Simon Says: SPDR S&P Bank ETF (KBE) Gnawing on Key Resistance

The Financial Select Sector SPDR ETF (NYSEArca: XLF) has been leaping from one new recovery high to the next.

But its Wall Street cousin, the SPDR S&P Bank ETF (NYSEArca: KBE), has been stuck in a 12-month trading range.

The chart below plots KBE against XLF. KBE is back at key resistance around 34.

KBE is at an inflection point. Could KBE become the (sector) tail that wags the (broad market) dog?

The December 21 Profit Radar Report showed two S&P 500 projections (one long-term bullish, one short-term bearish) and stated:

“Stocks may hit an inflection point once the S&P 500 and Russell 2000 record new all-time highs. Depending on measures of market breadth at the time, we will either scale down (or protect) our long exposure or add to it.”

The S&P and R2K did hit new all-time highs and are close to their inflection point.

I’m not sure if KBE will be the tail that wags the dog, but KBE confirms that the market should be watched carefully for either acceleration or temporary breakdown.

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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Don’t Fall for This Year-end VIX Trick

It’s the time of year when stocks are expected to rally.

S&P 500 (NYSEArca: SPY) seasonality, based on data going back to 1950, confirms the tendency to end the year on a high note.

At first glance, this looks like a good setup to short the VIX.

Three options to short the VIX are:

• Buy VelocityShares Daily Inverse VIX ETN (NYSEArca: XIV)
• Buy ProShares Short VIX ETF (NYSEArca: SVXY)
• Short iPath S&P 500 VIX ETN (NYSEArca: VXX)

However, S&P 500 strength does not automatically translate into VIX weakness, especially during the final days of the year.

In fact, the VIX tends to rally in late December. The chart below shows that shorting the VIX during the ‘Santa Claus Rally’ period is not the most brilliant of ideas.

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 the Smart Money Buying Oil?

If anyone knows fundamental supply/demand forces, seasonal patterns and the potential for curveballs, it’s commercial traders.

Commercial oil traders work with oil in their day-to-day business. It’s the only commodity they deal with. Commercial traders make up about 60 – 75% of the trading volume in futures markets. That’s why they are considered the smart money.

So, is the smart money buying oil?

The chart below plots the price of crude oil against the net futures positions of commercial traders (as reported by the Commitment of Traders report).

Commercial oil traders are almost always net short as futures are used as hedge against falling prices.

Here are the key takeaways:

1. The smart money reduced short exposure steadily as oil prices tumbled. In itself, that’s good news.
2. However, net short positions fell to an all-time low and are still well below the levels seen at prior oil price trough. That’s not bullish.
3. Although oil prices managed to inch higher last week, commercial traders added to their hedges (red circle). That’s bearish.

Technical analysis shows an improving picture for the Energy Select Sector SPDR ETF (NYSEArca: XLE). Click here for detailed XLE analysis.

But oil ETFs like the United States Oil ETF (NYSEArca: USO) and iPath S&P GSCI Crude Oil ETN (NYSEArca: OIL) have yet to catch their footing.

Commercial oil traders are not yet convinced oil has found a lasting bottom. Unless we know something they don’t, it appears too early to buy.

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.

Why Oil Crash is Unlikely to Trigger Stock Market Crash

Falling oil prices in 2008 led to a stock market meltdown. It’s 2014, and oil prices are crashing again. Will stocks follow the 2008 script? We live in a complex world, and there are a number of correlations that may cause a surprise outcome.

This report was originally published in the December 14 Profit Radar Report:

There is some concern that the drop in oil prices will push stocks into a bear market, similar to what happened in 2008. We live in a complex world, and here are some of the ripple effects caused by falling oil prices. A bear market is not necessarily one of them.

Low Oil Prices = Economic Stimulus

According to the U.S. Energy Information Administration (EIA), the United States consumes about 11.5 billion gallons of gasoline and 567 million barrels of crude oil per month (based on 2013 data).

Since late June, the price of regular gas fell from $3.8/gallon to $2.5/gallon. A $1.30 drop in gas prices translates into a monthly savings of almost $15 billion for U.S. drivers.

Since late June, crude oil prices fell from $107/barrel to $58. A $49 drop in crude oil prices translates into a monthly savings of $28 billion.

Without help from the Federal Reserve, the oil market just delivered an ‘economic stimulus’ that could be valued somewhere around $43 billion a month.

Oil vs S&P 500

This year’s oil price collapse differs from the 2008 collapse relative to the S&P 500 (NYSEArca: SPY). In 2008, the S&P 500 topped before oil did. In fact, the S&P 500 recorded its all-time high in October 2007 and was already down 21% by the time oil topped on July 11, 2008.

