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.

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