Massive resistance suggests top is within sight

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

The broader US stock market (as measured by the S&P 500 index and its associated exchange traded fund SPY) suggests there is mounting evidence that a seasonal top could be forming. This week's price chart has what I believe to be the three dominant price channels drawn on it. Channel A represents the weekly up trend established off the breakout lows from last falls mid-term US congressional elections. Channel B represents the monthly up trend established when the market broke the spring '10 highs near 120. And finally, channel C represents the daily breakout established just three weeks ago apon the news that the Fed would continue its QE2 program into June '11. These channels seem to intersect just above where we are now (right about the 138-140 level). Regular readers will recall that CRI's most recent bullish price target happens to be right in that area too (138.77). The price action of the past few weeks has been up and down but as these three chanels suggest, we are still very much within the confines of a bullish market. A last testament to that underlying bullishness, our time tested 'investor' signal (that being the relationship between the 13 EMA and the 30 SMA) is still pointing higher.

For those 'investors' out there, your last buy signal came 35 weeks ago (and now some 30% ago!). Your position should still be long from about the 111 area with stops just under the most recent significant pull-back (near or just below 125). Be long and stay long until either the 13 EMA moves back below the 30 SMA or your stops are taken out.

For those 'traders' out there, your last buy signal came just 3 weeks ago with the confirmation of the short term bullish flag pole formation [(134-124.74)+129.51 = 138.77]. Please refer to the  S&P 500 blog from two entries ago for a detailed look at that target. Stops for traders ought to be just below the bottom of the flag (at or near 129.51 area).

In conclusion

We are getting very close to some major technical resistance in the market. Additionally, we are coming close to the US Fed's stated end of QE2 of June, 2011. Lastly, the cliche seems very appropriate that one ought to seriously consider 'Selling in May and walking away' becuase they don't call it a cliche because it never happens!

That's all for this week,

Brian Beamish FCSI

The Canadian Rational Investor

the_rational_investor@yahoo.com

the-rational-investor.com

The Bull is Running Out of Room

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

As per last entry, we here at CRI are still looking for the  138.77 level (that being the small bullish flag-pole target) be hit in the short term. Having said that, one would be rather irrational not to expect a seasonal correction as we now are officially into the month of May. The cliche. Sell in May, and Walk Away isn't a cliche for nothing and so all investors should be well aware of the seasonal vulnerability the market may become subject to over the coming weeks.  As of yesterday, the weekly high for the most recent weekly bar is 137.18 so if we did indeed top out here, I wouldn't be surprised.  Notice too how we are consistently brushing up against the upper channel line. This line represents significant resistance and would surprise me if it were broken in earnest before some sort of pullback.

As investors, we know that the last significant 'investor-buy-signal' came in last fall at the conclusion of the mid term US congressional elections (at about 112) and when the 13 EMA crossed back above the 30 SMA. The market is up more than 20% (plus dividends) from that breakout so investors have nothing to complain about. The moving averages are still comfortably bullish, so there really isn't any cause for alarm. Stops on that trade should be just below recent support (at or near the lows of April near 129.51). Should that level be breached, it would signify a third test of the 13 EMA (which statistically isn't healthy) and may lead to greater price depreciation. These are all IF's and since none of these levels has been breached we must sit patiently on the long side and watch...

Traders have been given new bullish vigor with the most recent (above mentioned) bullish flag pole formation and ought to be looking for that 138.77 target to be hit in the coming days/weeks. Once hit, traders would be wise to exit on any sort of weakness or even have open orders to sell at or near that level itself.

That's all for this week,

Brian Beamish FCSI

The Canadian Rational Investor

the_rational_investor@yahoo.com

the-rational-investor.com

One last seasonal push higher?

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

A basic reiteration of our most recent posts - the market is moving higher into the typical seasonal peak time period of May. This year seems to be little different from previous in that investors are quite euphoric as we head into the spring in earnest. As the chart above illustrates, we have been trending higher now for close to five months and if one followed our simple time tested 'investor' buy signal - one ought to be long from 111.50 with stops moved up to the most recent pull-back point (124.74) or on a cross of the 13 EMA back below the 30 SMA. Neither has happened so one must continue to be long and stay long. 

For an idea of a short term upside objective, this week I have included a blow-up of the past 11 weeks to see the potential bull flag formation developing. For more on this type of price pattern, please feel free to visit CRI's free on-line seminar - Chart Patterns & Formations. This is a typical 'bull flag' formation where the low of 124.74 represents the bottom of the flag pole and 134 represents the top. If one takes the difference (9.23) and adds it to the consolidation low of 129.51 we get a nice target of 138.77. This target is of course dependent on a break of the high 10 weeks ago at 134.11 but given seasonal pressure, a relatively positive earnings season and a very bullish yield curve, I see no reason why the 134 level can't be taken out over the coming days/weeks.

