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

Bearish momentum building

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



We are now entering our 5th week where the weekly 13 EMA is below the 30 SMA and the market has fallen 5% from that signal level. The typical seasonal top one should expect in the month of May has progressed into a cyclical top of the dead-cat-bounce that was initiated almost exactly one year ago. 'Investors' should be on the sidelines until this relationship corrects iself, 'Traders' should be cherry picking shorts as they become available...

Currently, the significant lows of just a few weeks ago (103.85) are being tested in earnest. Due to the five bearish fundamental circumstances listed in last week's blog, one ought not to be surprised to see lower prices and the trend for lower prices build. Along with the very simple 50% rule (suggesting real support in the short term exists near 93), a bearish flag pole formation is building. While not confirmed yet, a move through 103.85 would imply another 10% fall in the broader market. and would represent one of those cherry picker short positions a Trader might consider....

The recent G-20 meeting did little to calm the markets and may have even exacerbated the European debt crisis in that no clear direction can be seen by the group and even worse, European governments are stepping up 'austerity measures' when (according to Keynesian economic theory - Wiki link: http://en.wikipedia.org/wiki/Keynesian_economics) they should be doing the exact opposite.

With the stock market now no longer over sold and really on no-one's radar screen, it seems to this market participant there needs to be a great deal more monetary blood-shed before any further stimulus measures can gain political support.

Be careful of the danger of short term trades turning into long term investments...


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

Rally to trendline within bearish consolidation

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



For three weeks now we have been flashing a bearish 'investor sell' signal warning for the broader US equity market (as measured by the S&P 500 depository receipts - SPY). This signal was confirmed with the second consecutive closing of the weekly 13 EMA below the 30 SMA last week and has been given further validity with another bearish close this week.

Five reasons why stocks may under perform for the next little while.
1. Year over year & Quarter over quarter earnings comparisons getting difficult
2. Short term credit crunch back underway
3. Seasonal window of stock strength over
4. Government stimulus ending
5. Regulation building

Because of these fundamental circumstances a capitalist ought to be cautious at best. Adding in the poor technical picture and any Rational Investor ought to just sit on the sidelines until the public is panicking once again...

As for downside objectives. A 50% retracement of the 1 year bull run would bring prices back into the 93 area. Additionally, a breakdown through the lows of just a few weeks ago would represent a bearish flag pole formation and suggest a target around 95. Because of these two technical objectives I shall be looking for the highs of June '09 to be tested in earnest over the coming months...

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

Overhead resistance is building

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



The market has rallied off the lows of last week back into resistance (13 EMA & 30 SMA). More importantly, the 'investor' buy signal (registered May, 2009) has reversed and is now in a bearish stance (where the weekly 13 EMA is below the 30 SMA). While it is ever so slightly negative it is negative and as a result all those who consider themselves 'investors' in stocks ought to seriously consider liquidating those long positions and siting in cash for the time being.

For those traders out there, I do anticipate some sort of rally to begin in earnest for the first two weeks of the third quarter (the first two weeks of July) as new money is placed in sectors that are considered to be growing. Some sectors will outperform while other will under perform [for more on this be sure to watch for CRI's First Two Weeks of the Quarter report usually published the third week of each quarter). As for the broader market (as measured by the SPY) I anticipate considerable resistance to show itself on any move into the 114 to 116 area (or about 5% higher). Resistance is well established from the rally peak in early January (at 114.67) and the 200 week SMA (at 116.32). and I will use this target window (114.67 to 116.32) for an anticipated summer rally.

Should this mini rally take place over the summer months, I can see a potential Head & Shoulders price pattern forming. Should it play itself out, a breakdown this fall through a neckline (at 104.67) would project prices back down into the 86 area ([122.12-104.15]-104.15) = 86.18). Similarly, if one were to take a 50% retracement of the one year bull run, the target would be in the 94 area [(65.31+122.12)/2 = 93.715]. With these two numbers in mind, my target window for this fall's anticipated correction ought to be from 94 to 86. Which happens to be the trading range from the summer of '09.

Incredible how these things all come together like that, isn't it...

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

Has the party come to an end?

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



The seasonal top of early May has developed into a broader cycle top (as measured by the SPY - S&P 500 depository receipts - also known as the SPDR's ETF).

For several weeks now we have cautiously watched the market take back the rally that started in February (from 104.15). While this important level has held, several technical problems have developed over the past week that lead this market participant to believe that the one year bull run off the '09 lows has come to an end.

These include:
As well as failing to hold the 200 week SMA (in late April) the market has broken back below both the weekly 13 EMA and the 30 SMA. In essence, there is very little holding this market up going forward. So where is support, you ask? For help with this we ought to refer to the simple time tested 50% rule. This is where one takes the highs and lows of the last year and add them together (in this case 65.31 + 122.12) and then divide the result by two. Currently the 50% rule suggests that real support currently sits around 93.71 or some 14% lower than where we currently are. Additionally, our time tested 'investor' indicator (the relationship between the weekly 13 EMA and the 30 SMA) has now turned negative (as of printing 13 EMA at 112.14 and 30 SMA at 112.19).

