One Simple Chart to Gauge Real Estate Bubble Risk


Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on June 10. 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).

If you own a home, want to buy a home or live anywhere but under a rock, you’ve felt or heard about skyrocketing real estate prices.

Is there a real estate bubble, and what’s the risk of it bursting?

Here is one simply chart to gauge the real estate bubble risk … and incidentally, this short article also explains why the S&P 500 has been stuck around 4,200.

Ironically, COVID-19 accomplished what the Federal Reserve has tried for over a decade and failed: Inflation.

In May, more people than ever googled ‘inflation’ (orange graph, second chart). Often this kind of interest in a topic occurs towards the end of a trend.

For example, in the April 8, 2020 Profit Radar Report, I published google searches for ‘recession’ (chart below) to make the argument that the recession is over.

This contrarian take worked great for the recession, but does not work like that for inflation. Here’s why:

Most trends exhaust themselves when they become too popular (popular usually means there are no more buyers left, i.e. Bitcoin in April).

However, when inflation becomes too popular it can turn into a movement, a self-fulfilling prophecy, where consumers buy today because they think it will be more expensive tomorrow. That’s when inflation becomes a real problem (worse than supply shortages).

I don’t think we are there yet, but it must be carefully monitored (and I will provide specific inflation protection trades via the Profit Radar Report).

Anyway, the chart below provides a big picture look at the CPI, a popular but far from perfect inflation gauge.

I don’t want to be an alarmist here, but the CBOE equity put/call ratio closed at 0.36, the CBOE SKEW Index at 150.71, while the VIX is quite high and the actual daily range is only 0.21% (10-day SMA).

There are no precedents for this particular set of readings. If we relax the parameters, we get the signals shown below.

When there’s such a small sample size, I always ‘widen the net’ to ‘catch’ more precedents. Doing this revealed another common (at least in the past) outcome (discussed in last night’s Profit Radar Report).

From a charting point of view, the S&P 500 is trying to break above 4,250, which can be used as line in the sand to gauge risk vs reward.

Continued updates, out-of-the box analysis and forward performance based on historic precedents are available via the Continued updates and factual out-of-the box analysis 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.”

‘Black Swan’ Warning Indicator Soars to Record High

Have you even seen a black swan, I mean the actual bird? Probably not, because they are extremely rare.

That’s why the black swan has been used to describe extremely rare outlier stock market events. ‘Event’ is simply a nice way of saying crash or meltdown.

Black swan events are as rare as they are unpredictable, but the CBOE (the same outfit to create the VIX) crafted an index designed to measure the risk of a black swan event. This index is called the SKEW Index.

Here is the main difference between the VIX and SKEW: The VIX is based on implied volatility of S&P 500 at-the-money options while the SKEW is based on implied volatility of far out-of-the-money S&P 500 options.

Here is how the SKEW works: Readings of 100 mean that the risk of a black swan event is low. For every 5-point increase in the SKEW Index, the risk of a black swan event increases 1.4%.

On Friday, the SKEW Index closed at 155.31, which is the second highest reading since 1990 (as far back as SKEW data goes). A reading of 155 also means that the risk of a black swan event is 15.4% higher than usual.

With the theoretical stuff out of the way, let’s see if the SKEW Index actually works.

Does the SKEW work?

The chart below plots the S&P 500 agains the SKEW Index (going back to 1990). The SKEW moved above 150 only on 17 of 12,967 trading days (that’s 0.13% of the time). And none of those 17 days happened before 2015.

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The next chart makes it easier to identify those 17 times. Here are the key takeaways:

13 of the 16 prior signals (81%) saw any gains erased within the next 3 month

3 of the 16 prior signals (19%) saw significant further gains (2 of those gains were erased within 18 months)

Summary

The SKEW Index deserves credit for flashing warning signals prior to the 2016, 2018 and 2020 declines. It needs to be noted though that those signals were about 2 months too early. It will take a break below support to edge the potential black swan risk closer to reality.

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.

Bitcoin Update

While watching tennis on April 17, I caught a ‘too good to be true moment.’ What was it? A Coinbase commercial. The commercial included the price history and an actual projection (of course much higher) of Bitcoin. Frankly, I couldn’t even believe this was legal, because the commercial showed Bitcoin soaring from 58,000 to infinity.

I took a picture of my TV screen and commented on it in the Profit Radar Report (you can watch the full commercial here, the projection to infinity is shown at second 16).

