Nasdaq VIX Soars to 5-Year Extreme

Investors may not be aware that there is a VIX volatility index that measures expected volatility (and fear) for the Nasdaq-100. Currently, investors fear a Nasdaq breakdown much more than an S&P 500 breakdown. In fact, fear is at a 5-year extreme.

Here’s an intriguing phenomenon: Since March 14, the S&P 500 VIX (Chicago Options: ^VIX) dropped 19.1%. The Nasdaq-100 VIX (VXN) lost only 4.2% (see first chart).

Since March 19, the S&P 500 VIX is down 4.7%, while the Nasdaq-100 VIX is up 11.5%.

Just like the S&P 500 VIX, the Nasdaq VIX is a measure of expected near-term volatility.

This short-term divergence suggests that investors are more concerned about a possible Nasdaq (Nasdaq: ^IXIC) breakdown than an S&P 500 (NYSEArca: SPY) breakdown.

But is this diverging of expected volatility significant?

To make the divergence between the VIX and VXN easier to visualize I’ve calculated the VXN/VIX ratio.

The VXN/VIX ratio just spiked to 1.26, the highest reading in 2014 and 2013. In fact, 1.26 is a 5 ½-year high.

We haven’t seen too many extremes in the past few weeks, so I wanted to see what effect large VXN/VIX spikes (basically a ‘risk off’ signal) have on the S&P 500 (and Nasdaq).

The conclusion is quite enlightening. A chart plotting the VXN/VIX ratio against the S&P 500 (going all the way back to 2006) along with what it means for stocks going forward was featured in yesterday’s Profit Radar Report.

A more detailed short-term forecast is available here (for free): S&P 500 Short-term Outlook

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.

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Short-term S&P 500 Outlook

Up then down and making everybody frown. That’s been the stock market’s pattern since the beginning of the year. As the worst week of the first quarter is coming to an end, we’ll venture a short-term S&P 500 outlook.

This is probably the messiest S&P 500 chart I’ve ever published, but it conveys two very important points:

The stock market’s action has been messy. The S&P 500 (SNP: ^GSPC) chart shows a lot of overlap along with false breakouts and false breakdowns. This has created a lot of technical support (and resistance) levels.
There are two support clusters. The first support cluster is around 1,825 – 1,840. The second support cluster is around 1,790 – 1,810.

The March 21 rally was the most recent fake breakout (red arrow). Morning trade pushed the S&P 500 to a new all-time high, followed by persistent selling.

A special March 21 morning Profit Radar Report update warned that: “One Elliott Wave count allows for a fake out breakout, followed by a drop lower. Today is Triple Witching. The S&P 500 (NYSEArca: SPY) closed lower on Triple Witching day 71% and the week after Triple Witching 66% of the time.”

This particular ‘Elliott Wave count’ mentioned in the March 21 Profit Radar Report projects lower prices, but the S&P 500 will have to move below the 1,840 support cluster to unlock lower targets.

For the last few days, the Russell 2000 has been our ‘canary in the mine.’ The Russell 2000 captured our first down side target yesterday (view article here: Russell 2000 Captures First Down side Target). As always, when a target is reached, there’s an above average chance of a reversal.

S&P 500 resistance is at 1,866 – 1,870.

For now the S&P 500 is stuck in ‘technical purgatory.’

Various indicators suggest new all-time highs eventually. The question is whether we’ll see a deeper correction before that.

Continuous updates are available via the Profit Radar 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.

 

Beware of False TLT Treasury ETF Breakout (and S&P 500 breakdown)

The long-term Treasury ETF (TLT) just saw a technical breakout above resistance. This is bullish for TLT (and bearish for stocks), but it may be a premature fake out. Here’s how to get confirmation for a real Treasury breakout.

A number of technical analysts believe to have identified a bullish technical breakout for the iShares 20+ Year Treasury ETF (NYSEArca: TLT).

The TLT Treasury ETF chart below highlights Thursday’s breakout (green bubble).

At first glance, TLT’s push above resistance qualifies as a breakout.

As great as ETFs are, I personally prefer to use the purest representation of an asset class as a foundation for my analysis. For long-term Treasuries, that’s the 30-year Treasury Futures (/ZB).