A cautionary note - I think it is important to make clear that we are entering a dangerous time of year for the broader market. While I might be inclined to 'trade' this breakout (maybe an option or a futures contract position) we are getting very old in this market rally and this DOES NOT represent a good 'investment' point. As pointed out previously, this rally is now entering its 5th month and is really due for a consolidation of somesort. Having said that, there is no sell signal at present but it is important to keep the big picture in mind as we leave April and head into the dangerous month of May. 

The cliche - sell in May and walk away - isn't a cliche for no reason!

That's all for this week,

Brian Beamish FCSI

The Canadian Rational Investor

the_rational_investor@yahoo.com

the-rational-investor.com

Still range bound - but trying to point higher

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

As has been the case for eight weeks, the broader US stock market continues its recent consolidation. This correction came on the heels of a massive 20% appreciation in equity prices from the last significant 'investor buy signal' which was registered immediately after the US mid-term congressional elections, last fall.  

last week's blog entry detailed: "For those 'investors' that were able to buy last fall, they should still be long with their respective stops moved up to just below the most recent pull back level (just below 124.74). Our time tested simple trending indicator (the relationship between the 13 EMA and the 30 SMA) is still very bullish so as 'investors' we are left with no change in our position - be long and stay long. Indeed, while the news headlines called for impending doom, little to no real technical damage was done suggesting that the correction was little more than an attempt by the market to wash out the 'weak-hands'. "

When I look at the chart above I get the impression of a classic seasonal top coming into the market. While the market has yet to 'break down' in earnest, one must appreciate the old addage "sell in may and walk away" Almost every market followed in CRI's WCTS is rallying into May and to me, things seems a little too rosy out there. Keep in mind, we just went through one of the biggest market corrections (where the SPY lost more than half its value) in about 2.5 years. It then seems logical that the 'dead-cat-bounce' ought to be somewhere in the neighborhood of 1.75 years (half the period of the sell-off). Considering that the market has rallied for about 2 years, one can argue that the 'dead-cat-bounce' has lived far longer than expected and that maybe we are getting a little over extended.

Of particular fundamental note today, one of the market darlings during this past run-up, Google, has been severely punished today for missing its earnings expectations. The stock itself is down more than 7% (down $44 at $534) as of writing this entry and clearly demonstrates to me that stocks can still be hurt very badly in a very short period of time. Additionally, if market darlings are starting to fail, how can the broader market stay up without any leadership.

As stated previously, the broader market HAS NOT broken down yet. So while I am cautious (and certainly not buying anything new at this point) one must respect the fact that we are still pointing higher. 'Investors' should still be long and stay long until our time tested indicator (that being the relationship between the 13 EMA and the 30 SMA) turns bearish OR the most recent stop point (a close below 124.74) is tripped.

These are dangerous time up here in the nose bleed section, but as long as the market keeps making higher highs and higher lows one must still be looking for higher prices. Needless to say, I shall be watching both the 134.11 (for a higher high) and the 124.75 (for a lower low) areas very closely...

That's all for this week,

Brian Beamish FCSI

The Canadian Rational Investor

the_rational_investor@yahoo.com

the-rational-investor.com

Seasonality Dominating The Bears

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

As has been the case for seven weeks, the broader US stock market continues its recent consolidation. This correction came on the heels of a massive 20% appreciation in equity prices from the last significant 'investor buy signal' which was registered immediately after the US mid-term congressional elections, last fall.  


For those 'investors' that were able to buy last fall, they should still be long with their respective stops moved up to just below the most recent pull back level (just below 124.74). Our time tested simple trending indicator (the relationship between the 13 EMA and the 30 SMA) is still very bullish so as 'investors' we are left with no change in our position - be long and stay long. Indeed, while the news headlines called for impending doom, little to no real technical damage was done suggesting that the correction was little more than an attempt by the market to wash out the 'weak-hands'. 


For those 'traders' out there, one gets the impression that the market does want to continue higher so a close above the recent closing high (133.95) would signal a re-entry point and confirm another massive bullish flag formation. As the chart above suggests - real resistance comes in about another 10 points higher on the SPY and considering the seasonal nature of the market, an exhaustive push into May shouldn't be too unexpected. As all good traders know, we are very over-extended on the trade, so any failure should signal an immediate exit. While I personally think this is a very risky long trade (200 SMA is more than 20 points lower!) I can justify playing the momentum - but if that momentum fails (which it ought to do in May) get out quick.

That's all for this week,

Brian Beamish FCSI

The Canadian Rational Investor

the_rational_investor@yahoo.com

the-rational-investor.com

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.