Here is what I wrote about that in the April 25 Profit Radar Report:

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

What captured my attention is that the commercial actually projected the price of bitcoin going through the roof, which of course activated my contrarian antennae. The chart insert shows the price of Coinbase since going public (down 23.6%). 

Short-term, Bitcoin Futures are at support (around 47,500) with RSI-2 over-sold. This support may spark a bounce and a drop below support is needed for lower price targets.”

The chart below shows that Bitcoin first bounced from support but eventually that support failed and led to much lower prices. One down side target was the 161.8% Fibonacci extension at 30,574, which was reached on May 19.

As Bitcoin dove towards 30,000, it also fell more than 50% below its 50-day SMA, which doesn’t happen often. 

The orange lines below highlight other times Bitcoin traded more than 50% below its 50-day SMA. This kind of ‘oversoldness’ always led to a rally, although In 2018 that rally was brief.

In Summary, there was extreme Bitcoin euphoria around 60,000 and a possible ‘washout’ event around 30,000. It’s quite possible that price will trade in that range for a while as emotions recalibrate.

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.

B

S&P 500 Update – On the Cusp

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on May 13. 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).

Based on the Risk/Reward Heat Map, May was likely to bring increased risk. The May 3 Profit Radar Report warned that: “May continues to be a pressure point, resistance in terms of time.”

If you’re not yet familiar with the Risk/Reward Heat Map, the chart below highlights its merits.

The red/green/yellow columns at the bottom project either risk/reward/caution.

Right after I first created the Risk/Reward Heat Map in December 2019, it showed immense risk for January/February/March 2020 followed by significant reward starting in April 2020.

Ever since April 2020, stocks have only paused during periods of caution. A ton of work (currently 613 different studies) goes into the Risk/Reward Heat Map. How it is compiled and how it works is explained here.

Within 3 days of last Friday’s all-time high, the S&P 500 has dropped to a 1-month low. Since 1970, this happened only 8 other times. The chart below highlights when.

In terms of price action, there’s little technical damage thus far for the S&P 500. The futures chart shows that price tagged double support yesterday.

In the past, the S&P may have pierced below support briefly but quickly jumped back above, so a close below support for more than a day or two is needed to get lower targets.

The Risk/Reward Heat Map suggests there’s a good chance this can happen, but it’s prudent to wait for confirmation.

Continued updates (including the Risk/Reward Heat Map) and factual out-of-the box analysis 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.”

What a 613-Indicator-Based Risk/Reward Tool Says About Stocks in May


The Risk/Reward Heat Map (RRHM) is a complex tool I created to identify whether risk or reward will dominate in any of the upcoming 12 months. I made the Risk/Reward Heat Map available to subscribers of the Profit Radar Report in December 2019. 

As of right now, the Risk/Reward Heat Map is the compound message of 613 individual studies, indicators and signals.

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

Turning individual studies into a forward-looking Risk/Reward Heat Map is a 2-step process:

1) Develop each individual study. Here is how it’s done:

– Identify a unique market development. Example: Last Friday, the S&P 500 and 32% of its component stocks closed at a 52-week (or all-time) high.

– Identify past precedents that meet the same (or similar) criteria. Example: Since 2000, the S&P 500 and >31% of its component stocks closed at 52-week high 7 other times (total of 8 signal dates). The orange line in the chart below highlight all the signal dates.

2) Turn individual study into a forward-looking component of the Risk/Reward Heat Map. Here is how it’s done:

– Calculate the S&P 500 returns and odds of positive returns for 1, 2, 3, 6, 9, 12 months after past precedents (signal dates). Example: After the above-mentioned signal dates, the S&P 500 was down 1 month later 6 times (86%) with an average loss of 2.2% (using only 1st signal in 30 days). 12 month later, the S&P 500 was up 5 times (71%) with an average gain of 10.5%.

– When the odds of positive returns are 80% or higher for a certain month, it is counted as bullish study for that month (+1 is added for that month).

– When the odds of positive returns are 50% or lower for a certain month, it is counted as bearish study for that month (-1 is added for that month). Example: The above study is bearish for June.

The proof is in the pudding

Shown below is one of many bullish studies published in April 2020 (others are available for review here). Explanatory annotations are made in yellow.

The unique development at the time was that the S&P 500 delivered two 90% up volume days (when 90% of volume flowing into advancing stocks) in a 3-day period. 

