The Bull Continues But Is Struggling

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

 

Not to sound like a broken record, but the seasonal peak we traders look for into the spring seems to be establishing itself once again. The cliche, Sell in May and Walk Away, isn't a cliche because it doesn't happen. Looking at the market from a one year perspective, we see that prices have been basically trapped within a rather steep upward pointing channel where only three times in the past year has price moved out of the channel.

The past week's failure through the very steep price channel (that was established earlier this spring) leads one to believe that the bottom of the one year trend channel is going to be tested in earnest over the coming weeks/months. Investors can take comfort in the simple fact that our time tested trend indicator (that being the relationship between the 13 EMA and the 30 SMA) is still very bullish. Traders on the other hand will be watching the 129.51 level as that is short term support. If broken, traders would have no choice but to move to the sidelines. For now we must remain relatively bullish but should price continue to deteriorate both investors and traders may be forced to change their respective stances.

Given the poor fundamental backdrop in North America (an already  high unemployment rate  coupled with historically low short term interest rates) and the rising tensions over European debt problems (and their associated austerity measures) maybe equity prices have gotten a little ahead of themselves. While we have not broken down yet, if we do indeed roll-over, serious support is a long way down from here (200 SMA currently near 112). Lets hope that doesn't happen (and that we basically trade sideways for a period) but if we do break in earnest, be prepaired for a potentially dramatic pull-back in price.

That's all for this week,

Brian Beamish FCSI

The Canadian Rational Investor

the_rational_investor@yahoo.com

the-rational-investor.com

Looking tired into seasonal peak

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

Further to recent posts, a typical seasonal top (sell in may and walk away)  seems to be establishing itself as move into the 'May 24', weekend. With what is known as the official kick-off to the summer driving season, many commodity wholesalers have stocked up on their supplies and their demand (seen for these products over the past few months) shall wane going forward. Couple this lack of demand with the idea that the Fed intends to end its' QE2 program in June '11 suggests we might head into a bit of a demand vacuum going forward. Price could be vulnerable here so please be careful.

As suggested by the chart above, real technical support for the broader US stock market now sits substantially lower than where we are now. Currently the 200 SMA for the SPY sits near 112 and the bottom of the massive monthly uptrend channel sits near 115. Interestingly, both of these points are very close to where the market turned higher last fall. Does this mean that the rally from last fall my totally evaporate? It is a definite possibility but we will cross that bridge when we come to it. For now, the market is at worst 'going sideways'. And since our time tested trending indicator (that being the relationship between the 13 EMA and the 30 SMA) is still bullish we must continue to look for higher prices down the road. Should that relationship change, then too our stance will change. 

The question here is one of risk. Currently the upside target for the tight bull-flag formation registered just a few weeks ago is 138.77, while real support is near 112. Since we finished this last week at 133.61 we can conclude that owners of SPY have a little more than 5 points of potential profits with 21 points of risk. Is a 5/21 risk-reward ratio really worth it? Maybe not. Either the economic situation or earnings have to drastically improve to justify these high prices and I personally don't think either will.

That's all for this week,

Brian Beamish FCSI

The Canadian Rational Investor

the_rational_investor@yahoo.com

the-rational-investor.com

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