Has the Great Unravel Started?


Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on February 25. If you’d like to sign up for the free e-newsletter, you may do so here (we will never share your e-mail with anyone, just as we don’t accept advertising).

Last week’s Market Outlook showed a mature 5-wave S&P 500 rally with the implication that risk is rising. We’ve also been keeping track of the 2021 similarity with 2020. Below is an updated year-to-date 2021/2020 S&P 500 performance chart.

Of course I’m not naive enough to expect an exact repeat of 2021, but since investor sentiment is even more over-heated in 2021 than it was the same time last year, the down side risk is elevated and should not be ignored.

Up until late January, I was looking for more up side, but that has changed. I explained why in the February 14, 2021 Profit Radar Report:

I spent hours analyzing the studies compiled and evaluated since February 1, and 11 of them project risk for the next month, only 2 favored reward. It’s a buying frenzy out there and rational analysis can be trumped by irrational behavior. A blow-off melt up before a return to normal jolts investors back into reality is possible. However, such a melt up is something an analyst allows for but doesn’t bet on.”

In addition to red hot enthusiasm a number of breadth studies even flashed a ‘too much of a good thing’ warning. Below are two of those studies published in the December 16, 2020 and January 17, 2021 Profit Radar Reports. Notice how forward returns of past precedents project weakness for Q1 2021 (red lines, bars).

Shorter-term, the DJIA is still close to the support/resistance trend line highlighted last week. If the Nasdaq-100 falls below 12,982 before rising above 13,476, the decline from the February 16 high will look like 5 waves and likely indicate a trend reversal. The short-term S&P 500 pattern is up to interpretation, but down side risk of the above studies looms over all major indexes.

If you are wondering what’s going on with 30-year Treasuries and TLT, you may find my analysis from the March 15, 2020 Profit Radar Report of interest:

Distrust in government is a global mega trend, with various government bond markets (especially Europe and Japan) being mainly supported by governments buying their own bonds. The US Treasury market may just have carved out a key reversal and perhaps major market top (which of course maybe postponed by today’s announcement to essentially resurrect QE and buy $700 billion worth of assets). In the land of the blind, the one-eyed person is king. The US equity markets may be the global ‘one-eyed’ go-to option.”

Continued updates and the new 2021 S&P 500 Forecast are available via the Profit Radar Report

The Profit Radar Report comes with a 30-day money back guarantee, but fair warning: 90% of users stay on beyond 30 days.

Barron’s rates iSPYETF a “trader with a good track record,” and Investor’s Business Daily writes “Simon says and the market is playing along.”

Can The ‘Reddit Rebels’ Overthrow Established Silver Forces?


– “Reddit traders are targeting silver now” – USA Today
– “Silver surges as Reddit traders find new target” – New York Post

– “Silver spikes amid Reddit-fueled frenzy” – Bloomberg

The Reddit rebels movement has all the ingredients for a Hollywood blockbuster. An underdog shows the rest of the world that you can go up against the despised establishment and stick it to them. 

In the case of GameStop (GME), a cast of young novice traders band together to show Wall Street Fat Cats (hedge funds) they are not invincible. Aptly, most of those traders probably use Robinhood (another Hollywood favorite with a similar playbook); take money from the rich (hedge funds) and distribute it among the poor (rookie traders).

Will the same script work in their latest mission to run up silver prices?

Silver soared 13.5% from 1/28/21 – 2/1/21, so the Reddit rebels no doubt felt good about their chances.

Here is what I wrote about silver and gold in Sunday’s (1/31/21) Profit Radar Report, with my conclusion in bold font (the daily silver chart has been updated to reflect current price action):

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Business Daily says: “When Simon says, the market listens.”  Find out why Barron’s and IBD endorse Simon Maierhofer’s Profit Radar Report

Silver shot up as much as 8% in Sunday’s session, that’s in addition to its 4%+ rally on Friday, while gold continues to grind sideways. This imbalance has brought the gold/silver ratio to the lowest level since 2014. The charts below plot gold and silver against the gold/silver ratio.

The dashed blue lines highlight gold/silver ratio tops and bottoms. The dashed green and red lines indicate when ratio extremes marked a turning point for gold or silver. Of course, it’s easy to identify extremes in hindsight, and we don’t know if the current extreme will become more extreme, but here are two takeaways:

  • Gold/silver ratio extremes tend to mark turning points for silver more often than gold.
  • Gold/silver ratio lows tend to mark silver highs.