While the market from a Daily perspective is quite oversold, I am now of the belief that any rallies going forward shall meet significant resistance in the 112 to 117 area. Should we be given an opportunity, one ought to consider a move into this area (over the course of the summer) to be a selling opportunity.

At the same time, those who are not inclined to 'trade' the market ought to just get out now. Indeed, this is a bold statement, but time and time again, I find that the charts tell you to act well in advance of the 'melt-down' and I do believe we are being given advanced warning that the party may indeed be over...


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

Peering over the edge

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



Due to being unavailable, CTS was not published this week at it's regular time and date. I have published this special weekend edition to bring readers up to speed with my thoughts on the broader equity markets...

The highs of early May are looking farther and farther away and the old time tested adage....Sell in May, and walk away seems more validated with every passing day. Traders, of course, got their sell signal when the rally failed at key daily support (just below 120) four weeks ago but investors haven't been given any new signals other than to be long and stay long.

The current correction is five weeks old and comes on the heals of an eleven week rally. According to cycle analysis, corrections are often half the duration of the primary move. So one may extrapolate that we are quickly approaching the end of the correction cycle window. Interestingly this week, we took out the lows of last week and the lows of three weeks ago but then quickly reversed to close up a little bit on the week. As well, we have not yet moved through the significant lows of last February at 104.15. What does all this mean? I don't think we are going lower. I think a substantial base is being formed at or near 104. Having said that, it also means that IF we do trade back below 104 now, the market may move down very hard.

Form a bigger picture perspective, I find it interesting that almost all of the equity markets followed in The Canadian Rational Investor's weekly Commodity Trend Spotlight have moved into STOP positions. This means that while the trend may still be pointing higher, CTS doesn't recommend being in the market. And frankly speaking, the futures markets are WAY too volatile for anyone to be trading the markets in earnest right now.

For more on this weekly service, please visit http://www.the-rational-investor.com/RI_Tradents.php#wklysumm

Continuing that theme, I thought I would add a 50% retracement of the lows of '09 to the recent highs to see where a correction in earnest ought to find support. While I don't have enough confirmation to really believe the bull run is over, the fact that CTS is flat on the S&P 500 (as well as many other equity futures markets) coupled with the fact that we are currently 10-15 percent above the 50% rule level, suggests to this market participant that at worst our expected seasonal top is officially 'in' and at best our upside objectives ought to be tempered for the time being.

Since our time tested 'investor signal' (that being the relationship between the 13 EMA and the 30 SMA) is still positive I must remain relatively bullish and will still look for the highs of May to be testing in earnest over the coming weeks/months and an ultimate test of the 126 area some time down the road. Should the 13EMA/30SMA relationship change I will change my investor stance. But lets not put the cart before the horse.


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

A big scare but no breakdown yet

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



For those that follow CRI's S&P 500 blog regularly, the dramatic drop seen recently should not have come as too big of a surprise. Nor should regular readers believe that the current bull run in the broader equity market is over either. For 'traders', profits should have been taken up top and the pull back should have represented a good re-entry point. For 'investors', the events of the past few weeks are literally a non-event. So the question one has to ask oneself is, what kind of stock purchaser am I?

Some interesting things to point out this week:
1. I find it incredible that the market dropped to 105.00 on the nose and that the latest weekly support point was (and still is) 104.16. In other words, the whole move was a non-event and we are still well contained within the weekly double bottom price pattern on SPY. This 'W' pattern was confirmed when the market broke-out (the week of March 8th) and moved above 114.67. Stops on that trade should have been set just below support at 104.16 and the dramatic move to 105 only meant that the trade was underwater, not closed. Those stops should now be moved to just below the recent low of 105.00. If that level is broken the the trade is over, but that hasn't happened yet.
2. Following the markets for over 20 years I have found that moves like this are not the end of the bull run. Rather, the quick move down has cleaned out the 'weak' hands and may lay the floor for another move higher. While my seasonal targets of 125 to 126 remain, I do believe we may be setting the stage for a substantial move higher over the coming quarters. Technically speaking, if the market can get back above the recent highs (122.12 on SPY) then one has to have an ultimate target up into the 137 area!
3. I couldn't believe how quickly the market pundits turning bearish. One would think that capitalism itself was coming to an end the way the media churned the story. So too about the Euro-currency. Stories of the end of the Euro and how the Euro system can't work have dominated the headlines. Yet all that is needed to calm the market's is some leadership. The Euro zone indeed 'stepped-up-to-the-plate' this weekend and the markets calmed appreciably.

So in summary then, traders got a great buying opportunity recently and investors are sitting long and enjoying the ride. Yes this consolidation in price may persist for a few weeks to come but no, the bull isn't dead yet....

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