The march higher goes on...

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



As per blog entries of recent, the market is moving higher as expected. The break of the top of the trading range (on SPY: 114.67) suggests the seasonal rally is alive and strong. But, (also as previously suggested) one must temper their enthusiasm about the market given the current technical picture. Yes we are moving higher but there is a lot of traffic ahead of us.

For this week I thought I would comment on what I see as the three significant factors effecting stock prices:
Fundamentally, broader market earnings comparisons are still relatively positive as we head into the second quarter of 2010 (that is comparing them to Q2'09 when the worst of the recession was being prices into the market) and the cost of money for short term borrowers is still virtually nothing. Should either of these factors change, stock market appreciation gets difficult at best.
Technically, the broader market continues to point higher as our 'investor signal' remains bullish (that being the relationship between the 13 EMA and the 30 SMA - which in this case is positive and has been so since May 2009) and the recent breakout higher in price confirms that. Those wishing to be bearish will have to wait for a new top (trading range) to form and a subsequent breakdown - which may be weeks if not months down the road).
Finally, seasonally. For long time readers of CRI commentary you will know that if its one thing I drive home it is the seasonal nature of the stock market. To that end, we are heading into the seasonal sweet spot for the broader market and for the commodities markets in particular. There are numerous reasons why this is so (which I don't have the time or space to go into here) but for our purposes, just keep it in mind when thinking of making your next investment.

[I personally will be looking to SELL in May and WALK AWAY....as the old cliche goes....]

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

Trading Range Breakout

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



As anticipated, the broader US stock market and many other world equity markets have broken the recent top of the trading ranges. In the SPY's case, 114.67 was taken out two weeks ago and has moved another 2.5 points higher since. Since our 'investor' signal had remained bullish (that being the relationship between the 13 EMA and the 30 SMA) throughout this latest pull back in price, we continue to look for higher prices as we head into the seasonally strong period of the year for stocks - Spring.

As for targets going forward, with all the talk of government's bringing a halt to bailout programs, my expectations for further gains this calendar year are limited. The charts seem to concur. Currently, I see three significant upside targets that (if hit) represent a maximum of 10% further gain on top of this years already 4.5% rise.

Since we have recently broken a potential top formation, the bears out there will have to wait for another consolidation in price and a further breakdown from there. In other words, no sell signals anywhere just yet.

My hunch is we will take a serious run at the 126 area in the coming weeks...


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

Grinding out the trading range.

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



The market is testing the upper end of the recently established trading range of the broader market benchmark S&P 500 stock index (SPY range between 115.15 and 104.58). Since the 13 EMA is still above the 30 SMA we have no choice but to continue to look for higher prices heading into the seasonally strong time of year for stocks. There is an adage in the market that says, "Sell in May and walk away" and judging how risky this market is getting, that isn't such a bad idea.

Further to that point, notice the circled area on the chart above! Markets normally move in a zigzag pattern - rallying, then giving back, then rallying again. This ebb and flow in the market is healthy and normal. Investors move from optimistic to pessimistic and back again over the course of a normal business cycle. With the extreme disruption credit crisis often inject into the system, the past few years have seen this normal market psychology disrupted. Now, instead of normal monthly ups and downs, we are into quarterly and yearly ups and downs as recession/growth are priced into the market. Here is my point to this week's commentary - The last recession (2000 to 2002) saw the market move dramatically lower into the end of 2000 only to see a nice rally out of the winter of 2001. Then in September, 2001 the market moved back to new lows. We could very easily roll over at some point over the coming few months as this rally is more than twelve months old. And since there is very little zigzag to the chart above, it means there is little support should prices start to head back down again in earnest.

While this isn't the case in the short term (our 'investor' signal still remains bullish), one must appreciate the dangerous nature of recessions and how we ain't out of the woods yet!


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

Stuck in a trading range

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



The correction cycle has played itself out (5.5 weeks after an 11 week rally) and we are now waiting for the next piece of significant economic data to break us out of this current trading range.

One analyst's opinion (Elaine Garzarelli) suggests strength will come from the industrial sector - considering the dramatic increase in cap-ex spending reported in the latest Chicago PMI report [For more on this please refer to the latest edition of The Canadian Rational Investor's newsletter (Q1'10) recently published and posted to the site]. While this ought to help the Dow Industrial Average, SPY might under perform because of its consumer weighting. Regardless, we here have been looking for the market to move higher into the spring and this might just be the piece of data the market is looking for.

As was the case last week, the SPY is currently range bound between the highs at 115.14 and the recent lows at 104.58. The 13 EMA remains well above the 30 SMA so our 'investor' stance remains bullish. Considering the seasonality, the extremely steep yield curve (again please refer to Q1'10 CRI newsletter for more) and a now washed out investor sentiment, one ought to continue to look for higher prices in the not too distant future.

Once the seasonal window closes, there could be a lot of trouble for the market. That does not happen till June, so until then I shall remain cautiously bullish with an expectation that the highs of late will be taken out in earnest over the coming weeks.


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

Correction cycle complete, now where?