The daily silver chart shows RSI-2 over-bought with RSI-35 at resistance. There is chatter about silver being targeted by the reddit crew (like GameStop), but based on the above analysis, now is not the time to buy silver. Quite to the contrary, aggressive traders may find legging into a short position more rewarding.”

Allegedly GameStop prices shot up because hedge fund shorts were squeezed out. The Commitment of Traders (COT) report categorizes hedge funds as ’non-commercial,’ which is often dubbed ‘dumb money.’

The green graph in the chart below shows that non-commercial traders (including hedge funds) are long silver (32.44% of open interest) not short. The GameStop playbook of squeezing hedge fund shorts into submission does not apply to silver.

Commercial hedgers, often dubbed ‘smart money,’ on the other hand are net short silver futures (73,412 contracts – red graph). Hedgers position is not extreme and doesn’t prevent further gains, nevertheless Reddit rebels are kind of betting against the ‘smart money’ not hedge funds.

Summary

There are thousands of publicly traded stocks in the US. And there is a general trading frenzy fueled by Federal Reserve liquidity and a brand new Robinhood crowd. 

Like rogue (or freak) waves in the open ocean, there are freak events on Wall Street. The Reddit rebels may have fueled an existing trend, but I would not give them exclusive credit and doubt they can pull that stunt with silver.

This does not mean silver won’t eventually rally again, but not because of a trade group squeezing out shorts

Below is a list of gold and silver ETFs:

– SPDR Gold Shares (GLD)
– iShares Gold Trust (IAU)
iShares Silver Trust (SLV)

– ProShares UltraShort Silver (ZSL) 

– ProShares UltraShort Gold (GLL)

Continuous updates are available via the Profit Radar Report.

S&P 500 Update: Will Excess Hopium Spark 2020 Replay?


Different year, same path. Below is a S&P 500 comparison between the first 18 trading days of 2020 and 2021.

It’s probably no coincidence that both years started with an epic tug-of-war. The tug-of-war leading into January 2020 was described here and the tug-of-war leading into 2021 was described here.

This seems like a crazy question, but based on the eery January similarity, one worth asking:

What are the odds of 2021 being a 2020 replay?

There are different ways of looking at this. 1) Based on historical precedents and 2) Based on the most recent developments.

Historical Precedents

Shown below is the S&P 500 performance of the years that most closely resemble the path of 2020. No doubt 2020 was more extreme than any other year, but the general trajectory of 1980, 1997, 2003, 2009 was pretty darn close that that of 2020.

Here is where it gets interesting: The next chart shows the performance of the years that followed: 1981, 1998, 2004, 2010. Here are two key takeaways:

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  • There was no repeat of the prior year’s path
  • Any gains were given up by August

Most Recent Developments

Sunday’s (January 24) Profit Radar Report featured the chart below and warned that: “The S&P 500 is at double trend channel resistance and the 138.2% projection level mentioned in the 2021 S&P 500 Forecast. There are RSI-35 divergences at multiple degrees and the cumulative NY Composite a/d line did not confirm Thursday’s all-time high. Stocks are near an inflection zone that could spark a pullback. For the S&P 500, that inflection/resistance zone is 3,850 – 3,880.”

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Business Daily says: “When Simon says, the market listens.”  Find out why Barron’s and IBD endorse Simon Maierhofer’s Profit Radar Report

One swallow doesn’t make a summer, and one down day doesn’t make a bear market. Tuesday was a big down down day, one that ‘came just in time’ and erased 3 weeks of gains for the S&P 500, but it wasn’t more then that. Not yet.

Based on the sentiment extremes seen in December and January, the down side potential is much greater, but it will take a break below the two purple wedge lines to do some actual chart damage. 

Yesterday’s Profit Radar Report stated that: “Today’s drop pulled the S&P 500 into a key support zone. RSI-2 is almost over-sold, so a bounce is possible. The weight of evidence, however, suggests more risk ahead, with or without bounce. A break below 3,725 – 3,650 is needed for bears to gain the upper hand.

Summary

Historically, a replay of the 2020 path in 2021 is very unlikely. But the extreme hopium building up in recent weeks makes a bigger correction likely, and the positive breadth readings throughout 2020 suggest a cameback after a correction.

In short, a full 2020 replay is unlikely, but a drop below purple wedge support could spark a nasty drop and subsequent snap back rally, which is the ‘mini-me’ version of what happened in 2020.

Continuous updates are available via the Profit Radar Report.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s evaluation of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. 