In 2014, the S&P 500 recorded new all-time highs five months after oil (NYSEArca: USO) started to decline.

The chart below plots oil against the S&P 500 and shows that falling oil (NYSEArca: OIL) prices are not consistently bearish for stocks.

Falling oil prices after unusual spikes or bubbles (1990 Iraq war, 2008 commodity bubble – red shading) have a bigger effect on stocks than falling oil prices after a periods of consolidation (gray shading).

The 2014 meltdown came after a year of sideways trading. If history can be used as a guide, stocks are likely to hold up despite the oil meltdown.

Oil & the Hindenburg Omen

The ominous Hindenburg Omen showed up multiple times in December. The media has published numerous Hindenburg gloom and doom articles in recent years. The most recent Hindenburg clusters occurred in May/June and August 2013 without effect on stocks.

A number of requirements need to be met to trigger the Omen, one of them is a spike of new NYSE highs and lows.

Declining oil prices sent many energy stocks to new lows. Those new lows contribute to the Hindenburg Omen requirements and the resulting signal.

Oil & the Energy Sector

98% of stocks included in the Energy Select Sector SPDR ETF (XLE) are trading below their 50-day SMA. XLE is extremely oversold. The immediate downside from such on oversold condition is limited. A bounce in energy stocks will serve as tailwind for broad markets. UPDATE: XLE just deliverd the most bullish action since June. Will it stick? More details here: XLE Delivers Promising Rally

According to JP Morgan, oil firms account for 18% of the high yield bond market, which explains the 10% drop in junk bond ETFs like JNK (detailed analysis of JNK is available to Profit Radar Report subscribers).

The rest of the report along with detailed analysis for U.S. stocks and oil is available to subscribers of 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 to get actionable ETF trade ideas delivered for free.

Energy Select Sector SPDR ETF (XLE) Delivers Promising Rally

The Energy Select Sector SPDR ETF (NYSEArca: XLE) lost as much as 28.57% from June to December. Every attempt to go bottom fishing was greeted by further losses.

I was nearly tempted to fish for an oil low in late November, when I wrote that: “Oil failed to make a new low this week, but a marginal new low would likely come with a bullish RSI divergence and the potential for a bottom.”

Two days later (November 28) oil lost 10% in one day and I shared this updated outlook with Profit Radar Report subscribers: “Friday’s 10.4% loss was more than just a ‘marginal new low.’ RSI also confirmed the new price lows. Obviously this decline is stretched, and a rally can develop at any given time, but at this point it’s better to wait for a move back above resistance. The next real support/resistance level doesn’t emerge until around 50, but it appears ambitious to expect oil to drop that far.”

Turns out the $50 target wasn’t all that ambitious after all (actual low for crude oil futures was 53.60). It appears like oil will test the 50 level next year. For now, the Energy Select Sector SPDR ETF (NYSEArca: XLE) chart looks more promising than oil.

The December 10 Profit Radar Report stated that: “XLE is near parallel trend channel support and may bounce, but with lacking evidence of a more permanent low in oil prices, going long XLE is risky. A drop below trend channel support followed by a close above would offer a low-risk buy signal.”

The weekly XLE chart below includes the trend channel (purple lines) along with helpful prior support/resistance levels (dashed gray lines).

XLE dipped below the trend channel last week and closed back above it on Wednesday. This is the first encouraging sign for XLE.

Yesterday’s Profit Radar Report spells out what’s needed next for this fledgling bounce to gain momentum.

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 to get actionable ETF trade ideas delivered for free.

Bulls and Bears Fight Epic Battle in ‘Black Hole’

It’s been an ugly December for the global economy, and many believe it will get worse. However, not all is terrible. There are some positives. Patience may be rewarded as stocks gyrate at a near-term inflection point.

As far as Wall Street is concerned, this may well be the most exciting week of the year.

Wide S&P 500 swings have stretched the 5-day trading range (ATR) to the second highest of the year. All this is happening against a backdrop of imploding oil prices, a Russian ruble crash and cratering junk bonds.

And, by the way, volatility (NYSEArca: VXX) is up too.

Short-term Market Conflict

The market is trading heavy and seems to want to continue lower. However, bullish seasonality may hold back the correction like a leash holds back a wondering dog.

This week is triple witching Friday. Since the CME introduced S&P 500 futures in 1997, the futures finished triple witching week higher 96.8% of the time.

