Dow Jones Averages Did Not (Yet?) Confirm S&P 500 Highs

The S&P 500 is at new all time highs, and, as the weekly bar chart shows, there’s some room until it hits next resistance.

However, the Dow Jones Industrial Average (NYSEArca: DIA) and Dow Jones Transportation Average (NYSEArca: IYT) failed to surpass their prior highs.

But, the Dow Jones Transportation Average (DJT) managed to close above red trend line resistance (blue circle), which is short-term bullish.

Looking for more stock market analysis? >> Sign up for the FREE iSPYETF e-Newsletter

Viewed in isolation, the S&P 500 (NYSEArca: SPY) breakout is bullish, but it has not yet been confirmed by other major market participants.

The trend is your friend … until it ends. Seasonality suggests a rally pause. Here’s a brand new and detailed S&P 500 seasonality chart.

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 and 17.59% in 2014.

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 Seasonality About to Hit Weak Pocket

Seasonality is not the only force to drive stocks, but it’s one of the indicators I follow. The S&P 500 seasonality chart (for pre-election years) shows four notable weak spots (seasonality is based on 64 years of daily closing prices).

One of them, although not very intimidating, is the second half of February (others are in May, July and October – a full year seasonality chart is available via the Profit Radar Report).

The chart below highlights the February weak spot.

Purely based on seasonality, the S&P 500 (NYSEArca: SPY) is unlikely to follow through on its bullish technical break out, at least not in February.

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 and 17.59% in 2014.

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

Gold Seasonality and Sentiment Turned Frosty

In early November, gold finally reached my down side target and I became a self-proclaimed gold bull, at least for 2015.

After over three years of falling prices (from 1,927 to 1,130) it just felt right to put the bear down for its hibernation and become a bull. In November 2014, at the 1,130 low, the pieces were in place for at least a tradable and perhaps a lasting low:

  1. Gold reached my down side target
  2. There was a bullish RSI divergence
  3. There was a big green reversal candle at the November 7 low
  4. Seasonality was turning temporarily bullish
  5. Sentiment was ripe for a reversal. The ‘smart money’ was bullish and the ‘dumb money’ was bearish

On queue, gold started cruising higher and everything went according to plan … until something odd happened in late January.

 

The January 27 Profit Radar Report noted that commercial traders (smart money) were selling gold at a rapid pace, and published the chart below. The dashed red lines illustrate what happened the last two times commercial traders fled gold.

The chart also included Elliott Wave labels (numbers from 1 – 5). In case you’re not familiar with Elliott Wave Theory, you may find this excerpt from the same Profit Radar Report interesting:

The chart shows that current trade is important from an Elliot Wave perspective. Gold appears to have completed a 3 wave rally. There are now two options:

  1. Gold will trace out a wave 4 correction followed by wave 5 higher. Target for a wave 5 high is around 1,330.

    Longer-term, a complete 5-wave rally will be followed by a corrective decline and at least one more rally leg.

    Shorter-term, a wave 4 correction could become a pain to manage. Waves 4 tend to seesaw over support/resistance levels, therefore using the trend channel support at 1,275 as stop loss could kick us out at the wrong time.

  2. A 3-wave rally is indicative of a correction and would translate into a relapse to new lows. This option is unlikely, but theoretically possible.”

Balancing the potential of long-term gains and short-term risk was a tough call, but my recommendation was as follows:

We can either take our profits and run or commit to endure a potentially painful correction in exchange for further gains. I like to keep things simple and recommend taking profits. Lets cash in gold around 1,295 and GLD around 124.20 for a nice 13.5% gain.”

In addition to bearish sentiment developments, the Profit Radar Report cautioned of weak gold seasonality. The chart below plots the actual price of the SPDR Gold Shares ETF (NYSEArca: GLD) against gold seasonality up until mid-March (a full year gold seasonality chart is available to subscribers of the Profit Radar Report).

It’s hard to ignore the textbook November bottom, but it’s also hard to ignore the January sentiment and seasonality warnings. The risk of more down side is real, and my inner gold bull is set on hibernation mode for now. As per the second Elliott Wave Theory option discussed above, new lows are at least possible.

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 and 17.59% in 2014.

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

Update: Will the S&P 500 Roll Over Again?

