Bear market grinds on

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





Now well over a year old, this bear market has erased almost half the value of the S&P 500 Stock index. What seemed like a simple sell signal (when the 13 EMA crossed below the 30 SMA in November of 2007) now looks like a significant pivot point in contemporary economic history.

This week, like so many of the recent past, is clouded with poor economic data and the potential for more US corporate bankrupcies. Couple this with significant job losses and its no surprise the christmas of 2008 won't be too jolly (especially on Wall Street!). Ironically enough, this is the sentiment one needs to see in order to 'put a bottom in' the stock market. The bad news is now priced into stocks and as prices suggest things are indeed bad. However, as a leading indicator, it shall be the first thing to turn up when the economy is precieved to have hit bottom. We of course shall be well aware of that potential turn as the charts often give an indication of such a turn well in advance. Using the 13EMA/30SMA cross over system is one such example.

In the short term, for the past five weeks the market has been contained within a trading range where 74.34 represents the bottom and 92.38 represents the top. Considering today is the US Fed. Reserve Meeting for December and this Friday is the December Options expiry, I wouldn't put alot of confidence in the market being where it is today come Monday or Tuesday of next week. Regardless, should the market close above or below either of these range points, the appropriate short term action should be taken.

Technically speaking, there is no bottom in the market yet. The market is now well contained within two bearish price chanels. This suggests that prices need to fall further and that any rallies should be viewed with skepticism until these chanels are broken. There is a valid bearish flag pole working which suggests prices need to hit 54.48. And until either of these events happen, one ought to sit on the sidelines and watch the economic fireworks from a comfortable cash position.



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

Consolidating a new lower trading range

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



What more can be said that hasn't already. Short term traders are short from 83.58 with stops above recent highs at or just above 90.13. Those short should be looking for the ultimate selloff down to the bear flag target at or near 54.48.

Medium to long term investors have no business even looking at the stock market right now. Yes a seasonal bottom should be coming in but my fear is that will not be realized until well into the new year.

My short term expectations are for a test of the recent lows as we head into the December options expiry (Dec 19th) after that we ought to see a typical 'santa claus' rally into the X-mass/New Year's holiday period. Because New years falls on a Wed. this year. I wouldn't expect the selling to begin in earnest again until the second week of January.


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

And the bear goes on

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

The recent breakdown of the S&P 500 stock index through its October lows suggests there is further price declines ahead.

For traders, an outright sell signal was registered two weeks ago when the market moved below the important low of $83.58. One should be short from this level with corresponding stops just above the recent high (the day of the US Presidential election) at or near $100.86. As the chart above illustrates, we sold off tramatically into the November Options expiry last Thursday November 21st. And while that represented a nice profit on the short trade, we have neither hit the bottom of the current trend channel nor have we hit the bear flag target. This suggests that once the market has found buyers again we ought to see a serious test of that low (at best) and a punch through those lows (at worst).

For investors, there is no sign of a bottom anywhere in sight so one ought to sit on the sidelines and watch for the time being (once again!).

Considering the substantial bearish sentiment and where we are in the seasonal cycle, some sort of bottom should come in over the coming weeks/months. As a side note, the bear market of 1973-1974 saw the Dow finish the year at or near its lows in 1974 (only to reverse violently in early January 1975) so a similar performance shouldn't be too surprising. We are at about the same point in the 'fear' cycle (roughtly the 8th year of an expected 17 year cycle) as 1974 and the prospects of some sort of recovery now seem to hinge on the new Democratic President, Obama, and what his 'change' platform will produce. George Bush is a lame duck and shall ride out his remaining month and a half in office as nothing more than a spectator.

That's all for this week,

Brian Beamish FCSI

the_rational_investor@yahoo.com

the-rational-investor.com

The test came and failed again

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







For a few weeks now we have been watching the market trade in a well established channel between a high just under $100.00 and a low near $83.58. The market popped up above the high end of the range just before the US Presidential election and then ( just as one was starting to feel a little bit more optimistic about things) the market broke straight down to take out the important low at $83.58 just last week.


