for a serious rally into the spring/summer.

Be long, stay long and enjoy the ride!

That's all for this week,

Brian Beamish FCSI

The Canadian Rational Investor

the_rational_investor@yahoo.com

the-rational-investor.com

Getting close to near term upside targets

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

As there has been little change to either the technical or fundamental picture over the past week, this will be shortened blog entry. For more on the current fund or tech backdrop please go through the recent posts to bring yourself up to speed.

So, as has been the case for a few months, the broader US stock market (as measured by the S&P 500 depository reciepts, SPY) has been trending higher. Investors ought to be long from the cross of the 13 EMA back above the 30SMA (near 112 area). Traders have been given three 'buy' signals since then lending support to the notion of higher prices to come. Traders latest 'buy' signal was registered when prices moved through the recent peak (at or near 130).

Currently we have a trader upside objective of 136.09 and I feel very confident that will be hit in the coming weeks if not days. Once that number has been hit, I wouldn't be surprised to see some sort of pullback as we are currently 7 points (or a little more than 5%) above short term support levels (13EMA). Additionally, the spread between the 13 EMA and the 30 SMA is getting very wide suggesting we are getting a little over done.

Be long, stay long and enjoy the ride!

That's all for this week,

Brian Beamish FCSI

The Canadian Rational Investor

the_rational_investor@yahoo.com

the-rational-investor.com

Higher and Higher we go

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

For the better part of 5 months now, the US stock market has been booming higher. Those regular readers will of course clearly remember CRI's overt bullishness coming out of the US mid-term congressional elections last fall. Along with a fundamental shift away from Federal anti-business government, the US Fed. reserve board also promised a substantial injection of capital into the market in the form of $600 billion of new 2 to 5 year bond purchases. This program, known as QE2 literally guaranteed a floor in equity prices and indeed, the market responded accordingly.

Technically, both investors and trades ought to be long from the considerable breakouts last fall. Investors will recall our time tested indicator (the relationship between the 13 EMA and the 30 SMA) crossed bullishly in October. At the same time, a nice double bottom was registered at about the same level. Since that original entry, investors are advised to sit on the long side and be long. Traders have been given yet another entry signal. when prices crossed back above 122.31. Currently those traders have their stops just under recent support at 116.97. Short term support appears to be in and around the breakout high (122.31) and the 6 EMA (125.09).


Enjoy the rally and be sure to take some profits along the way. What to find out what CRI is trading now? Go to CRI's OnlyDoubles NewTrades to see what CRI is buying right now. What to see what CRI is taking profits on? Go to CRI's OnlyDoubles Profit Blog to see how recent purchases have paid off...

That's all for this week,

Brian Beamish FCSI

The Canadian Rational Investor

the_rational_investor@yahoo.com

the-rational-investor.com

The Bull Marches On

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

As has been the case for quite some time, the broader US stock market is moving higher. Both investors and traders where issued significant buy signals coming out of the US mid-term congressional elections in November. Most recently, we were issued yet another trader 'buy' signal, when prices broke above the Fall '10 highs at 122.31. Currently, stops should be just below recent support at or near 116.97.

From the fundamental perspective, the first two weeks of the quarter saw money move into Energy, Tech. & Financial. These three sectors all have the wind at their backs (rising energy prices, rising global demand for consumer electronics and a very steep yield curve) which will help an already rosy earnings picture. Couple this will a friendly US Fed. and we have the backdrop for a continued fundamental push higher into the spring. 

From the technical perspective, there are two major bullish forces at work here.

1. From a longer term perspective, the recent break above the  Spring '10 highs implies an upside bullish flag pole formation where the target is near $155 dollars per share on SPY [(120-65)+100 = 155]. This formation will be in place until a corresponding 'top' is registered or the market breaks back below 100 again. This may take months, if not years to play out but unless some catastrophic meltdown occurs, prices over the longer term are pointing much higher.

2. From a shorter term perspective, the break above 122.31 eight weeks ago implies a very short term bullish flag pole formation where the target is near $136 dollars per share on SPY [(122.31-103.19)+116.97].  I see no reason why this target won't be hit in the coming two quarters. We are into the seasonally friendly time of year for stocks and the market has lots of momentum behind it.

Enjoy the rally and be sure to take some profits along the way!

That's all for this week,

Brian Beamish FCSI

The Canadian Rational Investor

the_rational_investor@yahoo.com

the-rational-investor.com

Climbing the wall of worry

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

 

With the new year and new quarter upon us, CRI has been patiently waiting and watching to see where we might be heading over the coming months*. Considering the significant bottom in the US dollar and tops in the Euro. & gold, we may be getting an indication already of what to expect for Q1'11.

Specifically with regard to SPY, the repeated message must be:

'As has been the case for many weeks now, the SPY is pointing higher. Regular readers of this blog will recall CRI's bullish enthusiasm coming out of the US mid-term Congressional elections and the announcement of the US Fed's QE2 program. Fundamentally we experienced a dramatic political shift in Washington coupled with a guarantee of an additional $600 billion in Fed. bond purchases before the end of Q1'11. Technically, the market registered a very well defined double bottom breakout from 112.58 (our 'trader buy signal') coupled with a nice cross of the 13 EMA back above the 30 SMA (our 'investor buy signal').'

Currently, stops on this trade should be just below the recent lows at 116.97. Considering that level is more than 10 points below current levels [with short term support near the 13 EMA (121.69)] new purchases ought to be delayed until some sort of consolidation comes in. On a longer term basis, investors ought to take some solace in the fact that the market has broken cleanly through the spring 2010 highs. This monthly breakout suggests the current cyclical bull run is far from over.

That's all for this week,

Brian Beamish FCSI

The Canadian Rational Investor

the_rational_investor@yahoo.com

the-rational-investor.com

 *The first two weeks price action each quarter is a really good guide as to where new money may be flowing during the entire quarter.