S&P 500: Pop and Drop?

In recent weeks I published several forward projections for the S&P 500. All of them had two things in common:

  1. A bottom somewhere around 2,600
  2. A rally towards 2,900

The first chart shows a progression of the ending diagonal (published in the October 24, 28, 29 Profit Radar Reports) we used to identify the bottom and subsequent pop (blue oval was ideal down side target).

The second chart is the longer-term projection published in the October 28 Profit Radar Report. According to this projection, the S&P 500 was to bottom around 2,600 and rally into the red box up side target.

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Up side Target (almost) Captured

Since the up side target has almost been reached, it’s time to discuss the odds of a potentially scary ‘pop and drop’ scenario.

The October 28 Profit Radar Report stated that: “The projection (see chart above) provides a visual of the ideal path ahead. The upcoming bounce (either wave 2 or B) should reach 2,830 and perhaps higher (wave B could even bring new all-time highs), followed by another leg down.”

At the time, it was not important whether the bounce is wave 2 or B. Why? Both had the same minimum target (around 2,830). Now that the S&P is close to the minimum target, it’s important to know the difference.

Wave 2 vs Wave B

  • Wave 2: If this bounce is wave 2, it is not allowed to exceed the September high (2,940.91), and should ideally stop in the 2,812 – 2,869 range (61.8 – 78.6% Fibonacci retracement). Once complete, the wave 2 rally is followed by a strong wave 3 decline (along with waves 4 and 5).
  • Wave B: If this bounce is wave B, it could, but does not have to, reach new all-time highs.

The chart below includes a number of updated resistance/target levels:

  • 2,830: Fibonacci projection level going back to 2002
  • 2,853: EWT wave A = C
  • 2,869: 78.6% Fibonacci retracement
  • 2,880 & 2,921: Open chart gaps, which tend to act like magnets for price

As of Wednesday’s close, the S&P ended near over-bought, but without bearish divergences. This suggests short-term weakness should be followed by at least one more high.

Conclusion

It appears that at minimum another down/up sequence is required before a larger drop becomes an option.

Based on seasonality, continued gains and new all-time highs are possible.

I will be monitoring breadth, momentum and sentiment for extremes, internal weakness, or divergences to assess the odds of a serious reversal to the down side.

Continued updates will be 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.

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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XHB and Facebook – 2 Buy Signals

Facebook

The following analysis was published in the October 28 Profit Radar Report:

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Facebook has been ‘wedging’ lower. It is now at triple support, shows a tiny bullish divergence, and cycles are turning strongly bullish. Upon completion, wedges like this are often completely retraced, which means the up side target is around 188. Aggressive investors may choose to buy Facebook.”

Facebook rallied as much as 12.49% since Monday’s low. Cycles continue higher, and (FB) should rally towards and perhaps beyond 188.

SPDR S&P 500 Homebuilders ETF (XHB)

The following analysis was published in the October 21 Profit Radar Report:

The SPDR S&P Homebuilders ETF (XHB) is one of the most hated ETFs right now. In September XHB languished in over-sold territory for 10 consecutive days without bounce. Daily RSI-35 (not shown) is the most over-sold since August 8, 2011. Trade is currently below two (red) long-term trend lines. Trend channel support is around 33.13.There are no bullish divergences. In summary, XHB is down 28.75% since January, and is over-sold enough to spark a powerful spike at any time. However, there are no bullish divergences indicative of a lasting low. Perhaps this will change by the time XHB reaches the black trend channel.”

October 28 Profit Radar Report:

XHB closed below the black trend channel on Friday, but with a bullish divergence. A move back inside the channel (above 32.90 on Monday) and above trend line resistance (33.25 and 33.70 on Monday) could unleash a strong bounce. Aggressive traders may buy accordingly.”

Since Monday’s low, XHB rallied as much as 7.95%. Based on sentiment and technicals, further gains are likely.

The Profit Radar Report monitors key indicators to spot low-risk or high probability opportunies. Click here to subscribe or learn about our approach.

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 profile 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.

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

S&P 500: Short-term Update

This is a short-term S&P 500 update. A longer-term S&P 500 update is available here.

The October 21 Profit Radar Report warned that: “The chart constellation suggests the potential for a mini crash are elevated. The ideal (down side) target for wave c is 2,675 or 2,587. Waves c are called crash waves, so a couple of strong down days are quite possible.”

Starting on October 24, we expected the ending diagonal pattern (converging purple lines) to play out. Below are the S&P ending diagonal charts published in the October 24, 28 and 29 Profit Radar Reports.

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 October 28 Profit Radar Report stated that: “The S&P continues to respect the diagonal boundaries, so we respect the diagonal pattern. On Friday trade briefly dropped below the lower boundary (small blue circle), as it usually does at the end of the pattern. Another drop into the 2,600 range (big blue oval) is still possible, and would actually be preferred for a potential short-term buy signal. A sustained move above diagonal resistance (2,705 on Monday morning) would be an initial indication that a low could be in.”

The S&P 500 should now be in its way towards the up side target discussed in the longer-term S&P 500 update last week. Although unexpected, a drop below last week’s low could unleash another crash.

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 profile 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.

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

S&P 500 Update: Risk vs Reward Reversal

Back in February, the Profit Radar Report published the two most likely S&P 500 forward projections (one of them shown below, the other one was very similar), and stated that: “Both scenarios will eventually lead to new all-time highs.”

My ideal up side target has been 3,000+/-, but risk increased once the minimum up side target (new highs) was reached.

Based on a number of bearish developments and divergences, the September 19 Profit Radar Report stated that: “Chasing price here comes with more risk than reward.”