I was wrong! I expected the S&P 500 to rally from 1,990 to 2,080 and roll over to new lows. The rally happened, the subsequent reversal did not (at least not yet). Will the S&P 500 roll over later? Here’s an updated S&P 500 forecast.

How quickly things change. Here’s the chart and forecast that now requires a full reevaluation:

February 1 Profit Radar Report: “Near-term support around 1,990 is becoming quite obvious. When support is too obvious, the market may want to fool investors with a seesaw. A drop below 1,990 followed by a reversal and rally towards 2,080 (green projection in chart below) is most likely” (the alternate red projection would only have come into play with sustained trade below 1,990).

The S&P briefly dropped below 1,990 and rallied to 2,080 … and beyond. In fact, there was a new all-time S&P 500 (NYSEArca: SPY) high today.

The new all-time high is in harmony with the longer-term forecast of the January 4 Profit Radar Report: “Based on the ‘secret sauce indicator’, we expect new all-time highs following correction lows” (for the benefit of paying subscribers, I replaced the name of the actual indicator with ‘secret sauce.’ More details about the reliable ‘secret sauce indicator’ is available here).

However, as implied by the original green projection, I expected the S&P 500 to roll over around 2,080 and drop below 1,980.9 (February 2 low) at the minimum. In fact, I would have preferred to see 1,900 for a great buying opportunity.

Obviously the S&P 500 did not roll over around 2,080, but do I still expect new lows?

New Lows?

Below is an updated version of the February 1 chart. The green circles mark bullish touch points. There were other telltale signs along the way hinting at more immediate bullish potential.

The February 6 article – Will New MidCap Highs Propel All Stocks Higher? – noted the new SPDR MidCap ETF (NYSEArca: MDY) all-time highs, the S&P 500 trend line breakout and solid internal market breadth.

The warning given was that: “There’s no room for tunnel vision. Dale Carnegie beautifully illustrated the cost of tunnel vision: ‘Here lies the body of William J., who died maintaining his right away. He was right, dead right as he sped along, but he’s just as dead as if he were wrong. Nobody wants to be William J.

There was also the Nasdaq QQQ ETF (Nasdaq: QQQ) breakout (February 10: Can the Nasdaq QQQ ETF Break out of a Bull Flag Pattern and Rally 10%?).

Will this be Another Extended Rally?

Some short-term indicators are overbought, but RSI confirmed the recent high and the new S&P all-time high is greeted with headlines such as:

  • Robert Shiller’s (depressing) advice for investors – CNBC
  • 7 danger signs of stocks’ coming bear market – MarketWatch

That’s not the kind of optimism indicative of a major top.

The new ATH essentially eliminates the immediate risk of new lows (below 1,980.9). A smaller correction is still possible, but the overall environment is changing towards ‘buy the dip’ … for now.

Continued 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 and 17.59% in 2014.

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

Can the Nasdaq QQQ ETF Break out of a Bull Flag Pattern and Rally 10%?

A bull flag is described as a consolidation period that interrupts a sharp, almost vertical rally. QQQ had a sharp rally from the October low and a pro-longed consolidation period thereafter. The classic bull flag breakout target projects a 10% rally.

The Nasdaq QQQ ETF (Nasdaq: QQQ) chart is simple, but packed with information.

QQQ has been consolidating for 2 ½ months. The consolidation range is defined by a parallel channel with a slant to the down side.

Channel resistance is at 104.  Resistance created by the January 23 and November 29 highs is at 104.58 and 105.25.

There’s also a Fibonacci projection level, going back to the October 2002 low, at 105.29.

I’ve read some articles that describe the channel consolidation as a bull flag.

What is a bull flag?

As the name implies, this pattern looks like a flag. A bull flag represents a digestive period after a sharp rise.

In a bull market, the flag is usually formed with a slight down trend and tends to separate two halves of a steep rally.

If this is indeed a bull flag, a breakout above 104 projects a target around 120.

Stay in the loop, sign up for the FREE iSPYETF Newsletter

Is this a bull flag?

  • Duration: In their technical analysis books, authors Pring, Edwards and Magee state that flags can form for a period as short as 5 days or as long as 3 – 5 weeks. But a formation that lasts longer than 4 weeks should be treated with caution.

    This particular flag pattern is already 10 weeks old.

  • Trading volume: Trading volume should diminish appreciably and constantly during the pattern’s construction and continue to decline until prices break away from it.