Longer-term Market Conflict

In early December, the Dow Jones (NYSEAra: DIA) reached a significant inflection point.  The December 7 Profit Radar Report warned that: “The Dow Jones nearly tagged resistance at 18,004, increasing the chances of a temporary pullback.”

The chart below, initially featured in the December 7 Profit Radar Report, offers a visual of two long term resistance levels:

1. Trend line resistance going back to May 2011
2. Fibonacci projection resistance going back to 2002

Despite the cantankerous drop from the December 5 highs, the stock market did not display the classic signs of a major market top prior to the reversal.

What is a ‘classic sign of a major market top’? It’s a bearish non-confirmation by an indicator I call ‘secret sauce.’

There is a minor 6-day bearish divergence between the S&P 500 (NYSEArca: SPY) and secret sauce, but prior market tops were preceded by months, not days of divergences  (more details here).

These conflicts caution that the market is in somewhat of a ‘black hole.’ More down side is possible, but the final top doesn’t appear to be in yet. The Russell 2000 (NYSEArca: IWM) may be the canary in the mine, as it find support exactly where it should have. As a simple rule of thumb, only a drop below yesterday’s low will unlock significantly lower price targets.

There’s a fair amount of uncertainty, and all that on FOMC day.

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 to get actionable ETF trade ideas delivered for free.

Small Caps – The December ‘No Guts No Glory’ Trade?

Historically, December is a good month to own small caps. However, the tendency for a nasty mid-month pullback is often overlooked. Will this correction send small caps even lower, or is it a good time to buy?

December has a reputation to be a good month for stocks, but that reputation is taking one on the chin as we speak.

In reality, December sports some seasonal ebbs and flows often ignored. Stocks tend to rally in the first part of the month, correct in the middle and finish strong.

Small caps in particular are subject to this up-down-up pattern. The December 7 Profit Radar Report referred to this tendency when it wrote that:

“Small cap stocks tend to shine in December. History suggests we may see a pullback before the next surge. The green circles mark potential entry levels.”

The updated Russell 2000 chart below includes the green circles mentioned in the December 7 PRR update.

The Russell 2000 in particular and stocks in general fell more than many expected, turning the potential year-end buy signal into a ‘no guts, no glory’ trade.

It certainly takes guts to push the buy button after this nasty sell off. Although seasonality suggests a favorable outcome for small cap buyers, it’s prudent to wait for technicals to confirm the initial stages of a reversal.

The iShares Russell 2000 ETF (NYSEArca: IWM) and Direxion Daily Small Cap Bull 3X ETF (NYSEArca: TNA) are two ways to play strong year-end small cap seasonality.

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 to get actionable ETF trade ideas delivered for free.

S&P 500 Suffers from Lack of Participation

Friday was the first time since October 15 that the S&P 500 displayed a blatant lack of internal deterioration. The ensuing Friday/Monday slump quickly erased three weeks of up side progress.

Sunday’s Profit Radar Report featured the chart below along with the following warning:

“On Friday the S&P 500 reached a new intraday and closing all-time high. The percentage of NYSE stocks above the 50-day SMA did not confirm Friday’s price high. That’s the biggest divergence between price and % of stocks > 50-day SMA since this rally started.

The success of this rally now rests on the shoulders of fewer companies. This doesn’t mean it has to end, but distributing weight on fewer shoulders generally accelerates the process of tiring.”

Near-term support is around 2,040 – 2,030. I’m not yet sure if and how much lower the S&P 500 will drop, but the deeper the correction, the better the next buying opportunity.

It’s worth noting that the % of stocks above their 50-day SMA was the only indicator I follow that actually showed a small bullish divergence at the October 15 low. I’m not sure if this correction will be long enough to create a bullish divergence, but if it does, it shouldn’t be ignored.

For the first time this year, small cap stocks look actually more attractive than large cap stocks. The iShares Russell 2000 ETF (NYSEArca: IWM) has the potential for a bigger year-end pop compared to the SPDR S&P 500 ETF (NYSEArca: SPY).

Continued analysis and buy/sell signals for SPY and IWM will be available to subscribers of the Profit Radar Report.

Recent Profit Radar Report analysis for the Dow Jones is available here: Dow Jones Repelled by 12-year ‘Insider’ Resistance

Recent Profit Radar Report analysis for the Nasdaq-100 is available here: Nasdaq-100 ‘Stuck on an Island’

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 to get actionable ETF trade ideas delivered for free.

Nasdaq-100 ‘Stuck on an Island’

The Nasdaq-100 bars painted a bearish reversal pattern in early December. We’ve just seen the effects of this reversal pattern, but as long as trade remains about this support, there’s no reason to worry.