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 September 30 Profit Radar Report tried to quantify the down side risk – based on the trend channel shown below – and stated: “A test of the lower trend channel (around 2,850) could be wave 4, followed by wave 5 towards or above 3,000.”

Obviously the S&P has already reached 2,850, and is now over-sold, and just above Fibonacci support around 2,830. Another area of support (based on Elliott Wave Theory for a diagonal) is the June 13 high at 2,791.

While in that range (2,850 – 2,780), the S&P can (and I think will) still find support for a year-end rally to 3,000+/-.

Of course there is a chance that the September high marks a more significant top with down side targets at 2,600 – 2,200.

We will likely reach those down side targets eventually, but a prior attempt to take out 3,000 would conform to seasonality, take out premature bears, and allow some of those bearish divergences to mature even further and set the stage for a bear market.

The months ahead should certainly be exciting!

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 profile 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.

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

S&P 500: Surprisingly ‘Normal and Predictable’

Considering the political cross currents, the S&P 500 has been acting surprisingly normal, even predictable.

In terms of support and resistance levels, the S&P has stopped and accelerated pretty much exactly where it ‘was supposed to.’

The weekly S&P 500 chart below highlights 3 different support/resistance levels.

  • Triangle with support at 2,800
  • January high resistance at 2,873
  • Trend channel with current support at 2,878

Past Interaction with Support/Resistance Levels

The daily S&P 500 chart shows that triangle resistance at 2,800 served as resistance (red dots) until mid-July. The July 15 Profit Radar Report highlighted this scenario: “The S&P is about to break out of a multi-month triangle with an up side target above 3,000.”

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.

Following the breakout at 2,800, resistance turned into support, and the S&P tested (now) support at 2,800 multiple times (green dots and ovals) before moving on to the next resistance formed by the blue trend channel and the January high (2,865 – 2,875).

Future Interaction with Support/Resistance Levels

Initially the S&P was rejected by resistance at 2,865 – 2875, this led to a test of support at 2,800. Eventually trade popped above 2,875, and made it as high as 2,916.

As before, prior resistance (2,875 – 2,865) is now support, and the August 29 Profit Radar Report wrote that: “It would be normal for the S&P 500 to test its breakout level around 2,875.”

The S&P tested 2,875 today, and as long as it stays above support, odds favor another rally leg.

Sustained trade below 2,875 will put bullish bets on hold.

The above analysis is based on simple support and resistance levels. The Profit Radar Report enhances basic common sense analysis with other trusted indicators – such as liquidity, sentiment, and seasonality & cycles – to increase the odds of winning trades.

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 profile 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.

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

US Treasury bonds and notes have been range bound for over six months.

There is reason to believe that Treasuries, especially 30-year Treasuries bonds, will soon break higher. Why?

Smart Money

Commercial hedgers – a group of traders considered the ‘smart money’ – are buying Treasuries across the bond curve in anticipation of higher prices.

The chart below shows commercial hedgers’ aggregate net exposure to 5, 10, 30-year Treasuries (blue graph).

As the green arrows show, hedgers’ bullish bets are generally vindicated by a period of rising prices.

Below is a list of ETFs likely to benefit from the bullish developments seen by commercial hedgers. Long-term maturities are more dynamic and subject to bigger price moves.

  • iShares Short Treasury Bond ETF (NYSEArca: SHV)
  • iShares 1-3 Year Treasury Bond ETF (NYSEArca: SHY)
  • iShares 3-7 Year Treasury Bond ETF (NYSEArca: IEI)
  • iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF)
  • iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT)

Seasonality

The green chart insert shows that seasonality is generally bullish for the remainder of the year.

A move above the red resistance lines is necessary to unlock an up side target of 129 – 133. This up side target is based on Fibonacci retracement levels (50% and 61.8%) and an open chart gap.

Sustained trade below 120 would put any rally on hold.

Above analysis was initially published in the August 26 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.

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 profile 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.

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

Are Emerging Market Stocks Ready to Rally?

From January 26 – August 15, the iShares MSCI Emerging Markets ETF (EEM) lost 20.3%. A bear market is commonly defined as a decline of 20% or more. Based on this definition, EEM entered a bear on August 15.

Will the emerging markets bear market continue, or is it a false signal?

Emerging Markets Bear Market? The ‘Two Week Rule’

To assess emerging markets future prospects, we will look at other times EEM lost 20%.

As the chart below shows, since its inception in 2004, EEM fell 20% five other times. How it performed two weeks later, tended to be an indication of its longer-term prospects.

Two weeks after its initial 20% drop, EEM was higher 3 times, and lower 2 times. 4 out of 5 times, the subsequent gain or loss was significant (>7%).

The 3 times EEM was higher two weeks later, it was also higher three months later (on average 5.7%). The 2 times EEM was lower two weeks later, it was also lower three months later (average of 3%).

The chart below shows EEM since its January high. Since ‘entering bear market territory,’ EEM already rallied more than 5%, and it looks like it will be up two weeks after triggering a 20% decline.

Trade is just below its 50-day SMA and trend line resistance around 43.80. There was a bullish RSI divergence at the low.

It seems like EEM has a good shot at moving higher, but a move above 43.80 is need to start confirming a perhaps more lasting bounce.

Other popular emerging markets ETFs include:

  • Vanguard FTSE Emerging Markets ETF (VWO)
  • iShares Core MSCI Emerging Markets ETF (IEMG)
  • Schwab Fundamental Emerging Markets Large Company Index ETF (FNDE)

Above analysis was initially published in the August 26 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.

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 profile 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.

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