2 out of 3 90% up days happened 7 other times in the past. The colored graphs show returns after the 7 prior signal dates. 

The performance tracker (table at bottom of chart) shows that returns for the next 3, 6, 9, 12 month were wildly bullish with 83% – 100% odds of positive returns. +1 (bullish odds) were added for the months of July 2020, October 2020, January 2021, April 2021.

Repeating the above process of identifying a unique event and its precedents and then cataloguing forward returns 613 times results in the up-to-date Risk/Reward Heat Map. 

Does the Risk/Reward Heat Map work?

The chart below plots the S&P 500 against net signals (bullish – bearish) since inception, which allows us to visually assess if the Risk/Reward Heat Map works. 

The outright bearish implications for January/February/March 2020 (red columns) were echoed by the stock market during the February/March 2020 meltdown.

Starting in March 2020, the vast majority of studies implied significant future reward with little risk (green columns). 

Throughout 2020 and 2021 there were only a few periods of weakness, and all of them occurred when the number of bullish studies was less than 20 (orange bars). 

Sell in May and go away?

For May, the Risk/Reward Heat Map is in caution mode, and the May 3 Profit Radar Report warned that: “May continues to be a pressure point, resistance in terms of time.”

The Risk/Reward Heat Map is unique because it’s actually a predictive forward looking tool. To filter out false signal, I use real time data to validate the Heat Map’s message. Right now, it will take a good close below 4,090 to unlock a deeper pullback.

The Risk/Reward Heat Map is constantly updated and shows riks/reward for each of the next 12 months. The Risk/Reward Heat Map is available to subscribers of 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 – Strong but Ugly

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on May 6. 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).

Let’s face it, S&P 500 performance has been strong but ugly … and downright boring to watch. Despite the yawn environment, I just discovered a historic pattern that played out 90% of the time (see below).

Yes, while markets are grinding I’m running dozens of screens to gain an edge for the next move.

For example, the last S&P 500 all-time high (last Thursday) also saw:

– Cumulative NY Composite a/d lines at all-time highs

– 88% of S&P 500 stocks above their 50-day SMA

– 95% of S&P 500 stocks above their 200-day SMA

– Only 58% of volume flowing in advancing stocks (10-day SMA)

Running a screen based on the above parameters yields no hits, which means it never happened before.

We can’t learn much from a sample size of 1, but lowering the threshold gives as more precedents to work with.

The yellow lines highlight when less restrictive criteria (see chart) were met. Unfortunately the sample size couldn’t be more conflicting (don’t shoot the messenger). We have some signals right before the 2007 and 2020 crash and others during the 2013 and 2020 melt-up.

Let’s take a different approach. Instead of scanning for similar past occurrences based on breadth we’ll look at performance.

Here is our baseline:

  1. From January – April 2021, the S&P 500 was up 11.32%
  2. In 2020 (prior year), the S&P 500 recorded a 16.26% gain
  3. 2021 was a post election year

Going back to 1970, we now identify the following:

– Years S&P 500 was up more than 10% on April 30

It happened 14 other years

– Years S&P 500 gained 16% +/-5% the year before

It happened 5 other years

– Years that were a post election year (like 2021)

It happened 1 other year

– Years with a similar chart trajectory (correlation)

Based on the above criteria, the gray graphs reflect the January – April performance of the 10 years most similar to 2021 (in red).

The logical next step is to chart the forward performance of the 10 most similar years, which is exactly what I did. After doing that, I look for common themes.

This study revealed an interesting commonality: 3 month later (which corresponds to August 1), the S&P 500 had the same directional bias 90% of the time. The full study was published in yesterday’s Profit Radar Report.

Even dull markets can offer clues about future performance … if you look hard enough … or have someone who does the searching for you.

Continued updates, out-of-the box analysis and forward performance based on historic precedents are available via the Profit Radar Report.

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.”SPX

Earnings, and one Famous Wall Street Adage to Ignore

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. This market outlook below was sent out on April 29. 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).

There’s a Wall Street adage that says: “Never short a dull market.”

Boy, has it been a dull market. One way to spot a dull market is when you don’t receive a Thursday e-mail from me (like last Thursday). This may be silly, but I respect people’s inboxes and only send out updates when I feel like there’s something worth writing (or when I didn’t send one out last week).

Anyway, is the adage never to short a dull market true?

