Spike in Selling Climaxes Leads to S&P 500 Reversal Week

There were 105 S&P 500 selling climaxes last week. This means that 105 of the 500 S&P stocks (21%) dropped to new 52-week lows, but bounced back to end the week with a gain.

Selling climaxes are considered a sign of accumulation as ‘strong hands’ buy the stocks offered for sale by ‘weak hands.’

The S&P 500 Index itself also saw a selling climax. The chart below highlights all weekly reversals (not all of them led to 52-week lows) since mid-2013. All but one (August 24, 2015) were followed by at least another week of gains.

The weekly bar chart also shows that the S&P 500 reached (and exceeded) the minimum down side target at 1,848.77 and the October 2014 low at 1,820.66.

The January 18 Profit Radar Report proposed that a break below S&P 1,870 would lead to a swift drop to 1,820, but listed five reasons why stocks should bounce thereafter.

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With the minimum down side target(s) met, the odds of a bounce or more lasting low have increased.

It remains to be seen whether this bounce will stick or eventually (perhaps after weeks of chopping around) roll over.

A break below 1,812 would unlock the next down side targets. Such a break, if it does occur, would probably set up a better buying opportunity (assuming there will be a number of bullish divergences).

Continued updates and analysis are provided 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.

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Some Investor Sentiment Gauges Reach Panic Levels

For the fourth time since October 2014, the S&P 500 is testing the mid-1,800s.

That’s right about where investors threw in the towel before, and with regret watched the S&P move higher.

Will it be the same this time around?

The chart below plots the S&P 500 against the CBOE Equity put/call ratio, the percentage of bullish advisors and newsletter-writing colleagues polled by Investors Intelligence (II), and the percentage of bullish retail investors (polled by the American Association for Individual Investors – AAII).

As a composite, those three groups are about as bearish as they were near prior S&P lows. In fact, the CBOE Equity put/call ratio soared to a multi-year high on Friday, and the percentage of bullish investors is at a 10-year low.

Investor sentiment suggests that stocks are ripe for a rally, but this would be the fourth time the S&P is following the same script (bounce in the 1,800s). Is it time for a curveball?

The January 19 Profit Radar Report warned that a break below support at 1,870 would result in a quick drop to 1,820 and provided a long-term perspective on the S&P 500 (has a major market top been struck or not?) along with a short-term 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 and 17.59% in 2014.

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S&P 500 Forecast – Crash Wave Update

To put it mildly, U.S. stocks have been in a severe funk since December 29.

How low can stocks go?

We are dealing with a stock market rogue wave. By nature, rogue waves are unpredictable freak waves. Nevertheless, they occur often enough to discern certain rogue wave patterns.

The January 10 Profit Radar Report Pointed out that: “The S&P is nearing the next support zone and our down side target. The next support and inflection zone for a bounce is 1,895 – 1,870.”

The January 13 Profit Radar Report shared this chart and commentary, illustrating the most likely outcome:

“The chart below plots the S&P 500 against the CBOE Equity Put/Call ratio (dark blue) and the VIX (light blue). We are not quite seeing the same panic readings as in August, but we’re reasonably close. It’s worth noting that there is a small bullish divergence (green circles) between the S&P 500 (which dropped to a new low) and the VIX and p/c ratio (which did not reach new extremes).

Upon completion, rogue waves tend to be followed by either 1) A snap back rally (dashed yellow projection) or 2) A choppy bounce, another low, and then a snap back rally (solid yellow projection).

The August meltdown (black circle) was followed by a hybrid of the above two scenarios. Rogue waves don’t follow rules and may extend further than anticipated, however, based on nearby support at 1,890 – 1,870, this decline could be near its termination point (or already over).”

At this point in time, the S&P is enjoying the biggest intraday gain of the year. Now we’ll have to see if it follows the dashed or solid yellow projection more closely.

For continuous updates and hand-crafted out-of-the-box research, test drive the Profit Radar Report and become the best-informed investor you know.

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.

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VIX is Following 2014/2015 Pattern

The December 13, 2015 Profit Radar Report first suggested that the VIX is following a pattern last seen in December 2014.

The blue circles below highlight this correlation.

The December 27, 2015 Profit Radar Report again referred to this correlation, and stated that: “The VIX painted a potential reversal candle and is likely to chop higher.”

The notion of a rising VIX was confirmed by VIX seasonality and the VIX/VXV ratio.

The December 27 update also featured this VIX/VXV chart and commentary:

“The VIX/VXV ratio is at the bottom of its 2015 range. The VIX measures expected 1-month volatility, VXV measures expected 3-month volatility. The current VIX/VXV ratio reflects more long-term fear than short-term fear, which ironically tends to leads to increased short-term volatility (and lower S&P 500 prices) more often than not.”

The VIX is up 48% since and is now testing the upper Bollinger Band (red line) like it did on January 7, 2015. A move to the UPP generally means the move is stretched, at least short-term.

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.

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How January Mis-fires Affect Stocks

December and January are usually the strongest months for stocks, so misfires – like in 2016 – are quite rare.

The S&P 500 closed down 4 of the last 5 trading days (last two days of the old year, and first three days of the New Year – Dec. 30, Dec. 31, Jan. 4, Jan. 5, Jan. 6).

Since 1970, that’s only happened three other times. 1977/78, 1990/91, and 2004/05. 2008 didn’t officially make the list, but the S&P was down 3 out of 5 days, and suffered the worst percentage loss.

The chart below shows how the S&P 500 fared after such poor year-end/New Year spurts.

The sample size is small, but 2 out of 4 times things got worse. In 2005, the S&P stabilized, and in 1991 the S&P soared shortly thereafter.

Like 2016, 2008 was an election year with a second-term President.

The most plausible cause of this unusual weakness was discussed in detail here on November 2, 2015.

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.