Did the Nasdaq Just Start a Prolonged Head-and Shoulder Decline?

If it looks like a duck, quacks like a duck, and walks like a duck, it’s probably a duck. This could be trouble, because the Nasdaq looks like it’s at the beginning stages of a bearish head-and shoulders pattern.

If it looks like a duck, quacks like a duck, and walks like a duck, it’s probably a duck.

If it looks like a head-and shoulders pattern …

Unlike a duck, a head-and shoulders pattern is never fully confirmed until it’s completed. Nevertheless, the  Nadsaq-100 and Nasdaq Composite (Nasdaq: ^IXIC) charts show a near perfect setup for a head-and shoulders top.

The April 20 Profit Radar Report, which featured a forecast for the week ahead, saw the potential for a head-and shoulders pattern when it wrote that: “Up side looks to be limited. The Nasdaq might be carving out a bearish head-and shoulders pattern.”

As the blue oval highlights, yesterday’s (Thursday) pop carried the Nasdaq right against double resistance, forming a potential right shoulder.

According to technical analysis rules it will take a drop below the neckline at 3,415 to trigger the actual pattern and down side target, but Thursday’s Profit Radar Report published the chart above and noted that: “This is a low-risk setup to go short the Nasdaq-100.”

Continued market forecasts are available via the Profit Radar Report.

Bearish seasonality compounds the potential danger for the Nasdaq and S&P 500. Here’s another revealing chart:

Historic S&P 500 Seasonality is About to Turn Ugly

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.

Apple Deprived Russell 2000 Rejected by Triple Resistance

Thursday was a great day for Apple, an average day for indexes with some exposure to Apple, and a forgettable day for ex-Apple indexes. This raises the question: How strong (or weak) would this week’s market action be without AAPL?

On Thursday the Nasdaq-100 (Nasdaq: QQQ) was up 0.96%, the S&P 500 (NYSEArca: SPY) 0.17%. But the Russell 2000 (NYSEArca: IWM) was down 0.24%.

What’s the common denominator of this fragmented performance?

Apple! AAPL soared 8.20%.

AAPL accounts for 11.78% of the Nasdaq-100, 2.80% of the S&P 500, and zero of the Russell 2000. Thursday was Apple-day. The more Apple, the better.

How would the broader market have fared without Apple’s boost?

One way to find out is to look at the equal weighted Nasdaq-100 ETF (QQEW), which was down 0.01%.

Another way to find out is to look at the Russell 2000, although representing a different market segment (small caps), which is totally Apple free.

The Russell 2000 was rejected by resistance cluster at 1,147, 1,160 and 1,165.

The performance of lesser or non-Apple exposed indexes cautions that the broad market is weaker than it appears.

In fact, the Nasdaq chart shows an immense amount of potentially bearish energy. More details here:

Did the Nasdaq Just Start a Prolonged Head-and Shoulders Decline?

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.

Could Nasdaq VIX ‘Saucer Break down’ Lead to Waterfall Decline?

The Nasdaq VIX is ‘climbing up saucer support.’ This pattern is quite rare, but has some prominent precedents: Silver and gold in 2011 and Apple in 2012. Could a Nasdaq VIX ‘saucer break down’ lead to a similar decline?

When it comes to VIX instruments, the S&P 500 VIX gets all the attention, while the Nasdaq-100 VIX (VXN) is treated like the ugly duckling.

Right now the ‘ugly duckling’ VXN chart looks more interesting than the S&P 500 (NYSEArca: SPY) VIX.

• Since mid-November VXN has been in a steady up trend.
• Since the beginning of the year, VXN is climbing along bowl or saucer-shaped support.
• Resistance at 22-24 has capped every VXN rally.
• From November – March the VXN has rallied alongside the Nasdaq-100 (Nasdaq: QQQ).

In the technical analysis universe, the bowl-shaped support is quite rare and the actual support level is harder to pinpoint than straight trend line support.

Nevertheless, I’ve seen three asset classes ‘climb up the saucer’ before and tumble thereafter. Silver in April 2011, gold in September 2011, and Apple in April 2012 (see chart below).

Gold, silver and Apple climbed up the saucer during the late stages of a bull market frenzy. VXN’s rally has been short and comparatively tame, therefore VXN’s reaction to a saucer breakdown may be much more subdued.

This is one of those formations that doesn’t jibe with the majority of my indicators right now. Most of my indicators are suggesting that risk is rising. The Nasdaq for example may be crafting the right shoulder of a bearish head-and shoulders formation, but a VXN break down would translate into a higher Nasdaq.

Datapoints like this remind us to never be complacent. On April 14, when the S&P was at 1,820, I wrote an article titled “This Might be the Only Bullish S&P 500 Chart Right Now,” and we now know that this chart prevailed over many bearish indicators.