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



As previously stated, we here at CRI have been looking for a cycle low to be established (expected correction duration was for 5.5 weeks) and a test of the recent highs at or near 115.14 to begin. The correction did satisfied the downside 'trader' targets (being a move back to the 30 SMA and the gap at 106.42 filled) but was not enough to change our 'investor' stance (as the 13 EMA is still above the 30 SMA we must remain cautiously bullish). What concerns me is that the market rallied into an options expiration (Fri. 19th). Normally one would expect the market to be weak into expiration, the fact that it rallied more than 600 points (in the Dow's case) is concerning and suggests there might be a little market manipulation going on.

So as we sit at the moment, the best one can take from the current market is that it continues to point bullishly into the spring but one must respect the fact that we are currently 'range bound' between the recent lows (104.58) and the recent highs (115.14) and shall remain 'range bound' until either one of these levels is taken out in earnest (volume will confirm that).

My hunch is that IF 104.58 IS taken out, it shall be enough to trigger a change in our 'investor' stance (ie the 13 EMA will cross back below the 30 SMA). Of course that has NOT happened yet so we remain cautiously optimistic and understand that IF that does happen 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

Now the battle begins

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



We are currently 4 weeks into a general market pullback with another 1 1/2 weeks to go. The anticipated 5 1/2 week correction in price has brought the broader market back into our 'trader' target zone (that being the gap at 106.42 and the 30 SMA at 106.25) and has relieved much of the over-bought condition that prevailed just a few weeks ago. This pull back should be considered 'healthy' as the market had been moving higher for more than 11 weeks in a row. The rubber band can only stretch so far!

Once this short term selling exhausts itself, I am expecting a rally to test the most recent highs. Markets very rarely go straight up and then straight down. Tops look more like 'M's than Tee-pees (refer to Chart Pattern Formation Trading seminar for more on this). As well, because the 13 week EMA is still above the 30 week SMA I have no choice but to continue to look for more upside action. Of course, should the moving averages' relationship change then I will have no choice but to change my stance as well.

As previously stated (refer to past blogs for more) many of the 'easy' upside targets coming out of the crash of 08' (Thanks Jr. Bush) have either been hit or exceeded. Significant resistance currently sits just above where we sit now. Those that could not sell on the initial breakdown (back in '08) have been given the opportunity to do so and will continue to do so should prices get back into that range (currently 117 to 121). I have stated previously that one ought to consider the current market as an opportunity to take profits in stocks bought during 'the crash' and in this market commentators opinion, The real battle in the marketplace has just begun!

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

A healthy pullback in a big bull run

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



The broader US stock market (as measured by the S&P 500 stock index) has enjoyed a nice rally off its lows of 2009. Indeed, since our 'investor' buy signal was registered last April 27th, at 86.50 (that being a bullish cross of the 13 week exponential moving average moving above the 30 week simple moving average) the market has rallied some 27% [(110.23 - 86.50)/86.5] in less than a year. Believe it or not, this is rather normal for post correction rallies. Think of the 50% rule and you will understand what is going on. Specifically, a 50% retracement of the entire two year bear slide would bring the market back to 112.31 [(157.52+67.1)/2]. Currently we are within 2 points of that number, incredible isn't it!!! It is interesting too, to see the significant resistance that has been built into the market at/near this important technical level. These include the major lows of the spring and summer of 2008 (115.68 and 120.31 respectively) and the 200 week SMA (117.82). So considering we have exceeded the 50% level at 112, filled in the noticeable gap at 107 and have now failed in a significant resistance zone (115.68 to 120.31) I think it is safe to say, the easy part of this market rally is behind us. Indeed, one can't help but get the feeling we are fast approaching an end to this 'bounce' period. Governments around the world seem less sympathetic to the market. Weather it be in the form of tougher regulations or in the form of higher borrowing costs going forward, the 'tone' seems to be subtly changing in this market commentators opinion.

Having said all that, one must not put the cart before the proverbial horse. As of printing, the market has NOT broken down (from an 'investor' perspective) and one must continue to look for higher prices over the course of the coming months. Should the 13 EMA cross back below the 30 SMA our 'investor' stance shall change but it hasn't so we remain cautiously bullish.

While this market indicator remains bullish we , as 'investors', must look at swift downward moves in the market as healthy corrections. Indeed, this current 3 week pullback comes on the heels of an 11 week rally. Simple cycle analysis suggests corrections are often half the duration of primary moves. So one ought to be looking for a 5.5 week consolidation before we can move forward in earnest. Or looking at it another way, we should be looking for this correction to continue for another 2.5 weeks. As for targets, the very noticable gap left on the chart at 106.82 ought to be filled. Our low last week went into the gap (107.22), but it did not fill it totally. As well, the 30 SMA currently sits just below 106 suggesting more support in and around that area.

So what does all this mean...

I remain cautiously bullish heading into the spring of 2010 while looking for another 2.5 weeks of consolidation in the short term. I think upside potential is limited but still there. And any rally ought to be considered a selling opportunity to take profits on stocks picked up last spring and summer not a new 'investor' buying opportunity. Yes, the 'traders' of the world will make money on the seasonal swing but this blog is more for the 'investors' of the world. 'Investors' should be long from the 86 area (on SPY specifically) and looking to take profits. Once the seasonal window closes (May-June) It is my prediction that we will be issued an 'investor' sell signal and see the market take back the 2010 gains and maybe even a good portion of those of 2009 as well.

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