First, let’s define dull. From Monday – Wednesday the S&P 500 average maximum daily percentage change (based on closing prices) was 0.09%. Yeah, let’s call that dull.

The yellow lines in the chart below mark every time (since 2014) when the maximum daily % change (3-day SMA) was 0.10% or less (we’ll call this the signal).

Although this week was the first signal since 9/19/2019, it happened many time before. Throughout 2017, it was a good idea not to short a dull market, but shorting a dull market 2014 – 2016 would have yielded positive short-term returns most of the time.

In short, it’s better to know the facts than trust an adage. That’s, by the way, what the Profit Radar Report is all about, getting the facts of what’s really going on.

Talking about facts, the stock market has delivered some rare phenomena recently, like:

– Very bullish breadth readings and all-time highs

– Incredibly low volume

I wanted to find out:

  1. If breadth has gotten so good (too good to be true) that it’s actually a negative
  2. If new all-time highs on record low volume are bearish for stocks.

My findings along with S&P 500 forward returns after similar setups in the past are available here: What are the Implications of Rare Stock Market Phenomena?

The April 15 Free Market Outlook highlighted shorting TSLA as the new FOMO trade. The entire April 15 Market Outlook along with the rationale to short TSLA was posted here.

The chart below shows how TSLA has done since I recommended shorting it on April 14. What’s real ‘curious’ is that TSLA’s decline accelerated after it delivered a solid earnings beat.

This is one reason why I tend to ignore earnings. Two, even better reasons, (one of them being the Buffett Indicator) for ignoring earnings – and perhaps more importantly sky high valuations – are discussed here: 3 Reasons for Ignoring Earnings and Valuations

Continued updates, out-of-the box analysis and forward performance based on historic precedents 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.” 

What Are the Implications of Rare Stock Market Phenomena?


‘Knowledge is power’ is one of my favorite truisms, and I want to empower my subscribers. To do that, I’ve beefed up the research presented via the Profit Radar Report.

‘Beefing up,’ to me, means extracting and presenting facts few investors are aware of.

Here are a couple examples of what I mean:

On April 8, the stock market delivered the following trifecta:

 – >90% of S&P 500 stocks closed above their 50-day SMA

 – >90% of S&P 500 stocks closed above their 200-day SMA 

 – >7% of NYSE stocks set new 52-week high

This is an amazing feat of strength. The question is: How amazing? And is that good for stocks … or too good to be true?

The chart below, published in the April 12 Profit Radar Report, identifies when and how often the above conditions existed before.

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.”

The chart outlines how rare this trifecta is, but it’s hard to discern detailed forward performance on a 20-year chart.

The performance tracker, included in the same update and shown below, graphs S&P 500 forward returns for 1 year after the first signal of each cluster (called the signal date).

The table at the bottom of the chart shows average returns and the percentage of positive returns after 1, 2, 3, 6, 9, 12 months.

A sample size of 4 is not huge, but there are a couple of common themes:

1) Returns for the first few months were rocky

2) Any gains were given back about 5 months later (dashed red line)

But, there is another interesting wrinkle to the ‘trifecta feat of strength.’ April trading volume has fallen off a cliff.

Are new all-time highs on low volume bearish?

To find out what history says, the April 18 Profit Radar Report identified current markers and searched for historic parallels. Here are last week’s markers:

  1. S&P 500 at all-time high
  2. NY Composite a/d line (cumulative) at all-time high
  3. NY Composite OCO a/d line (cumulative) at all-time high

But:

 – NYC trading volume more than 20% below its 200-day SMA

 – Volume of advancing stocks less than 56%

The orange lines in the chart below highlight when the above conditions existed. Again, we are looking at a rare constellation with one common eventuality: Further gains were possible, but given back at some point over the next few months.

Shown above are only two of dozens of studies conducted every month.

My first step is always to find the common theme conveyed by each individual study. The next step is to find the common theme conveyed by all conducted studies.

The Risk/Reward Heat Map (RRHM) is a simple visual aid that identifies future periods of risk or reward conveyed by hundreds of individual studies.

The RRHM is available for free to subscribers of the Profit Radar Report (you can read more about it here).

No amount of knowledge can consistently predict stock market movements, but a fact-based approach assures that every decision is an educated decision, a decision that tilts the odds in your favor.

The world has never been more uncertain. Get the facts you need to make decisions you can feel good about. Get 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.

Short TSLA, Long XLE – The New FOMO Trade?

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on April 15. 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).