On December 3, the Profit Radar Report took a closer look at the Nasdaq-100 and stated:

“The Nasdaq-100 bars are painting a picture (almost looking like an island reversal) that’s similar to prior reversal patterns (see blue circles). This is a potential red flag, but unless support at 4,285 and 4,210 is broken, it’s premature to worry.”

The reversal pattern delivered again, like it did a couple of times earlier this year.

Thus far, the Nasdaq-100 found support at 4,216, so there’s no reason to worry.

Support at 4,209 is backed up by 4,180. Only a move below 4,180 may draw trade towards the open chart gaps.

The biggest open chart gap for the QQQ ETF (Nasdaq: QQQ) is at 100.26. We may not get there, but if we were, it likely would be a good buying opportunity. Overall, I expect new highs later this year or early next.

Recent Profit Radar Report analysis for the S&P 500 is available here: S&P 500 Suffers from Lack of Participation

Recent Profit Radar Report analysis for the Dow Jones is available here: Dow Jones Repelled by 12-year ‘Insider’ Resistance

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 to get actionable ETF trade ideas delivered for free.

 

Is Now the Time to Buy Gold and Gold Miners?

Gold was the most hated asset class going into December, especially after Swiss voters rejected a proposal to boost the country’s gold reserves by some 1,500 tons (about 7% of global annual demand). Is this a good ‘blood in the streets’ trade?

Massive. That’s the only way to describe The December 1 overnight reversal of the gold futures (following the Swiss no vote).

In fact, price action painted two giant green candles. One marked the November 7 low, and than there was Sunday’s.

Two trading days before the November 7 low, the Profit Radar Report wrote: “There is a bullish divergence and gold has finally met our long-term down side target. Gold seasonality for November is bullish. Sentiment, seasonality and the bullish technical divergence increase the odds of an upcoming buying opportunity. We will dip our ‘toes in the water’ and buy gold if it dips below 1,130 and moves above 1,140.”

The Profit Radar Report identified the gold trade as one of the biggest opportunities around, and the gold rally was chugging along nicely, until the Swiss gold referendum came along.

Gold futures (chart shown) dropped more than 2% right after Sunday’s (November 30) rejection by Swiss voters. Sunday’s Profit Radar Report was published when futures were down more than 2%, trading near 1,145. It stated:

“Swiss voters rejected proposals Sunday to boost gold reserves. Short-term, the Swiss gold proposal was a lose/lose proposition for gold buyers and an unnecessary cross current for our precious metals trade. As Wednesday’s PRR mentioned, soaring prices following a ‘yes’ vote were a forgone conclusion. When everyone expects a rally, the market usually doesn’t deliver one. A ‘no’ vote on the other hand would obviously be bearish.

A quick drop in gold prices was needed to shock the ‘bullish Swiss vote gold bugs.’  The question is how long of a drop? Initial (kneejerk) reactions following such newsworthy events are often wrong. Gold futures are down another 2% on Sunday.

In terms of technical analysis, the most likely interpretation of this decline is a retracement of the rally from the November 7 low. The chart shows various Fibonacci retracement levels (78.6% = 1,146.70). In terms of Elliott Wave Theory, this pullback looks like a wave 2 correction. The only requirement for a wave 2 is that it can’t exceed the prior extreme (November 7 low). In short, as long as the November 7 low remains unbroken, we are looking for higher gold prices.”

The corresponding entry level for the SPDR Gold Shares ETF (NYSEArca: GLD) was at 111.08 on November 11.

Today, gold busted through red trend line resistance. This trend line can now be used as stop-loss.

What about Gold Miners?

Gold miners tend to respond faster and stronger to rising gold prices than bullion itself. In essence, gold miners are a leveraged play on gold prices.

Friday’s kneejerk reaction offered a low-risk entry for the MarketVectors Gold Miners ETF (NYSEArca: GDX).

Sometimes when a trend line is broken, prices will double back and test the line before peeling away in the direction of the break.

The Profit Radar Report suggested a buy limit order against the green trend line to scoop up GDX in case of a pullback. That’s exactly what happened November 28, courtesy of the kneejerk selloff prior to the Swiss vote.

The actual GDX chart does not look as bullish as the gold chart, but GDX is likely to dance to gold’s beat, not vice versa.

The precious metals trade (which includes silver) is likely just in its infancy and should offer a number of good entry points along the way.

Continuous low-risk, high probability trading opportunities and gold analysis 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 to get actionable ETF trade ideas delivered for free.