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.

Bi-Polar Investors Dump Stocks on Fear of Bull Market End

Based on a recent poll, investors feel strongly that this bull market is coming to an end (or has already ended). Ironically, this kind of conviction is usually fertile soil for a continuation of bull markets.

All good things come to an end.

What goes up must come down.

Both of those clichés will certainly catch up with this bull market.

In fact, retail investors appear ready to bury the bull right now and slap an RIP sign on it.

Based on the latest AAII (American Association of Individual Investors) poll, not even a complimentary 9-foot pole would entice retail investors to ‘touch’ stocks.

The chart below plots the percentage of bullish investors polled by AAII against the S&P 500.

Last week only 27.22% of polled retailed investors were bullish on stocks (red line).

That’s unusual considering that the S&P 500 (NYSEArca: SPY) is still within a few percent of its all-time high.

The AAII poll is not the only sentiment gauge around. In my humble opinion it is actually one of the most volatile and least accurate gauges. Nevertheless, ignoring it would be as shortsighted as elevating it to a fail proof indicator (the Profit Radar Report publishes a full panel of sentiment gauges once a month).

The simple truth is this: Nobody rings a bell on the top. Major peaks come as a surprise and a top right now would be the first one in history to be foreseen by retail investors.

Don’t get me wrong, I believe the S&P 500 and cohorts are due for a correction, but bulls will continue to torture bears.

One of those ‘torture instruments’ may be new all-time highs (followed by a correction?). One exotic technical indicator that suggested a bounce at S&P 1,814 points towards new all-time highs.

You can read about it here, along with a short-term forecast for the S&P 500:

S&P 500 Short-Term Analysis – This is the Bear’s Last Chance

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.

S&P 500 Short-Term Analysis: The Bears’ Last Chance is Now

Stock market bears had a ‘do or die’ chance to take the market lower, possibly much lower, … but they fumbled it. Now bears are back in a dark corner and need to take a stand almost immediately to avoid new all-time highs.

When the going gets tough, the tough get going.

This can’t be said for stock market bears right now. When presented with a chance to push stocks lower, bears cave under pressure and fail to ‘grab the bull by its horns’.

Earlier this week bears had such a chance to knock the bulls off their throne (at least temporarily) and unlock significantly lower price targets, but they didn’t.

Like in a competitive sports game (imagine football, soccer, tennis, etc.) there’s often one pivotal moment – one missed chance – that turns the game.

The bears had such a chance at S&P 1,814 on April 14.

The April 13 Profit Radar Report published this chart (see above) and commented:

“The hourly chart reveals a new short-term parallel channel with support at 1,814 and resistance around 1,850. Going short right now comes with a fair shot of whipsaw risk. A lower risk set up will be to go short if the S&P 500 bounces to 1,850.”

Why was 1,814 so pivotal?

1) It was a confluence of technical support levels (trend channel support, Fibonacci support, and supply/demand support created by November/December highs and lows).

2) Based on Elliott Wave Theory (EWT), the S&P declined in only 3 waves (from April 4 high to April 11 low).

Admittedly, EWT is one of the more exotic tools in our technical analysis toolbox, but it can be helpful. A 3-wave move suggests that the larger trend (which is up) is still in tact.

That’s why the April 15 Profit Radar Report (when this special intraday report was published, at 9:30 am PST, the S&P traded at 1,820) wrote that: “As long as trade remains above 1,814.36, bulls could still make a stick save.”

Quite frankly, I thought that bears would take care of business this time. But what the charts say is so much more important than what I think.

What about the April 13 suggestion to go short at 1,850? A special April 15 evening  Profit Radar Report warned of a gap up open and stated:

“If the S&P 500 (NYSEArca: SPY) gaps higher in the morning, we will wait for trade to drop below 1,840 to go short.”

As the updated S&P 500 chart shows, the S&P gapped above the channel and never triggered a short signal.

As the headline brings out, bears need to make a stand almost immediately; otherwise new all-time highs are possible, even likely.

The key resistance level, that once broken, should lead to new all-time highs and a more detailed short-term forecast is 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.

Best Day of the Week Captures 75x S&P 500 YTD Gains

Mirror mirror on the wall, which is the fairest day of all? A curious statistic shows that the strongest day of the week captured 75x the 2014 S&P 500 gain. While this may be a nuisance stat, there’s also a more helpful one.

Here’s an interesting off the wall factoid:

Trading at 1,850, the S&P 500 is up 0.09% year-to-date (YTD).

If Wall Street were only open on Tuesdays, the YTD S&P 500 (NYSEArca: SPY) gain would be 6.80%. In 2014, Tuesday is the only profitable day of the year.

