The Last Hope for S&P 500 Bears

The S&P 500 has closed higher seven out of the last nine trading days and shattered the short-lived mojo of stock market bears, but there’s one reason for bears not to give up hope yet.

The S&P 500 has closed higher seven out of the last nine trading days and shattered the short-lived mojo of stock market bears.

Here is pretty much the last hope for bears (at least over the short-term).

A deep retracement rally!

Strong bounces that retrace more than 90% of the previous decline do happen, but we have to go back to 2011 and 2012 to find the last such specimens.

The first S&P 500 chart shows deep retracement rallies in July 2011, May 2012, and October 2012. Those rallies appeared intent on taking out the prior highs, but failed to do so and were followed by new lows.

The chart below shows a projection published in the February 3 and 5 Profit Radar Report, which stated that: “Selling pressure is subsiding. The potential for a roaring rally exists.”

The February 9 Profit Radar Report added that: “Corrective bounces (rallies that retrace some of the previous decline) have been quite deep during the QE bull. The strongest resistance is around 1,830 with an open chart gap at 1,828.5.”

Obviously, the S&P 500 (NYSEArca: SPY) has already surpassed the 1,830 resistance level. This decreases the odds of an immediate trip to new lows, but so far the S&P 500 is more or less following the script outlined by the Profit Radar Report.

It may be too soon to completely abandon bearish views. Here are three bearish indicators that refuse to budge:

3 Bearish Indicators Buck the Avalanche of Bullish Signals

Simon Maierhofer is the publisher 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.

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

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3 Bearish Indicators Buck the Avalanche of Bullish Signals

Price is the most pervasive force on Wall Street. Stocks have rallied well over 5% since the recent low and almost all indicators are flashing green buy signals. Now is not the time to buck the trend, but here are 3 indicators that just won’t budge.

Price action trumps every other indicator, and the S&P’s eight-day 100-point rally has turned the dashboard of indicators overwhelmingly green.

There are just a couple of signals that refuse to jump on the bullish bandwagon.

Trading Volume

The chart below plots the S&P 500 (SNP: ^GSPC) against NYSE trading volume.

It’s quite obvious that volume did not confirm the direction of the S&P 500 and stocks in general.

The same can be said with the percentage of stocks trading above their 50-day or 200-day SMAs.

However, despite those bearish divergences, my proprietary indicators of supply and demand and various advance/decline lines have confirmed the S&P’s rally.

Resistance

The weekly Dow Jones (NYSEArca: DIA) chart below shows significant overhead resistance provided by two long-term trend lines/channels.

So far, the Dow Jones remains below this resistance level.

RSI Divergences

The S&P 500 chart below is an updated version of a projection first published in the February 3 and 5 Profit Radar Report.

Based on the assessment that: “There was a bullish RSI divergence. Selling pressure is subsiding. The potential for a roaring rally exists,” the Profit Radar Report expected a strong rally toward S&P 1,830.

Obviously, the S&P 500 (NYSEArca: SPY) has exceeded 1,830, but the general projection is still holding true and we are seeing a bearish RSI divergence on the hourly chart.

Based on the above indicators (albeit lonely, it standouts among the sea of green signals) this could be just a deep retracement rally followed by new lows.

How common are deep retracement rallies. Here’s a look at the most recent ones and how the S&P 500 fared thereafter:

Deep Retracement – The Last Hope for Bears

Simon Maierhofer is the publisher 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.

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

New Spin on Old Indicator Gives Big Fat Buy Signal

Sometimes it takes out of the box thinking to shine new light on an old and dull indicator. This may be the case with the widely followed Investors Intelligence (II) investment advisor sentiment poll. Here’s a new spin and an interesting signal.

Here’s one example of how a different spin on a popular indicator can boost its meaning.

Investors Intelligence (II) reported that the percentage of bullish investors dropped to 41.8%.

At first glance this is a lukewarm reading, not too hot and not too cold. However, a closer look adds an intriguing layer of information.

The first chart plots the S&P 500 against the ‘plain’ percentage of bullish investment advisors.

The gray line marks the 41.8% level. The red lines highlight what happens every time the percentage of bullish advisors drops to about 41.8.

Six out of eight times it marked a low, but four out of eight saw a lower low not long thereafter.

We can see that the quick turnaround in bullishness has some significance.

But how can we quantify this most recent cooling of investor sentiment (from 61.6% bullish advisors to 41.8%) and compare it to past precedents?

The second chart calculates the percentage change of bullish advisors from significant high to low and low to high, and overlays it against the S&P 500.

For example, the drop from 61.6% bulls on December 31, 2013 to 41.8% on February 12 translates into a 32.14% change.

The gray and red lines indicate that a 35% +/- drop in bullishness generally buoys the S&P 500 and S&P 500 ETF (NYSEArca: SPY).

The second chart tells us that, based solely on II sentiment, the rather shallow 6.3% correction for the S&P 500 may have been enough to relieve the overbought condition present at the beginning of the year.

Exclusively based on the chart, one could argue that this is a big fat buy signal.