The 30-year Treasury Futures chart looks slightly different. Trade has not yet broken above resistance.

Both charts include all (trend line) support/resistance levels and how prices reacted (blue bubbles).

TLT has been more prone to false breakouts or breakdowns than futures.

This doesn’t mean 30-year Treasury futures won’t break out. Bullish TLT action may act as a magnet and pull prices higher. The prudent approach is to wait until futures confirm TLT (especially sinse TLT’s breakout didn’t occur on highly elevated volume).

The action of Treasuries may also provide important clues for the S&P 500 (SNP: ^GSPC). The S&P 500 has been stuck in a rut for all of 2014 and a Treasury breakout may coincide with an S&P 500 breakdown.

Just as Treasuries have to confirm a bullish breakout, the S&P 500 has yet to confirm a break down.

This following article features the messiest S&P 500 chart I’ve ever published. But ironically it may explain the stock market’s up-and down better than any other chart:

Short-Term S&P 500 Forecast

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.

Russell 2000 Slices Below Triple Support and Captures First Target

The Russell 2000 chart provides a very unique glimpse at the market’s structure and how past performance may influence future price action. Here’s a closer look at the Russell and its effect on the broader market.

The Russell 2000 chart brings meaning to the term ‘stair-stepping higher.’

The Russell 2000 (NYSEArca: IWM) has been moving higher one leg at a time within a well-defined trend channel for over a year.

As highlighted yesterday in the Profit Radar Report, the Russell 2000 sliced below triple support and continued lower today until it hit support and captured the first down side target.

Unlike the Russell 2000, the S&P 500 closed within its trading range yesterday.

The S&P 500 (SNP: ^GSPC) chart below shows the S&P 500 as of yesterday’s close.

Yesterday’s Profit Radar Report proposed that: “Although the S&P 500 and Dow Jones remain above short-term support, the deterioration of higher beta indexes (Russell 2000 and Nasdaq) hint at more down side also for the S&P and Dow.”

How much more down side?

Here’s where the stair-step ascent makes pinpointing a down side target tricky.

Every prior high and prior low may serve as support and spark a rally.

The Profit Radar Report monitors technicals, seasonality, and sentiment to identify high probability support levels.

A closer look at seasonality is available here:

The Most Bearish Week of Q1 is Almost Over – What about April?

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.

Is Investor Sentiment Bullish Enough for a Major Market Top?

The QE bull market is now over five years old. According to some, its recent structure also resembles the 1928 ‘last gasp’ before the Great Depression hit. There’s reason to look for a correction, but is sentiment bullish enough for a major top.

Excessive optimism is generally bad news for stocks. That’s why sentiment analysis can be a helpful tool in spotting (major) market tops.

There’ve been a number of commentaries suggesting an impending bear market (either because today’s market allegedly mimics the 1928 market or simply because this QE bull is getting old).

Does investor sentiment point towards a major top?

The Profit Radar Report always looks at the ‘3 pillars of market forecasting.’ 1) Technical analysis 2) Sentiment analysis 3) Seasonality & cycles.

The below chart was featured in the March 20 Profit Radar Report and plots the S&P 500 (SNP: ^GSPC) against five measures of sentiment:

VIX
CBOE Equity Put/Call Ratio
CBOE SKEW
% of Bullish Advisors (II)
% of Bullish Investors (AAII)

We saw a number of sentiment extremes in December and January.

In fact, the December 20, 2013 Profit Radar Report looked at the same gauges and suspected that: “Bullish sentiment will catch up with stocks in January. This should cause a deeper, but also temporary correction.”

That correction came and left. It also reset sentiment. There are no extremes, at least not the kind that point towards a major S&P 500 top.

Seemingly Minor, But Intriguing

However, the green lines highlight an intriguing divergence between the S&P 500 (NYSEArca: SPY) and VIX.

Normally the S&P and VIX move in opposite directions. But since mid-February they’ve moved in the same direction. This is unusual and unsustainable. Either the VIX or S&P 500 has to break down to restore the historic correlation.