    Trading activity dried up in February, but saw significant volume spikes early in the pattern.

In summary, the 10-week long QQQ consolidation pattern looks like a bull flag, but it does not meet the qualifications of a bull flag.

Nevertheless, certain measures of sentiment show above average pessimism for the Nasdaq QQQ ETF, which could support further up side.

Here is a bit more context: The SPDR S&P 500 ETF (NYSEArca: SPY) is gnawing on similar resistance, and the SPDR S&P MidCap 400 ETF (NYSEArca: MDY)  just broke to new all-time highs. The 104 – 106.25 QQQ range appears pretty significant for the next big move.

I’ve taken a pretty bold stand regarding the next S&P 500 move, and am watching the QQQ ETF carefully for clues.

My bold S&P 500 call is available here with the latest update posted here.

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 and 17.59% in 2014.

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

Will New MidCap ETF Highs Propel All Stocks Higher?

Quietly, and in the shadow of it’s more popular and range bound S&P 500 cousin, the SPDR S&P MidCap 400 ETF (NYSEArca: MDY) just soared to new all time highs.

Most market technicians would grade this performance as bullish, and it may well turn out to be bullish.

However, I can’t help but be suspicious. Here’s why:

On February 1, I published the green S&P 500 (NYSEArca: SPY) chart projection for Profit Radar Report subscribers and stated:

“A drop below widely watched support around 1,990 followed by a reversal and rally towards 2,080” is very likely. The red projection would only come into play if trade stayed below 1,990.

Here is an updated look at the green projection. This projection has played out perfectly thus far, and there’s no concrete reason to abandon it.

However, there’s no room for tunnel vision either. Dale Carnegie beautifully illustrated the cost of tunnel vision:

“Here lies the body of William J., who died maintaining his right away. He was right, dead right as he sped along, but he’s just as dead as if he were wrong.”

Nobody wants to be William J.

The SPDR MicCap ETF breakout, when viewed in isolation is bullish.

Even the S&P 500 broke above bold red trend line resistance, which is also bullish.

Internal market breadth has been solid, which would also allow for further strength.

However, from a psychological perspective, a reversal after the S&P 500 breaks out of its recent trading range (blue line), would trip up a great number of investors, which is what Mr. Market likes to do (it did so at the January 22 high, with a ‘gnarly’ MACD signal).

I stated via the February 2 Profit Radar Report that: “Swing traders may be able to scalp a percent or two (or more with leveraged ETFs) by playing this bounce, but I believe the next best opportunity will be to the down side.”

For now I’ll stick with my green projection. The market will probably tell me within the next few days if I’m wrong.

Continuous updates are available for 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 and 17.59% in 2014.

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

Has Oil Bottomed?

Crude oil prices tumbled 60% since last June, but oil rallied 5% or more each of the last three days and closed 20% above last week’s low.

Is oil getting ready to climb higher?

The pieces are in place for a tradable rally.

What pieces?

  • Trade bounced from long-term support
  • Short-term technicals show a bullish divergence
  • Oil seasonality is turning bullish

Long-term Support

The long-term crude oil futures chart shows strong support around 46. Trade tried to wear down support, but ultimately it held.

On January 28, we looked at the broader Reuters/Jefferies CRB Commodity Index (Key Commodity Index at Major Inflection Point May Provide Clues for Oil).

This index was also at key support, which provided a stop-loss for Oil ETFs like the United States Oil ETF (NYSEArca: USO) and iPath Oil ETN (NYSEArca: OIL).

Bullish RSI Divergence

In late January, I was looking for new oil lows with a bullish RSI divergence and stated via the January 25 Profit Radar Report that: “Crude oil futures are now nearing those new lows. RSI is holding up well, setting up another potential inflection point for oil to rally. Seasonality is turning bullish in early February.”

The February 2 Profit Radar Report featured this chart, which shows:

  • A new low with a bullish RSI divergence
  • A break above red trend line resistance

Seasonality

Oil seasonality is turning bullish in February. My seasonality chart is based on 31 years of historical oil price patterns. This seasonal trend is too pronounced to ignore.

Summary

Oil is long-term oversold and short-term overbought. This may cause some short-term wiggles, but based on seasonality oil prices should climb higher.

Next resistance is around 55. A move above 55 should lead to further gains.

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 and 17.59% in 2014.

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