However, sentiment is not the only component to ascertaining the market’s correction (I personally don’t trust this signal yet).

There are other forces that suggest at least another leg down. One of them could be considered the oddball of technical analysis, but it correctly predicted the rally from 1,738 to 1,832 for the S&P 500.

Here’s a detailed look at this odd, but lately accurate indicator:

Stock Market is Fragmented and Confused – Message of One Oddball Indicator

Simon Maierhofer is the publisher 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.

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

Chart: 2014 Market Humiliates Money Managers

Have you ever bought or sold stocks at the worst possible time? If you have, you’ll really enjoy this chart, which exposes just how bad the recent timing of professional money managers has been.

Buy low, sell high. It’s easier said than done, but you’d at least expect the ‘pros’ to be reasonably good at this.

Wrong! Professional money managers already racked up an impressive lousy track record for 2014.

On February 7, I wrote an article titled: “Investment Managers Slash Equity Exposure by 50%,” and published the chart below.

The article commented that such an irrational move out of equities usually leads to a rebound of the S&P 500.

The chart data is based on the NAAIM (National Association of Active Investment Managers) survey, which is updated every Thursday.

Last week, the NAAIM survey was updated on February 6, which means that most of the data is received on February 4 and 5.

So in reality professional investment managers slashed their equity exposure by 50% right around February 4 and 5.

The S&P 500 (SNP: ^GSPC) tumbled to its 2014 low on … you guessed it … February 5 at 1,738.

That’s when active managers sold. The S&P 500 and S&P 500 ETF (NYSEArca: SPY) rallied over 5.2% since. The Nasdaq QQQ ETF (Nasdaq: QQQ) soared 7.11% since.

If the same thing happened to you (buy or sell at the worst of times), take heart, the pros didn’t do any better.

When harping on the skills (or lack thereof) of professional managers I’m often reminded of this saying: “Don’t throw stones if you’re sitting in a glass house.”

To be brutally honest, the 90 S&P point rally didn’t trip the buy trigger outlined in my Profit Radar Report, but at least we saw this rally coming.

The February 2 Profit Radar Report stated that: “Our preferred forecast calls for a brief dip towards 1,730 followed by an energetic rally towards 1,830 for the S&P 500,” and the February 12 Profit Radar Report mentioned 1,845 (open chart gap) as target.

The February 5 update featured this visual projection (yellow line) of the ‘energetic rally towards 1,830’ (as illustrated by the yellow line we expected the S&P 500 to close the open chart gap at 1,733.45 before rallying strongly).

The latest NAAIM data shows that the average investment manager increased equity exposure from 50.97% to 73.26%.

That’s interesting, but it’s impossible to draw any predictive conclusions from this one data point change.

However, the S&P 500 has surpassed our initial up side target ~1,830 and came within striking distance of closing the 1,845 gap, so risk is rising.

The Dow Jones (NYSEArca: DIA) is close to 14-year key resistance level, which delineates bearish risk from bullish potential.

In short, there’s no reason to be complacent around current levels and the pros may feel some redemption if trade revisits the previous low.

Of course, the ‘pros’ will look like complete fools if the big fat buy signal given by this indicator pans out.

New Spin on Old Indicator Gives Big Fat Buy Signal

Simon Maierhofer is the publisher 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.

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

What’s the Nasdaq’s Upside Target?

Despite a dismal start into 2014, the Nasdaq-100 has taken out its January high and is trading at the highest level in 14 years. Is the sky the limit? Here are two price targets that may act as resistance and keep a lid on the advance.

The Nasdaq-100 just rallied to a new 14-year high and the sky seems the limit. But what’s a more realistic limit or target?

Here are some developments worth considering:

The first chart shows the Nasadaq-100 Index, better known by its ETF reflection, the Nasdaq QQQ ETF (Nasdaq: QQQ).

The Nasdaq-100 initially stalled at the first red line, which corresponds to the October 2000 monthly high (3,614).

The Nasdaq-100 closed above 3,614 this week. Technically, the sky is clear to the next important resistance level, which is the 78.6% Fibonacci retracement of the points lost from 2000 – 2000, located at 3,956.

The Nasdaq Composite (Nasdaq: ^IXIC) is already within striking distance of its 78.6% Fibonacci retracement at 4,246.55.

As the two charts illustrate, only the Nasdaq-100 rallied to new highs this week. The broader Nasdaq Composite has not yet taken out its January high watermark.

This minor bearish divergence could weigh down the near-term performance. Even if the Nasdaq Composite continues higher, it will still have to deal with Fibonacci resistance at 4,246.55.

The U.S. stock market universe extends beyond the two Nasdaq indexes.

Although the Nasdaq charts suggest at least marginal gains, there’s still reason to be suspicious of this powerful bounce.

The February 5 Profit Radar Report featured this projection (yellow lines) for the S&P 500 (SNP: ^GSPC).

The S&P 500 chart projection provided a visual of the February 3 forecast: “Even though today was a rare 90% down day (90% of all stocks traded closed lower) there was a bullish RSI divergence. This suggests that selling pressure is subsiding. Ideally, the market will deliver another minor up/down wiggle before staging a larger bounce.”