There’ve been two recent cases where the S&P and VIX moved in the same direction. Both had the same outcome.

More details here (this is a free excerpt of the Profit Radar Report):

VIX and S&P 500 Sport Bearish (for S&P) Divergence

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.

Read more at http://www.ispyetf.com/view_article.php?slug=Is_Investor_Sentiment_Bullish_Enough_for_a_Major_M&ID=398#Y5ypUBBlshO1LPTH.99

The Most Bearish Week of Q1 is Almost Over – What about April?

This is a good news, bad news kind of scenario. The bad news: The last week of March is one of the worst weeks (seasonally speaking) of the first quarter. The good news: The worst week is almost over. Now what?

‘Triple Witching’ (when stock options, stock index options and stock index futures expire) is often a turning point for stocks.

This was the case again this year. The March 21 Profit Radar Report pointed out that: “The S&P 500 closed lower on Triple Witching day 15 out of 21 years (71%). The week after Triple Witching ended with a loss 14 out of 21 years (66%).”

This statistic is based on the performance of the S&P 500 tracking ETF (NYSEArca: SPY) since its inception in 1993.

Looking at seasonality, based on the S&P 500 since 1950, paints the same picture.

The chart below shows S&P 500 seasonality based on:

Every year since 1950
Every midterm presidential election year since 1950
Every midterm year since 1950 with a democratic president
All three seasonalities show pronounced weakness in late March.

What’s in store for April?

A full 2014 seasonality calendar is available to subscribers of the Profit Radar Report, but here’s a look at an index that sports a real unique telling pattern.

Russell 2000 Slices Below Support and Captures First Target

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.

 

Insiders Expect Higher Copper Prices

Here’s a myth that just won’t die: As copper goes, so goes the economy. For those who believe that’s true, there’s hope. Insiders have rarely been as motivated to own copper. Here’s what it means for copper prices and stocks.

“Copper awaits further decline on global economic worries” was one of many copper-related headlines on and around March 18.

Financial reporting makes it appear as if anything ‘Dr. Copper’ does has either an effect on the economy or the S&P 500.

We’ll show later that this isn’t the case, but there’s hope for all the ‘sell everything because copper is down’ doomsday sayers. Why?

Because the smart money is gobbling up copper.

The chart below plots copper prices against the number of copper futures contracts held by commercial hedgers (data source: Commitment of Traders Report – COT).

Commercial hedgers include copper miners and distributors. They are considered the ‘smart money’ because they are actually involved in the copper trade.

Commercial hedgers have rarely shown more desire to own copper.

That should be good for copper prices, as long as support holds.

What does this mean for stocks in general and the S&P 500 (SNP: ^GSPC) in particular?

Here is a detailed analysis of the correlation between the S&P 500 (NYSEArca: SPY) and copper, along with an important near-term support level for copper: Is Copper Really a Leading Indicator for the S&P 500?

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.

Is Investor Sentiment Bullish Enough for a Major Market Top?

The QE bull market is now over five years old. According to some, its recent structure also resembles the 1928 ‘last gasp’ before the Great Depression hit. There’s reason to look for a correction, but is sentiment bullish enough for a major top.

Excessive optimism is generally bad news for stocks. That’s why sentiment analysis can be a helpful tool in spotting (major) market tops.

There’ve been a number of commentaries suggesting an impending bear market (either because today’s market allegedly mimics the 1928 market or simply because this QE bull is getting old).

Does investor sentiment point towards a major top?

The Profit Radar Report always looks at the ‘3 pillars of market forecasting.’ 1) Technical analysis 2) Sentiment analysis 3) Seasonality & cycles.

The below chart was featured in the March 20 Profit Radar Report and plots the S&P 500 against five measures of sentiment:

 

 

VIX
CBOE Equity Put/Call Ratio
CBOE SKEW
% of Bullish Advisors (II)
% of Bullish Investors (AAII)

 

We saw a number of sentiment extremes in December and January.

 

In fact, the December 20, 2013 Profit Radar Report looked at the same gauges and suspected that: “Bullish sentiment will catch up with stocks in January. This should cause a deeper, but also temporary correction.”

