Short-Term S&P 500 Forecast: S&P 500 Bounces from Key Support

On Thursday, the S&P 500 saw the first loss of more than 1% since April 10, 2014. This sell-off stoked the talks about a major correction, but bottom line is that the S&P 500 remains around important short-term support.

On July 8 we used a little known indicator to spot key support for the S&P 500.

This little known indicator (which got some flak on the Yahoo comment board, but proved yet again correct) is a good tool when it comes to identifying the end of a momentum rally.

The indicator is called percentR (don’t shoot the messanger, I didn’t name it).

Never heard of it? That’s because you won’t read about this indicator on CNBC, MarketWatch or Bloomberg. That’s is a good thing. Just recall how many charts and indicators the media has used in recent months to warn of a major crash (too much media coverage spoils any good indicator).

The July 8 Profit Radar Report wrote this about percentR: “The S&P 500 fell to test support at 1,955 and triggered a bullish percentR low-risk entry. This may cause a bounce (perhaps even another stab at all-time highs), but a close below today’s low (1,959) and support at 1,955 would be a small victory for bears.”

The July 13 Profit Radar Report put it this way: “As discussed last week, important short-term support is at 1,959 – 1,955. A close below 1,955 will increase the odds for a deeper correction.”

Here is an updated look at percentR, plotted against the S&P 500, and how it works:

An initial percentR dip below 80 is called a ‘bullish low-risk entry’.

The arrows mark all bullish low-risk entries since May. All seven of them were followed by bounces.

The black circles illustrat failed low-risk entries.

What is a failed low-risk entry? When the S&P 500 (NYSEArca: SPY) closes below the level (daily low) that triggered the low-risk entry (dashed red box).

Here is where it gets interesting: percentR has triggered three low-risk entries since July 8 with daily lows ranging from 1,953 – 1,959. This shows a) that the rally is getting choppy and b) that the 1950 – 1960 level seems significant.

A close below 1,953 would be a failed low-risk entry and an indication that the rally may be over.

The summary section of the July 6 Profit Radar Report still remains valid. It stated:

“Forward looking indicators, such as the SKEW and VIX seasonality, suggest that stocks should soon run into trouble. However, the charts don’t show any weakness yet. S&P 1,980 – 1,985 and psychological resistance at 2,000 should cap any up side, but it will take a move below 1,955 and 1,925 to boost the notion of a correction.”

In the spirit of disclosure, I want to mention that there is one scenario that sees a brief dip below 1,950 followed by a rally to new highs. It would be wicked and fool most of Wall Street (which is exactly how the market likes it).

VIX seasonality is fascinating right now, because the VIX seasonality chart projected a major low on July 9. So Thursday’s 32% one-day VIX spike is no real surprise.

Here’s a detailed look at the VIX seasonality chart and it’s possible implications for the S&P 500.

VIX Seasonality Triggers Major Buy Signal on July 9

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.

4 comments on “Short-Term S&P 500 Forecast: S&P 500 Bounces from Key Support

  1. Herr Ron Koepsell says:

    Simon, congratulations on the “Fater Land” WC win! You are right. I haven’t acquired a taste as I think the poor countries would be better served if the field were cut in half with one goal, put up a mega Walmart in the other half, hire two thousand poor people to work there. And soccer would consist of this: all penalty kicks and the first team to 75 wins. Now that would be exciting!

    I don’t trade gold (gld or slv) but I do trade the miners(gdxj). I think there is a muti-month reverse head and shoulders forming with a price target of $60 to $65. What say you?

    My personal pattern analysis shows the S&P topping at a new high in about a month. But please note that the B-bands are the tightest they have been before the Jan’14 drop so if any of the global situations really explodes, we don’t have a month before a drop.

    Any chance you, on a weekly basis, can throw us a chart with the $NYSE(Common stock only) with a simple Cumulative A-D line underneath? I suspect divergence will be one of the first warning signs to show up.

    • Hello Herr Ron Koepsell – First team to 75 seems to be the mode of any of the rare pick up games I nowadays play in 🙂

      The up side target for GDX seems aggressive, but eventually we may well get there.

      I am working on getting some good chartable NYSE A-D data. You are right about the divergence. We have a small one forming right now. Let’s see if it holds.

      • Herr Ron Koepsell says:

        Simon, my price target was for the GDXJ, not the gdx. So hopefully that’s a probable price target.
        I mentioned to a friend that I wanted to own gold/gold miners if and when the $usd and gold go up at the same time. That would be a big clue that no one trust printed money anymore.

        On a personal note, a week ago I had 10 screws and a six inch plate removed from my ankle and had an artificial ankle put in. One month of non weight baring and then one month of walking cast before physical therapy. UGH!

        I always look forward to all your updates. Enjoy that Del Mar sun.

        Herr Koepsell

      • Sorry, for an inverse HS that sounds like the right target for GDXJ. I’m hoping we’re getting another leg down to buy at lower prices … time will tell. Hope the next month goes by quickly for you. Best, Simon

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