Follow Simon on Twitter @iSPYETF or sign up for the FREE iSPYETF e-Newsletter to get actionable ETF trade ideas delivered for free.

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2021 S&P 500 Forecast, Bitcoin, Gold


Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on January 21. If you’d like to sign up for the free e-newsletter, you may do so here (we will never share your e-mail with anyone, just as we don’t accept advertising).

Here’s your ‘broken record’ moment of the day: The tug-of-war between extreme sentiment and breadth continues as stocks grind higher (2 steps forward, 1 step back).

If you’re not yet familiar with this epic, never before seen tug-of-war, it was explained here on December 1 with the following conclusion:

Normally the combination of historic investor optimism while stocks are pressing against long-term resistance is a recipe for disaster. But, as the above studies show, strong stock market internals are likely to over-power other risk factors.

Our approach has been, and continues to be: Higher prices are likely as long as support holds.

But, extreme euphoria brings risk of a nasty pullback, so I’m also trying to discern where that risk potential might turn into reality.

The dashed trend channel center line could be a ‘pressure point’ for the iShares Russell 2000 ETF (IWM).

The detailed 2021 S&P 500 Forecast includes an actual S&P 500 price projection for 2021 based on the following factors:

  • Breadth & liquidity
  • Technical analysis (support/resistance & Elliott Wave Theory)
  • Investor sentiment
  • Seasonality & cycles
  • Valuations
  • Risk/Reward Heat Map

The latest gold analysis is available here.

The January 6 Profit Radar Report included the Bitcoin chart below along with this warning:

Bitcoin has gone parabolic, and Bitcoin futures jumped another 16.7% on Sunday afternoon. If Sunday’s pop holds, price will open above the blue trend channel on Monday, which will then act as support (around 33,000). The rally has taken the shape of a bowl (green line) and I don’t recall a ‘bowl-shaped’ rally that didn’t end badly. Based on Elliott Wave Theory, any upcoming pullback could be ‘only’ a wave 4 and not as strong as in 2018, but nevertheless, any remaining gains come with the risk of a quick 20-40% pullback.”

Bitcoin Futures are down some 30% and price is threatening to fall below the blue channel. While there is more down side risk, there’s a good chance Bitcoin will recover to new highs once this correction is over.

Continued updates and the new 2021 S&P 500 Forecast are available via the Profit Radar Report

The Profit Radar Report comes with a 30-day money back guarantee, but fair warning: 90% of users stay on beyond 30 days.

Barron’s rates iSPYETF a “trader with a good track record,” and Investor’s Business Daily writes “Simon says and the market is playing along.”S&P

Gold Forecast

After quite a rollercoaster ride, gold prices are exactly where they were six months ago. More interesting than the 6-month trip to nowhere is that gold has given up all the (blow off top?) July/August 2020 gains (red box). 

Does that mean gold is ready to rally once again?

I did not expect to see gold surge over 250 points into the August 6 2020 high, but wan’t surprised to see the subsequent losses. 

I published the NYSE Gold Miners Index chart below in the July 29, 2020 Profit Radar Report along with the red resistance line and times when 90% of gold miner index stocks were above their 50-and 200-day SMAs with more than 50% of them at a 52-week high (dashed red lines). 2 months later, the Gold Miners Index was down 75% of the time.

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Business Daily says: “When Simon says, the market listens.”  Find out why Barron’s and IBD endorse Simon Maierhofer’s Profit Radar Report

The August 19, 2020 Profit Radar Report compared the latest gold rally with the 10 most closely correlated gold rallies. The chart below plotted the corresponding forward returns. As the performance tracker (bottom bar) shows, 2 month later gold was up only 10% of the time, 3 and 6 month later only 30% of the time.

Past performance is no guarantee of future performance, but the correlation study has proven to be very insightful and accurate. 

Long-term, gold could be forming the handle (blue box) of a bullish cup and handle formation (like 1980 – 2009) as illustrated in this chart (published in the August 16, 2020 Profit Radar Report).

Mid-term, gold fell below the April 14, 2020 high, which invalidates a bullish 5-wave Elliott Wave Theory pattern from the March 16, 2020 low. 

While another bounce is likely once this leg lower is complete, confidence in a new all-time high within the first half of 2021 is sub-par.

Continuous updates are available via the Profit Radar Report.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s evaluation of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates.

Follow Simon on Twitter @iSPYETF or sign up for the FREE iSPYETF e-Newsletter to get actionable ETF trade ideas delivered for free.