For the Bulls, the fact that the lows were taken out means we must start the construction of a new bottom all over again. So going forward, we shall use the lows of last week as our new bottom of the trading range $82.09. We ought to see a nice rally away from the lows then a test of this low and then a turn back up above the rally peak before we can get a buy signal. All this says to me is that we probably won't get a seasonal bounce in the market until well into December. Novemeber options expiry is coming up this Friday 21st and the market ought to remain skiddish into that.


For those agressive bears, the break of $83.58 represents a new intermediate sell signal, with your associated stops just above the pre-election peak of $100.86. This is indeed a monsterous bear flag pole formation which suggests prices need to come down to the $54.50 area! [(129.96-83.58)-100.86]. Ouch!



In summary then, new weekly sell signal suggests recent potential bottom has gone away. Bulls should remain on the sidelines while bears can play (what I consider to be high risk) the short trade with an equally aggressive short target of $54.50.



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

We knew a test of the lows was coming, can those lows hold?

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




This week begins with talk of the G-20 meeting in Brazil and the associated statement that the group "is prepared to act urgently to bolster growth.". As well, we heard of China's intention to spend more than 500 billion dollars through an economic stimulus package. Interestingly, the market has yawned at the news so far - resuming its expected test of the lows that were registered 5 weeks ago.


This is the talk we need to start hearing in order for us to believe a bottom is in - from a fundamental perspective (governments will spend money, companies will get contracts, earnings will start to rise, etc.). Coupled with this talk of government spending, the banking crisis seems to be cooling down as both Eurodollar & Libor contracts have registered bottoms in price (with nicely defined upside targets) putting the trend in corporate rates back in line with Fed-fund futures.


From trading for more than 20 years I want to stress to the public that this is a dangerous part of the bottoming process. Why you ask? because one has the tendancy to assume a bottom is in. There is no bottom as of yet and we must remain on the bearish camp until such an event happens. While what we are hearing sounds good, the process may take quarters to start showing up on balance sheets.


Yes, a bottom might come in the next few days but it also may not come for months. So continue to be patient, watch the stated marks on the SPY (top:100.86/bottom:83.58) for a breakout and be patient. If either mark is broken, trade appropriately.


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

Here comes the big test

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

The long awaited event has come and gone. President elect Obama has now to wait two months before he can start his agenda. In the meantime, there appears to be a continuation of the leadership void in the US. As well, the economy continues to spit out data with a recessionary tone. Both suggest we shall not get any upward push in prices for the time being. There was talk of a new stimulus package coming from the new congress, but until that happens prices may move lower. My hunch is we have seen the lows of this cycle BUT we may see the lows tested in earnest. We ain't out of the woods just yet my friends.

Currently the market is in a trading range btween $101 on top and $84 at the bottom. A close above or below this range would suggest a short term trading opportunity. The market is still bearish because the 13EMA is still below the 30SMA. And (as suggested previously) any rallies should be considered trades only and may be met with stiff selling resistance at or near the $110 level on the SPY. I can't imagin the $84 level will be broken but if it is one ought to look for a move into the $58 range (lets hope this insn't the case). Regardless, trade appropriately.

That's all for this week,

Brian Beamish FCSI
the_rational_investor@yahoo.com
the-rational-investor.com

The bottoming process continues

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



Calmer heads seem to be prevailing on Wall Street as the sheer panic atmosphere is now be replaced with realization that governments around the world are getting a grip on the banking crisis and that the ridiculous overspending by the US consumer may have finally come to an end.

There is no doubt that the recent technical damage done is significant. Ironically enough, markets are often most volatile tops and bottoms and I do believe the recent volatility, coupled with the negative sentiment and seasonal issues suggests we are in that bottoming process.

As the chart above illustrates, we have now established a trading range (83.58 to 99.10) to work with. Should the market move through either of these points we shall be given a new signal to work with. One should trade accordingly.

My hunch is we shall break higher once the US election is out of the way in early November. The market has been tentatively promised a stimulus package by the new congress and at that point there should be some clarity of leadership with the US executive office as well.

Should the seasonal bottom come in as expected one may find significant resistance at the bottom of the old trend channel. As pointed out in last weeks offering, there are three significant technical barriers at or near $110 on the SPY.

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