Everyone knows that S&P 500 and Dow Jones price action has been as pristine as it’s been boring … and there’s a trace of that’s ‘too good to be true’ in the hair.

I wanted to find out how the most recent rally stacks up to others in the past and if that calm turned out to be the calm before the storm. Here is what I found.

I personally don’t like chasing an over-bought market (although that’s not been a great mantra to live by) and prefer lower-risk setups … like this one discussed in the April 11 Profit Radar Report (chart includes original annotations but updated price):

There’s been a fierce battle between value and growth – risk on vs risk off sectors. XLE (SPDR Energy ETF) appears to offer one of the more attractive entry levels near current price. XLE is testing the trend channel (48) with next support around 46.80 (blue circle).

The chart includes a potential Elliott Wave Theory count, which makes an eventual rally into the 55.65 zone likely. Wave 4 (or IV) corrections can be complex and drawn out, but buying XLE around current price or after a quickly reversed dip below the trend channel looks attractive. More aggressive investors may buy XLE around current price, but we’ll look at buying XLE after a successful test of the 47.20 zone.”

Who would have thought that short TSLA is the new S&P or Nasdaq FOMO (fear of missing out) trade?

But there was a solid setup to short TSLA, as discussed in Monday’s special Profit Radar Report update (chart includes original annotations but updated price):

TSLA closed at 762 today. According to Elliott Wave Theory (EWT), the decline from the January high to March low traced out 5 waves. The bounce from the March low looks like 3 waves. The 78.6% Fibonacci retracement is at 762.53 and wave c = wave a at 769.37.

The TSLA bounce could finish in the 762 – 769 zone. Additional resistance is around 795 (trend channel) and 823 – 838 (78.6% retracement and C = 1.382 x A).

EWT has been essentially useless for the major indexes and excess liquidity may also void this signal, but it’s been rare to get such a clear read and confluence of resistance levels like seen here.

As mentioned, TSLA is a fast-moving stock not for the faint of heart . We will initiate a small short position at tomorrow’s (Wednesday) open.

TSLA opened at 770.70 on Wednesday and quickly fell to 730. There is a small chance that TSLA will still reach the 823 – 838 range (breakout of the purple triangle) but with a stop-loss at breakeven we can wait if TSLA finds support around 700 – 710 or not.

Continued updates and factual out-of-the box analysis 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.”TSL

Is Boring Grind Higher the Calm Before Storm?


S&P 500 and Dow Jones price action has been remarkable in many ways. I wanted to find out just how remarkable when viewed in the context of history. Here is how the recent price action stacks up (information below was published in Tuesday’s Profit Radar Report):

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

Last Friday, the S&P 500: closed at an all-time high, which was 13.4% above its 200-day SMA, which was confirmed by the cumulative NY Composite advance/decline lines (a measure of liquidity). The same may happen again today. The yellow lines in the first chart below show other times that’s happened. Never (aside from the most recent cluster).

We can’t learn much from a sample size of 1, so let’s loosen our filter to see how big of a sample size we get. 

The next chart highlights periods when the S&P 500 closed more than 13% above its 200-day SMA.

Now we have too big of a sample size. If we restrict the criteria to catch only those times when the S&P 500 traded >10% above its 200-day SMA while at an all-time high (confirmed by the cum NYC a/d) we get the following hits.

In an attempt to identify breadth readings and price action comparable to current, we’ll now adjust the parameters to show times when the S&P 500 traded >13% above its 200-day SMA while the cum NYC a/d line was at an all-time high. There are only 3 other clusters in the past half century. The first of the most recent signal cluster triggered on 11/16/20.

Tuesday’s Profit Radar Report shows exactly how the S&P 500 did after the first signal date of each cluster (see above chart). This performance tracker details the S&P 500 forward performance after the signal date via graphs and tables (detailed returns for the next 1, 2, 3, 6, 9, 12 months along with odds of positive returns).

Of course there are other parameters that could be used to assess and compare the current market. Monday’s Profit Radar Report, for example, identified other times when more than 90% of stocks trade above both their 50-and 200-day SMA while more than 7% of stocks trade at a 52-week high.

Obviously history does not repeat itself, but it provides insight on how price (which is a reflection of investors, which is based on crowd behavior) reacts in certain situations. Examining historic precedents often reveals recurring patterns useful in assessing what’s next.

Continuous updates along with the performance tracker of similar precedents 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. 

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