The first chart shows the S&P 500’s YTD performance in daily bars and percentage.

The second chart shows the S&P 500’s performance by day of week.

Why do Tuesdays hog all of the gains? Who knows?

We do know that this is a 2014 phenomenon. Historically, Wednesday is the best day of the week (by a small margin) and Monday by far the worst day of the week (based on data going back to 1952).

I would categorize this anomaly as curious, not predictive.

But there are other incredibly helpful patterns.

For example, historical price action shows strong bearish seasonal forces arriving in April.

Here’s an S&P 500 seasonality chart that shows seasonality dropping off a cliff:

Historic S&P 500 Seasonality is About to Turn Ugly (hint: look at date of article)

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.

Two Inversely Correlated Asset Classes Provide Lifeline and Noose for S&P 500

U.S. equities are part of an intricate global financial ‘ecosystem.’ They do not trade in a vacuum. As part of something bigger, U.S. equities are subject to certain correlations, which provide clues about U.S. stocks’ next move.

U.S. stocks do not trade in a vacuum; they are part of an intricate ‘ecosystem’ of worldwide financial markets.

As with any ecosystem, financial markets adhere to the ‘cause and effect’ principle.

Just like there’s a correlation between birds of prey and the mice population or bees and pollination, there are correlations between specific financial markets (some are directly correlated, others are inversely correlated).

Understanding market correlations/connections can be helpful in forecasting stock market movements.

Some of those financial ecosystem correlations are:

1. U.S. stocks (or S&P 500) and the Japanese yen
2. U.S. stocks (or S&P 500) and U.S. Treasuries

S&P 500 vs Japanese Yen

Due to the carry trade, the yen has become an important force for the S&P 500.

As part of the yen carry trade, U.S. investors borrow yen to buy U.S. stocks. The yen can be borrowed cheaply and U.S. stocks have delivered juicy returns in recent years.

Courtesy of Japan’s Prime Minister Shinzo Abe, a falling yen makes paying back the yen even cheaper and has made the carry trade even more attractive.

A rising yen would have the opposite effect on U.S. stocks.

The Japanese Yen Futures chart below shows the yen butting against double trend line resistance and the 200-day SMA.

S&P 500 vs 30-Year Treasuries

Bond investors have a reputation to be smarter than stock investors. I like to monitor 30-year Treasury bond prices (corresponding Treasury ETF: TLT) as they tend to have an inverse correlation to the S&P 500.

On April 2, 30-year Treasury prices found support at the green trend line. The April 2 Profit Radar Report stated that: “30-year Treasuries have reached near-term support. Prices tend to respond to such trend lines, so a bounce is possible. A bounce for Treasuries would provide headwinds for higher stock prices.”

30-year Treasury Futures bounced from support and now trade above double trend line resistance. This bullish breakout (assuming it sticks), suggests lower prices for U.S. stocks.

Although those charts don’t tell us the up side potential for the yen and Treasuries (or down side risk for the S&P 500), they do tell us that we are at a pivotal point in time.

The S&P 500 (NYSEArca: SPY) chart confirms the message of yen and Treasuries and provides clear ‘points of ruin’ or must hold support levels.

Here is the most important near-term support level:

Don’t Get Fooled by This S&P 500 Bounce

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.

This Might Be the Only Bullish S&P 500 Chart Right Now

Last week’s decline has turned many short-term trend following and technical indicators bearish. There’s little evidence for an immediate bottom, aside from this one chart (which has an impressive track record):

A one-week decline doesn’t wipe out a five-year bull market, but it can ruffle some bullish feathers. That’s exactly what happened last week.

Aside from this chart, few indicators suggest an immediate end to stocks new-found attraction for lower prices.

The chart plots the S&P 500 against the VIX:VXV ratio.

The VIX (NYSEArca: VXX) is a gauge of expected volatility for the next month.

The VXV is a gauge of expected volatility for the next three months.

We’ve previously dubbed this the ‘Incredible VIX Market Bottom Indicator,’ because prior readings above 1 (= expected 1-month volatility > 3-month volatility) have coincided with every S&P 500 bottom since 2012.

Now, once again, the VIX:VXV ratio has spiked above 1.

This is good news if the S&P (NYSEArca: SPY) follows the bullish 2013 pattern, but not every year can be like 2013 (I personally think we might see another VIX:VXV hook higher like in February – green circle).

There’s another, even better, explanation why stocks rallied today (and whether this is a ‘real’ or ‘fake’ bounce. More details here:

Don’t Get Fooled by S&P 500 Bounce

There are two potent reasons why this VIX spike may not have the same results now as it did in 2013. More details here:

MACD Triggers the Year’s Most Infamous Sell Signal (make sure to look at date of article)

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.