S&P 500 Update


Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on January 7. If you’d like to sign up for the free e-newsletter, you may do so here (we will never share your e-mail with anyone, just as we don’t accept advertising).

I enjoy helping people make educated investment decisions. To be educated one needs to have data (=knowledge) and interpret that data without being clouded by emotions or biases.

The Profit Radar Report filters a ton of data in an effort to discern the stock market’s next move. As this newsletter mentioned, there are times when future implications of the examined data are pointing in different directions.

This just happened in December. Almost every study based on stock market breadth projected rising prices and almost every study based on red-hot sentiment projected lower prices (I called this an epic tug-of-war).

Many of those studies were published in this December 1 article: Stock Market Risk is Clashing against Historical Strong Reward Potential.

My data-based conclusion at the time was as follows: “Normally the combination of historic investor optimism while stocks are pressing against long-term resistance is a recipe for disaster. But, as the above studies show, strong stock market internals are likely to over-power other risk factors.”

Since December 1, 2020, the S&P 500 has slowly risen from 3,660 to 3,800 … but internal breadth actually deteriorated.

The chart below (published in the December 30 Profit Radar Report) plots the S&P 500 against the NYSE up volume ratio (5-day SMA, which shows how much volume goes into advancing vs declining stocks).

Throughout December, the S&P moved higher while the up volume ratio declined. About 50% of the time that led to an immediate nasty pullback (red bars) but other times price continued higher (green boxes).

Interestingly, investors lost some of their bullishness the last 2 weeks of December (see gray graph, which is a composite of sentiment gauges). In other words, the tug-of-war tension eased a bit and allowed for further gains.

Even though overall bullish, the Risk/Reward Heat Map just saw an up tick in risk for January and February.

For this risk potential to turn into reality, however, the S&P 500 needs to drop below the green trend line. Price can continue to grind higher as long as it stays above.

Even though 2020 has brought unprecedented stock market action, there are actually a number of years that have shown a very similar general trajectory (see chart below).

The soon to be published 2021 S&P 500 Forecast will show how the S&P performed after years with a similar trajectory.

Continued updates and the new 2021 S&P 500 Forecast are available via the Profit Radar Report

The Profit Radar Report comes with a 30-day money back guarantee, but fair warning: 90% of users stay on beyond 30 days.

Barron’s rates iSPYETF a “trader with a good track record,” and Investor’s Business Daily writes “Simon says and the market is playing along.”

Stock Market Risk is Clashing Against Historically Strong Reward Potential


Back in January 2020, I noticed a tug-of-war between extreme optimism (bearish for stocks) and bullish market momentum. As so often, euphoria was followed by dispair.

The pandemic has not left, but stock market euphoria is back, and this time optimism it’s clashing against internal stock market strength. Welcome to tug-of-war 2.0. Will sentiment cause the stock market to spiral down again? 

Extreme Investor Optimism

The chart below shows just a few of the dozens of investor sentiment gauges I follow regularly. Aside from the VIX, all of them are in the extreme optimism danger zone.

130-year Trend Line Resistance

In addition to sentiment extremes, the Dow Jones Industrial Average (DJIA) is once again bumping against a 130-year old trend line, like it did in February 2020.

Based on those two factors, risk is very high. But, there are more than just 2 factors to consider.

Internal Strength

Various Profit Radar Report noticed historically extreme bouts of buying pressure after the March 2020 low. The forward performance trackers at the bottom of the studies highlight why studies from earlier this year are still applicableL

  • June 10, 2020 Profit Radar Report:

Bullish study: On June 5 and 8, 90% of NYSE trading volume went into advancing stocks. Since 1970, there were only 4 other times that saw 2 consecutive 90% up days. The chart below plots the forward performance of those instances (forward returns and odds of positive returns are shown via the bottom panel).

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Business Daily says: “When Simon says, the market listens.”  Find out why Barron’s and IBD endorse Simon Maierhofer’s Profit Radar Report

  • July 12, 2020 Profit Radar Report:

Below is a look at the fastest S&P 500 rallies (1970 – today). To qualify for inclusion, price had to rise at least 20% in less than 3 months. This happened 12 other times (twice in 1982 and 2009, but only the first instances of those years are shown via chart below).

The 2020 rally (red graph) has been by far the quickest and strongest. The dashed blue line marks ‘today’ (78 days into the rally). Here are some key takeaways:

– The S&P is currently up 42.35%, which is already above the 40.43% average 12-month return.
– The strong rallies of 1982 and 2009 took a breather during the summer.
– With the exception of 1986, the S&P 500’s 12 month return was higher than the day 78  return every time.”