 

That correction came and left. It also reset sentiment. There are no extremes, at least not the kind that point towards a major S&P 500 top.

 

Seemingly Minor, But Intriguing

 

However, the green lines highlight an intriguing divergence between the S&P 500 (NYSEArca: SPY) and VIX.

 

Normally the S&P and VIX move in opposite directions. But since mid-February they’ve moved in the same direction. This is unusual and unsustainable. Either the VIX or S&P 500 has to break down to restore the historic correlation.

 

There’ve been two recent cases where the S&P and VIX moved in the same direction. Both had the same outcome.

 

More details here (this is a free excerpt of the Profit Radar Report):

 

VIX and S&P 500 Sport Bearish (for S&P) Divergence

 

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.

 

 

VIX and S&P 500 Sport Bearish (for S&P) Divergence

Some things are just supposed to be opposites: Night or day, black or white, wet or dry, hot or cold. Here’s another one: S&P 500 and VIX. When the S&P goes up, the VIX is supposed to go down, but not lately. Something’s gotta give?

The VIX  generally moves in the opposite direction as the S&P 500 (SNP: ^GSPC).

However, since mid-February the VIX and S&P 500 have been moving higher concurrently. This is unusual and something’s gotta give.

Either the VIX or the S&P 500 will have to break down. Which one will it be?

The March 20 Profit Radar Report featured the chart above along with the following observation:

“There were only two recent instances where the S&P and VIX moved higher concurrently for longer than a week or two. Both led to a small decline followed by a resumption of the rally.”

Today’s dip is a step towards restoring the historic correlation between the VIX and S&P.

Another piece of analysis – in fact, this is probably the most rudimentary approach to price analysis – also suggests a bit more pain ahead for stocks.

More details here: The Most Basic S&P 500 Indicator Turns ‘Red’

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.

The Most Basic S&P 500 Indicator Turns ‘Red’

The market is been downright gnarly. Today’s performance shows once again the stock market’s #1 goal: Separate as many investors as possible from their money. Here’s how the market did it and how it could have been avoided.

Driven by financials, the S&P 500 was the only major U.S. index to see a new high today. The Dow Jones, Nasdaq and Russell 2000 were unable to overcome their previous high watermarks.

Today’s lonesome S&P 500 all-time high (ATH) was a bull trap (at least for the short-term).

Reason enough to take a closer look at the S&P 500, in particular the SPDR S&P 500 ETF (NYSEArca: SPY).

The stock market has crushed some of the most commonly referred to tall tale signs.

How did gnarly Mr. Market fool much of Wall Street? (see chart for corresponding numbers)

1) January 23, 24 saw a high volume sell off below the 20-day SMA and the prior ATH. This was bearish (as technical analysis 101 suggests) and resulted in marginally lower prices.

2) On February 11, the S&P 500 rallied back above the 20-day SMA and prior support (now resistance) on much lower volume.

Basic volume analysis would have suggested that such an anemic move will sooner peter out, but a few weeks later the S&P traded 4% higher.

3) On March 13, 14 the S&P once again sliced below the 20-day SMA and the prior ATH on elevated trading volume. Like in January, textbook analysis would point to lower prices.

Since than, the SPY ETF has rallied on low volume and declined on high volume. This is normally bearish.

4) Today’s the S&P spiked to new ATH’s, by many considered a technical breakout.

But this didn’t last long. In fact, today’s selloff created an ominous red candle high.

In a special early morning update, the Profit Radar Report warned that:

“From a purely technical point of view, this morning’s intraday all-time high is bullish and suggests higher prices. However, there is at least one Elliott Wave count allowing for a fake out breakout, followed by a drop lower. Today is also Triple Witching. Stocks close lower on Triple Witching 71% of the time.”

The recommendation given by the Profit Radar Report was to go long only after a move above 1,885 for the S&P 500 (today’s high was 1,883.97).

What’s next?

The S&P 500 and SPY ETF found support at a trend line going back to February 5.

Unbeknownst to many, March Triple Witching also has a longer-term bearish seasonality. This may well draw stocks lower if support fails.

Historical Fact: March Triple Witching Sends S&P 500 Lower

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.