The proposed S&P 500 bounce has nearly reached the projected target, so risk is increasing.

For what to expect next (short-term and long-term) and the key line in the sand between bearish risk and bullish opportunity refer to the Profit Radar Report. A detailed 2013 performance report of the Profit Radar Report and a 2014 forecast preview are available here:

Not Your Average 2013 Performance Report

Simon Maierhofer is the publisher 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.

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

Stock Market is Fragmented and Confused

Here’s a look at four different U.S. indexes: S&P 500, Dow Jones, Nasdaq, and Russell 2000. Based on the oddball of technical analysis, the four indexes sport two diametrically opposed outcomes, one bullish, one bearish. Here’s the simple solution:

Today the Nasdaq-100 ETF (Nasdaq: QQQ) rallied to a new 14-year high, while the iShares Russell 2000 ETF (Nasdaq: IWM) trades about 4.5% below its all-time high.

The S&P 500 ETF (NYSEArca: SPY) retraced about 75% of its recent decline while the Dow Jones ETF (NYSEArca: DIA) only retraced about 55%.

Not all indexes always move in the same direction to the same extent, but there’s something odd about the current divergence in structure.

Here’s what I mean:

One of the many indicators and types of analysis I follow is Elliott Wave Theory (EWT). EWT is the oddball of technical analysis, but it provides certain insights no other indicator can.

One of the unique features of EWT is the interpretation of waves. Most market moves are categorized as either 5-wave or 3-wave moves.

Following the strong 2013 rally, a 5-wave move to the down side would suggest further down side, while a 3-wave move lower suggests the correction is finished.

Here’s the conflict:

EWT interpretation of the S&P 500 chart: Following its January 15 high, the S&P 500 traced out five waves to the down side.

EWT interpretation of the Dow Jones chart: Following its December 31 high, the Dow Jones slumped lower in five (somewhat sloppy) waves.

EWT interpretation of the Russell 2000 chart: After its January 22 high, the Russell 2000 dropped in three waves.

EWT interpretation of the Nasdaq-100: After its January 22 high, the Nasdaq-100 declined in three waves.

Based on the EWT wave pattern of the S&P 500 and Dow Jones new lows are likely, but the wave pattern of the Russell 2000 and Nasdaq-100 point to new highs.

Based on a combination of technical analysis and EWT the February 5 Profit Radar Report projected the S&P 500’s expected path as outlined by the yellow lines.

Thus far the S&P 500 has adhered to the Profit Radar Report’s projection rather closely and is about to hit a ‘make it or break it’ resistance level.

The S&P 500 and in particularly the Dow Jones offer clear resistance levels. If broken, they will lead to new highs and a continued rally.

But new lows are likely if the S&P 500 and Dow Jones struggle to overcome their respective resistance levels. This presents a low-risk trading opportunity with a high potential reward.

The Profit Radar Report reveals the ‘make it or break it’ resistance levels along with the corresponding trade setups. Subscribers also gain access to a full 2014 Forecast along with a specific price projection (like the one above, but long-term).

Simon Maierhofer is the publisher 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.

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

Contrarian Signal? Traders are Record Short the VIX

The VIX has been bouncing up and down like a frog on a trampoline. Big moves can translate into nice profits, and that’s exactly what VIX traders are hoping for. A record amount of VIX traders own puts, betting on a lower VIX. A mistake?

The VIX  is bouncing up and down like a frog on a trampoline. An 81% jump from January 15 to February 3 was followed by a 32% drop since.

Those kinds of moves get traders excited, and excited they are.

According to Bloomberg data, ownership of VIX puts has soared to a record all-time high of 3.2 million on February 6.

Assets in the VelocityShares Daily Inverse VIX ETN (NYSEArca: XIV), an ETN that profits from falling VIX prices, doubled over the past two weeks.

For the first time in history, the XIV ETN has more assets than the popular iPath S&P 500 VIX ETN (NYSEArca: VXX).

It appears that traders expect Janet Yellen to soothe the VIX lower and tickle the S&P 500 (SNP: ^GSPC), which moves in the opposite direction of the VIX 80% of the time, higher.

The chart below may explain why traders are VIX bears. 21 – 23 has been formidable resistance for over 18 months (for more details see article below).

The market likes to surprise as many people as possible, and although the strong bearish conviction of VIX traders (bullish for S&P 500) may well be a contrarian signal, similarly lopsided bearish VIX bets in the past ended up profitable more often than not.

If the latest correction is just another 2013-style correction, it likely ended last week (see correlation between VIX highs and S&P 500 lows).

However, any ‘Yellen rally’ would have to overcome and sustain trade above resistance at 1,810 – 1,815, which is comprised of the 20-day SMA, 50-day SMA, and prior high/low resistance.

In addition to the record VIX bets mentioned above, we spotted a record $18 million single bet.

Here’s the bet and why it was a smart move: Record Bet: Traders Sells $18 Million in VIX Calls

Simon Maierhofer is the publisher 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.

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