Don’t Get Fooled by This S&P 500 Bounce

After a dismal week stocks are up nearly 1% today. This could be a ‘dead cat bounce’ or – as we’ve seen so often lately – the beginning of another rally leg. Here’s one way to tell whether today’s bounce is ‘real’ or not.

I’ve been writing a lot about the power of long-term trend channels. One of them pegged the S&P’s April 4 all-time high (more details below).

Today we’ll take a look at two short-term channels. One of them explains today’s bounce and will likely tell us if it’s ‘fake or real.’

The blue channel contained the S&P 500 from February 5 until it broke below it on April 5 (red dot).

The S&P 500 tested this trend line once more on April 10. Regarding such a back test, I wrote the following in the April 9 Profit Radar Report.

“Often when a trend line is broken, prices will double back and test the line before peeling away in the direction of the break. I’ve seen this scenario play out many times, but for it to work (in this case a sell signal), the test of the trend line (at 1,872) has to be quick” (orange dot).

From there, the S&P 500 transitions from the blue channel into the black channel.

Sunday’s Profit Radar Report stated that the black channel: “Reveals support at Friday’s close (1,814 – green dot) and resistance around 1,834 (dashed centerline) and 1,850.”

Today the S&P 500 (NYSEArca: SPY) bounced to test the dashed centerline at 1,834.

The down trend remains in tact as long as trade stays within the channel. A move outside the channel would warn of higher prices.

What about the long-term channel mentioned above?

It almost acts like a ‘puppet master’ for the S&P 500. More details on where this channel is located and how it helps investors make future decisions can be found here:

How S&P 500 ‘Puppet Master’ Covertly Pulls Strings

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.

How S&P 500 ‘Puppet Master’ Covertly Pulls Strings

Many believe the market is rigged as high frequency trading (HFT) and the Federal Reserve have become major driving forces. However, there is another age old ‘force’ that often pulls the strings in plain sight, yet undetected by many.

A puppet master is a person, group or force that covertly controls a matter. Wielding this kind of covert power is also known as pulling the strings behind the scenes.

We know that the Federal Reserve is openly pulling strings, but that’s not what this article about.

It’s about a different kind of ‘force’ that drives the S&P 500. It doesn’t drive the S&P 500 every single day, but often enough to be considered a valid force.

To recognize, oust, and ultimately profit from this force, please join me in a little experiment.

Experiment: Stage 1 (do not peek)

Below is a chart of the S&P 500. Please take a moment to look at the chart and see if you can observe certain patterns (do not peek ahead to the second chart).

Experiment: Stage 2

Below is the same chart with three very simple annotations.

1. A blue trend channel going back to the March 2009 low.
2. A black trend channel going back to the October 2011 low.
3. Fibonacci projection (red line) going back to the March 2009 low.

Please keep in mind that I didn’t create those lines. The market did. I only connected the dots.

Experiment: Stage 3

The third chart shows the same two channels and Fibonacci resistance, but shows daily bars to allow for a closer examination of the more recent price action.

Here is what we see:

1. The S&P 500 was repelled by the black channel in January, March and April (red dots).
   On April 2 (green arrow), the S&P 500 staged a technical breakout to new all-time highs, but the Profit Radar Report pointed out resistance at 1,898 (created by a short-term channel) and 1,900 and warned that this looked like a false breakout.
2. The S&P 500 found support around the blue channel three times in March and April (green dots).
3. The S&P 500 (NYSEArca: SPY) essentially treaded water in an expanding range wedge created by two powerful long-term trend channels.
4. Yesterday, the S&P 500 sliced below the blue channel. Support is like thin ice, if broken it gets investors wet. Trend lines like that make great guidelines for stop-loss levels.

Please Mock Me

Usually when I write articles about trend lines, readers post comments like this one:

“More BS from the techies. I can take any chart and draw these lines and call it a trend.”

Ironically, those kinds of comments are a good sign. A puppet master ousted as puppet master is no longer able to covertly influence others.

In order for trend lines to continue working, there need to be enough doubters, mockers, hecklers, and investors simply unaware of the power of this simple tool.

So please, go ahead and disregard trend channels and allow the rest of us to enjoy their full benefit.

Even before the channel was broken, a number of indicators suggested lower prices. The April 7 Profit Radar Report reported an MACD sell signal and bearish seasonality and concluded that:

“Today’s decline looks like an important building block for a multi-week bearish structure.”

We’ve all heard about MACD, but this particular MACD signal is especially unique and potent. The reason why it’s discussed here:

MACD Triggers the Year’s Most Infamous Sell 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.