  • August 9, 2020 Profit Radar Report:

Since 1970, the S&P 500 dropped more than 30% and thereafter rallied within 2% of its all-time high 5 other times. On average, the roundtrip from ATH to within 2% of ATH after a 30% decline took 60 months. This time it took only 6 months.

The chart below shows the forward performance of the S&P 500 after it first came within 2% of its prior ATH (after a >30% decline). Aside from the 1980 rally, future returns were generally positive, but every time, any gains were either erased or as good as erased about 4 months later (dashed red line).

  • November 15, 2020 Profit Radar Report:

“Various recent PRRs noted a resurgence of buying pressure (i.e. October 11 PRR. Not to beat a dead horse, but here is one more: On November 2, 3, 5, 9, 80% or more of NYSE volume went into rising stocks. This was the 10th time since 1970 that 4 of 6 days saw >80% up volume (11/13/20 was another >80% up volume day).

The forward performance after the prior instances is plotted out below (2010 and 2011 actually hosted 2 of 4 of 6 80% up days events, but  only the forward performance for the respective second event is shown). Over the next 4 months, 4 of 10 instances showed losses of 7-11%, but 6, 9 and 12 months later the S&P 500 was up every time.”

The performance tracker at the bottom of each study provides forward returns for the next 1, 2, 3, 6, 9, 12 months. The Risk/Reward Heat Map captures the data and provides a visual heat map of month by month risk vs reward for the next year.

Conclusion

Normally the combination of historic investor optimism while stocks are pressing against long-term resistance is a recipe for disaster. But, as the above studies show, strong stock market internals are likely to over-power other risk factors if the main indexes break and stay above resistance.

Become the best informed investor you know by reading the Profit Radar Report.

Stock Market Signals Are Piling Up

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on November 19. If you’d like to sign up for the free e-newsletter, you may do so here.

A ton has happened the last two weeks, but you wouldn’t know it by looking at the S&P 500 chart. The post-election/vaccine news pop (Nov 9) pushed price above the red resistance line for a couple hours, but that’s it.

Despite the continued S&P 500 (and Nasdaq) trading range, there’ve actually been a number of historically rare signals … elsewhere or under the hood. 

Signal 1: The percentage of S&P 500 stocks above their 200-day SMA has cycled from below 10% to above 80% (currently 88%, the highest reading since January 2020). Over the past 20 years, this has happened only 4 other times.

The chart below plots the S&P 500 against the percentage of S&P 500 stocks above their 200-day SMA. The 10% and 80% level are marked in red and green. The exact forward performance (graph and table) after the signal triggered was published in the November 15 Profit Radar Report. 

Signal 2: It took over 26 months, but the Russell 2000 finally exceeded its 2018 high. Over the past 35 years, the Russell 2000 set a new all-time high after a correction that lasted at least a year seven other times. 

The green boxes highlight similar recoveries. The November 18 Profit Radar Report published the exact forward performance (graph and table) when the Russell 2000 did the same thing in the past. 

Signal 3: On November 2, 3, 5, 9, 80% or more of NYSE volume went into advancing stocks. Over the past 50 years, up volume exceeded 80% on 4 of 6 trading days only 7 other times.

How did the S&P 500 do after similar ‘volume thrusts’? The November 15 Profit Radar Report showed the exact forward performance (graph and table) after the last 7 times this happened.

What’s the benefit of knowing the forward performance of past signals?

The Profit Radar Report shows the performance for the next 1, 2, 3, 6, 9 and 12 month along with odds of positive returns for each time frame. This allows investors to gage future risk and reward based on similar setups.

There is much noise, but when the market delivers 3 historically rare signals in a short period of time, it’s usually worth listening.

Continued updates along with the most likely long-term forward path for the S&P 500 (this was just published) are available via the Profit Radar Report

The Profit Radar Report comes with a 30-day money back guarantee, but fair warning: 90% of users stay on beyond 30 days.

Barron’s rates iSPYETF a “trader with a good track record,” and Investor’s Business Daily writes “Simon says and the market is playing along.”

Will the ‘Election Pop’ Last?

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on November 5. If you’d like to sign up for the free e-newsletter, you may do so here.

Will the ‘Election Pop’ Last?

Wednesday delivered the biggest post presidential election Tuesday pop ever! The S&P 500 gained 2.2%, yet only 45% of NYSE volume went into advancing stocks and only 55% of NYSE-traded stocks actually closed the day higher. 

