Is the Correction Already over or Just Re-loading?

The last free update (March 2: S&P 500 Reaches Up Side Target – Now What?) pointed out that the S&P 500 reached our up side target, and that risk of a pullback is increasing.

Since March 1, the S&P lost as much as 79 points, the largest drop since last October (followed by a 50-point snap-back rally). Is the correction already over, or are stocks ‘re-loading’ for the next leg down?

The February 20 Profit Radar Report published the chart below with the following ‘worst-case scenario’ assessment:

Based on Elliott Wave Theory, we anticipate that the S&P is near the end of its wave 3 rally (which started on June 27, 2016 at 1,991.68). Micro-managing the end of wave 3 is probably a fool’s errand, but in attempt to assess the following wave 4 correction potential, lets assume wave 3 ends at 2,405 (red trend line). The common wave 4 retracement is 38.2% (of wave 3), which would present a down side target of 2,247.”

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Bussines Daily says “When Simon says, the market listens.” Find out why Barron’s and IBD endorse Simon Maierhofer’s Profit Radar Report.

As it turns out, the S&P ran out of fuel at 2,401, not 2,405. Based on the market’s strength, and momentum leading up to the 2,401 high, a drop into the mid 2,200s would be deeper than expected (but a good buying opportunity if it happens).

Are there other down side targets?

The ‘Peace of Mind’ Trade

The March 26 Profit Radar Report pointed out that the S&P 500 is about to reach the minimum down side target around 2,326 (this was based on Sunday’s overnight selloff), and recommended to buy Monday’s gap down open (which ended up being at 2,329).

Why?

Because the S&P 500 reached the minimum down side target, was oversold and showed bullish divergences at Monday’s intraday low (Sunday night’s new low in S&P futures also showed a bullish divergence). A bounce was highly likely.

We just didn’t know how big of a bounce it will be.

Although another low sometime in April would fit best, it is not necessary. The chart below plots the summer 2016 correction against what we’ve seen this far for a potential template.

The recommendation to at 2,329 on Monday was given to provide peace of mind in case stocks continue higher (like they’ve done most of the past eight years).

If the S&P 500 does not fall to new lows in April, we are already long.

If the S&P 500 does drop to new lows, we will be able to buy at lower prices (and ideally sell our long position for a profit or stop out at breakeven to avoid any losses).

We will monitor various breadth and sentiment measures along with technical resistance levels to help determine if/when stocks will relapse.

Buying at lows – although they may prove temporary – eliminates FOMO (Fear Of Missing Out) and the perceived associated need to chase after price.

The next few months will likely increase the need for FOMO trades, as we expect some big moves and hope not to be left behind.

The Profit Radar Report’s 2017 S&P 500 Forecast and twice-a-week regular updates provide short, mid-and long-term forecasts based on various key indicators.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile 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, 17.59% in 2014, and 24.52% in 2015.

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

 

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Will the Dow’s Record Streak End with a Bang?

On Monday, February 27, the Dow Jones Industrial Average (DJIA) recorded its 12th consecutive up day. This is the second longest such streak since 1930 (the longest run was 13 days in January 1987).

The S&P 500 hasn’t dropped more than 1% a day for 104 trading days.

The record gains haven’t gone unnoticed. Many sentiment indicators are in uber-bullish (bearish for stocks territory).

The investment advisors and newsletter-writing colleagues polled by Investors Intelligence are more bullish (63.10%) now than at any other time since 1987. This tumultuous span includes the 2000 tech bubble and the 2007 leverage bubble tops.

The Relative Strength Index (RSI-14) finished February above 70 on the daily, weekly and monthly chart.

However, trading volume has been suspiciously low. Despite solid gains, less than 40% of NYSE volume has been flowing into advancing stocks.

History’s Most Important Lesson

Record optimism and strong gains on low volume … anyone with a bearish disposition could (ab)use those facts to paint a pretty bearish picture.

However, history cautions against that.

Several times throughout the post-2009 bull market – and most recently on December 14, 2016 – the Profit Radar Report pointed out that historically stocks rarely ever top on peak momentum.

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Bussines Daily says “When Simon says, the market listens.” Find out why Barron’s and IBD endorse Simon Maierhofer’s Profit Radar Report.

The February all-time highs occurred on peak momentum.

The green vertical lines (chart below) mark previous peak momentum (based on RSI-35) highs. None of them market major tops.

The blue lines mark strong rallies to new all-time highs on low volume (less than 40% of NYSE volume flowing into advancing stocks).

Most of those instances were followed by corrective pullbacks, but nothing worse.

Expect the Abnormal

Sometimes stocks simply push the envelope and plow higher than anyone thought possible (the S&P 500 already surpassed the 2017 year-end targets analysts set in December).

The August 28, 2016 Profit Radar Report outlined why to expect such ‘abnormal’ gains.

1) Bullish breadth thrust off the February and June 2016 lows

2) Bullish Elliot Wave Theory patterns

Although the risk of a temporary pullback is increasing, the body of evidence points towards further gains in the months to come.

The historic Dow Jones winning streak is unlikely to be followed by a “thud”.  Any correction should be viewed as a buying opportunity.

Visual forward projections (published back in August, but still valid today) and up side targets are available here: S&P 500 Update – Expect the Abnormal. In fact, the up side targets given in August have been reached. Now what? Here is the latest update: S&P 500 Reaches Up Side Target – Now What?

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile 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, 17.59% in 2014, and 24.52% in 2015.

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 Reaches Up Side Target – Now What?

The S&P 500 has reached the up side target zone highlighted in February and August/September 2016. Now what?

The August 28, 2016 PRR published the chart below and stated: “Elliott Wave Theory and the June breadth thrust suggest that any weakness will be bought (perhaps even furiously). We consider the longer-term up side potential to be significantly larger than the down side risk.”

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Bussines Daily says “When Simon says, the market listens.” Find out why Barron’s and IBD endorse Simon Maierhofer’s Profit Radar Report.

Since the wave 2 pullback was on the shallow side, the dark green Elliott Wave Theory count (with wave 3 target around 2,390) became operative.

The September 5, 2016 Profit Radar Report said the following: “The chart below shows the long-term up side target purely based on projected symmetry. Based on the 1997 – 2013 trading range, the measured up side target is S&P 2,330 – 2,485, which is in the general vicinity of the 2,290 – 2,342 Fibonacci levels mentioned in the 2016 S&P 500 Forecast. Higher targets are possible, but we’ll reassess once we get there.”

As the updated symmetry chart shows, “we are here!” Now what?

Stocks are at peak momentum (35-day RSI is at the highest level in 20+ years). As the Profit Radar Report highlighted many times in the past (most recently on December 14), stocks rarely ever top at peak momentum.

This means, we are not at a major market top. But the risk of a pullback is increasing. The latest Profit Radar Report shows the most likely spot for a pullback, along with the scope of any pullback.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile 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, 17.59% in 2014, and 24.52% in 2015.

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