S&P 500 STRATEGY: STAND ASIDE (for definitions of terms see end of report)

The S&P 500 fell this past week, thanks particularly the reporting of record first-quarter losses at AIG and the announcement by Citigroup that they wish to divest themselves of some $400 billion of loans – an incredible amount. We have more to say about that in our bond commentary.

The S&P 500 hit our ideal topping zone near 1,400/1,425 (the high was 1,422) and the 40-week MA. This drop took us near our first major area of support near 1,375/1,380 (low was 1,384) and the 13-week MA. It is possible that we will just trade around these two points for at least the next week before deciding which way to break.

The lows came right down to our trendline up from the March lows, so it is possible to go right back up. At the other end there is considerable resistance in that 1,420/1,430 zone. If we were to break through it we would then go straight up to 1,500 and possibly the October 2007 highs near 1,575. A clean breakdown through 1,375/1,380 would next target us to 1,350. Below 1,350, and especially under 1,320, we would target the March lows and our possible outstanding target of 1,185/1,200.[read more…]

TSX INDICES

Propelled by Energy, Gold, Metals and Materials the TSX Composite gained 1.7 per cent on the week and is within hailing distance of new highs. Energy gained over 7 per cent and the Golds were up over 5 per cent constituting a big part of this gain. The TSX Composite we believe now should put in new highs. Triple tops are very rare so we would be surprised that the index failed here even as some sectors may fail. Indeed we have a two tiered market where the places to be are the aforementioned Energy, Gold, Metals and Materials and the places to avoid are Financials, Real Estate and the consumer stocks even as there may be individual ones worth looking at.

Targets on the TSX Composite could be as high as 17,300 but we emphasize just as we saw with our double top scenario that failed we could fail this one as well. We need to have our key sectors keep propelling this one higher but have at least some ongoing participation from the other groups. It is then very possible to see those levels this summer if our rally into the summer months develops as we continue to suspect.. [read more…]

S&P 500 STRATEGY: STAND ASIDE (for definitions of terms see end of report)

The S&P 500 has now run right up into our ideal topping zone of 1,425-1,435. The high this past week was at 1,422. There is an outside chance that we will still make it to the 200-day MA near 1,433 but the reality is that this bear market rally is getting long in the tooth. Many stocks are approaching major resistance zones and former breakdown zones that are often tested in bear markets.

Of course the bulls will get excited at breaking the down trend from the October highs, but last week we pointed out that that was possible. We are now at “sell in May and go away” time, and typically if we are to see a top it comes in the first week of May. We have also cited the 1938 and 1946 cycles that saw similar double-bottoming patterns in the first quarter, then after a strong rally collapsed right back to the lows and even lower. As well, if we are to continue this rally then we must go right through 1,430 and except for small pauses keep rising to 1,500 and higher. [read more…]

TSX INDICES

The TSX Composite gained 1.25% in the past week with 10 of 14 sub indices up on the week. The losers were all the cyclicals gold, energy, materials and metals and mining. Indeed the gold sub index gave us a sell signal closing under the 40 week MA for the second consecutive week. Neither of Materials or the Metals did the same.

At the other end the Information Technology sub index closed over the 40 week MA giving us a buy signal. The reality is elsewhere though all we have done is crawl back to classic resistance zones where in bear market moves we typically fail. The same could occur with the golds as well who have fallen to a huge support zone and if the bull market is still valid that could quickly reverse as well.

The TSX did not make new highs this week despite closing higher. Indeed we remain below the July and early November highs. Unless those highs are taken out the next drop could be quite problematic. We would be continuing a pattern of lower highs which is the definition of a downtrend. This occurs even as we make these highs very close to the two previous highs. The 13 week MA has still not crossed over the 40 week MA. [read more…]