This is another first. Since 1970, the S&P has never rallied more than 2% with less than 50% of volume moving into advancing stocks. Interesting times! 

Anyway, going back to the post-election pop: Of the 22 presidential elections since 1932, the S&P 500 was up the day after election Tuesday, 10 times, and down 12 times. The chart and performance tracker below shows the forward performance after the 5 post-election up days since 1970. 

Conversely, when the S&P 500 was down the day after election Tuesday, the forward performance was negative 75% of the time 2 weeks later and 50% of the time 3 months later. So a good first day has generally been a good omen (in a pandemic-free world). 

The last few Market Outlooks monitored the progress of the A-B-C decline from the September 2 high. Here is the Profit Radar Report’s assessment from October 28:

The green area on the 4-hr S&P 500 Futures chart shows a general target area for wave C. Wave C would equal wave A at 3,152 (dashed blue lines). Waves C tend to either fall short or exceed the prior wave A low to some degree.

Wave 3 of 3 (of C) may have concluded at today’s low. A couple more up/down sequences (waves 4 and 5) into the 3,235 – 3,152 range could conclude the leg lower, and if investors like the election results this correction.

S&P 500 Futures are up some 20 points in after hours trading, likely the start of a bounce.

As the bigger picture chart of the the S&P 500 below shows, price fell into the green support zone and jumped from there … and is now nearing a resistance zone. Sustained trade above resistance will likely eliminate any mid-term bearish Elliott Wave patterns, but as long as resistance holds, it should be respected.

Continued updates along with the most likely long-term forward path (this was just published) are available via the Profit Radar Report

The Profit Radar Report comes with a 30-day money back guarantee, but fair warning: 90% of users stay on beyond 30 days.

Barron’s rates iSPYETF a “trader with a good track record,” and Investor’s Business Daily writes “Simon says and the market is playing along.”

S&P 500 Update – The Sports Illustrated Jinx and Mean Reversion

The September 21 Profit Radar Report and September 24 Free Market Outlook (sign up here for free weekly Free Market Outlook e-mail) highlighted the the green S&P 500 support trend line as is was likely to spark a bounce. As the chart below shows, the line is derived by connecting the 2007 and 2018 highs.

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Business Daily says: “When Simon says, the market listens.”  Find out why Barron’s and IBD endorse Simon Maierhofer’s Profit Radar Report

The bounce from trend line support happened, now we get to assess whether stocks will continue higher or relapse yet again.

Mean Reversion & the Sports Illustrated Jinx

The concept of mean reversion wasn’t discovered until the late 1800s (some 200 years after Newton was credited with discovering gravity) and is still misunderstood. 

There is a fascinating correlation between mean reversion and the Sports Illustrated (SI) jinx. According to the ‘jinx,’ athletes  are jinxed to perform poorly after appearing on the magazine’s cover. There’s a simple explanation for the so called jinx:

To make it on the SI cover, an athlete (or team of athletes) must have performed exceptionally well for a period of time. Appearing on the cover usually means that the athlete has performed above his average skill level (aided by a measure of luck and ‘being in the zone’) for too long and is bound to revert to the mean.

What does the SI jinx have to do with stocks?

The above-mentioned trend line has been acting as a mean reversion average of sort. When price rallied above the trend line for the first time (November 2019 – February 2020) it reversed lower, so much lower that price snapped back and once again exceeded it (July 2020 – September 2020). Last week, price once again came back to the trend line. 

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The chart below includes two more mean reversion gauges. The Bollinger Bands and RegressionDivergence. The center Bollinger Band converged with the support trend line at the time of the low (Sep 24) and the RegressionDivergence was smack dab neutral.

Based on the concept of mean reversion, the S&P 500 corrected enough to allow for the next rally.

Two Options

This is consistent with the S&P 500 projection and commentary published in the September 27 Profit Radar Report:

Since price broke above purple diagonal/wedge resistance, we assume wave B is now underway. Waves B are the most difficult waves to predict, with no real price targets and patterns ranging from very choppy to grinding and relentless.  Please note that the projections are not in scale in terms of time.

The alternative interpretation is that last week’s low was more important and will lead to new all-time highs (dashed green arrow). For the initial portion of this rally (or perhaps much of the rally, if it extends) it will be difficult to distinguish which option is playing out.”

Due to seasonality and pre-election uncertainty, stocks may still turn lower over the next 3 weeks, but more and more indicators are re-affirming a bullish fourth quarter tilt.

Continued updates are available via the Profit Radar Report.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s evaluation of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

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