S&P 500 is the Latest Coronavirus ‘Casualty’

The ‘death cross’ has struck again, demanding the next ‘casualty,’ the S&P 500.

Yesterday, the S&P 500’s 50-day SMA crossed below the 200-day SMA, commonly – and ominously – considered the ‘death cross.’

Something with such a dire name has got to be bearish, right?

There were 5 other S&P 500 death crosses in the last decade (red lines, chart below). None of them was particularly bearish. But, all of those happened during one of the greatest bull markets of all time.

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Let’s expand the look-back period to 50 years and apply the following two filters to get the most similar precedents:

1. First crossover (50-day SMA below 200-day SMA) in at least 10 months
2. Crossover preceded by a 5% decline over the prior 4 weeks

Here are the signals: 2/1984, 11/1987, 4/1994, 7/2010, 8/2011, 8/2015, 12/2018.

The chart below shows the performance of each signal 40 trading days before the crossover and 250 trading days (1 year) thereafter. 

Short-term, the performance was rocky, but long-term performance was solid:

• 1 month later: S&P 500 down 5 of 7 times (average loss: 1.47%)
• 2 month later: S&P 500 up 6 of 7 times (average gain: 2.29%)
• 3 month later: S&P 500 up 7 of 7 times (average gain: 4.58)
• 6 month later: S&P 500 up 6 of 7 times (average gain: 7.00%)
• 12 month later: S&P 500 up 7 of 7 times (average gain: 16.06%)

The chart below shows the S&P 500 performance for the past 40 days and the average forward performance of the past 7 signals projected forward.

Based on the past 50 years of history, the death cross has not been a bearish signal. The caveat is that the 2020 stock market has already defied many historic patterns.

Some of those historic extremes along with the short-term S&P 500 forecast are available here.

Continued updates, projections, buy/sell recommendations are available via the Profit Radar Report.

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 evaluation 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, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

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S&P 500 Update

Before we get to the short-term S&P 500 update, here is a big picture look at the Dow Jones, going all the way back to 1896.

As of Friday, March 20, the Dow Jones lost an average of 9.56% every week for the past 4 weeks. The biggest 4-week loss ever. The only 2 times that come close to this losing record are 1914 (WWII) and 1929.

Shorter-term, the Dow Jones retraced 35% of the points lost since its February 12 high.

The first real bounce during the 1929 crash phase (red box) retraced 36%, but relapsed once more before delivering a 5-month, 50% bounce.

S&P 500 Update

The Sunday March 22 Profit Radar Report featured the chart below and stated that: “It is quite possible that the S&P 500 will jolt higher from the 2,190 – 2,130 range, and aggressive traders may act accordingly.”

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

On Monday, March 23, the S&P dipped as low as 2,191.86 and soared more than 400 points.

There was a lot of oomph behind the 400+ point rally as 85.79% of NYSE-traded stocks closed higher for the past 3 days. This is a new record, as the chart below shows, and has been a solid buy signal.

Does this mean the low is in?

The March 24 Profit Radar Report featured the following chart and two Elliott Wave Theory interpretations:

“Black: A 3-wave decline (potentially even 5-wave decline) completed at yesterday’s low. A large rally, possibly even to new highs, is under way.

Yellow: A 3-wave decline completed at yesterday’s low. A wave 4 rally is underway. Waves 4 tend to be very choppy and ultimately retrace around 38.2% of the prior wave 3 (2,542, see Fibonacci ruler), but could also go as far as the 50% level (2,655).”

Short-term, another new low (yellow projection) is still possible, but has become less likely.

Continued updates, projections, buy/sell recommendations are available via the Profit Radar Report.

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 evaluation 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, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

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

Gold Update – Why Didn’t Panic Send Gold Higher?

Question: As a lay person, it’s been my understanding that the price of gold will move up at times of panic. Could you pleas enlighten me as to why you recommended to short gold. Thanks! – Ben – Pasadena, CA

Answer: Many factors influence the price of gold, but panic is not one of them (at least not consistently). For example, in October 2008, the last time stocks crashed, gold lost as much as 27%. It’s ironic that many investors perceive gold to be a hedge against panic, yet gold fell hard during the two biggest panic months of our generation (October 2008 and March 2020).

Why did gold almost drop 15% in the last two weeks. 

Back in January, the Profit Radar Report stated that gold is currently in limbo, but will drop sooner or later. The question was not if, but when. The January 12, 2020 Profit Radar Report recommended to leg into a short position – short via gold futures, short SPDR Gold ETF (GLD) or ProShares UltraShort Gold (GLL) – and projected the eventuality (now or later – yellow lines) via the yellow lines:

The February 23 Profit Radar Report featured this chart and warned:

“As the weekly chart shows, commercial hedgers (smart money) increased their short exposure to a new record. We’ll be looking for a low-risk entry to add to our existing short position. In fact, I’m tempted to add (or initiate) to our short exposure right now, but it’s prudent to allow for higher prices or wait for a close below 1,615.

Gold’ is likely in wave 3 of 5 or wave 5 of 5. In commodities, wave 5 is sometimes the ‘blow-off’ wave that extends higher then expected. The upper target for such an extension is in the low 1,700s, but it’s by no means required. RSI-2 is seriously over-bought, and the larger-scale bearish RSI-35 divergence remains in tact.”

The red box highlighted price resistance for gold. The vertical dashed red lines outline what happened every time commercial hedgers (smart money), revved up their short exposure: Gold prices dropped, and they usually did so swiftly.

Ascertaining that gold prices were about to fall was the easy part. The question now is: How low can gold go?

Gold is likely working on a ‘sling shot’ decline, meaning that prices will jolt higher once they’ve pulled back enough. However, that pullback could be very severe. Short-term, support is around 1,450, and price could bounce from there, but ultimately I’d like to see prices drop even lower.

Continued updates, projections, buy/sell recommendations are available via the Profit Radar Report.

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 evaluation 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, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

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

Is Crude Oil Done Crashing?

Question: I thought you were crazy when you predicted oil prices falling into the $20 range. Is oil done crashing since it hit your down side target? – Melinda – Phoenix, AZ

Answer: It should be, at least shorter term.

I didn’t think oil would fall into my down side target that quickly, but below is the projection that’s been our roadmap ever since first published in the June 20, 2018 Profit Radar Report.

On the way down, the biggest bounces happened in response to news events (drone attack on Saudi oil facilities on September 16, 2019 and assassination of Iranian military leader on January 3, 2020), but the January 5 PRR brought out that:

“Turmoil in the middle east caused a significant spike. More often than not, news-based moves are not ‘true’ moves. The latest example was the September 13 drone attack on a Saudi oil facility (red arrow). We will consider adding to our short position in crude oil futures or United States Oil Fund (USO).”

The quarterly chart going back to 1985 shows a support shelf at 22-23. As long as this support holds, odds of a bounce are good.

Continued updates, projections, buy/sell recommendations are available via the Profit Radar Report.

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 evaluation 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, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

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

US Treasuries – The Next Bursting Bubble?

Question: I read somewhere that you compared US Treasuries to Tesla. Is that true? – Richard – Chicago, IL

Answer: Yes, I did. To understand why I compared 30-year Treasuries to TSLA, let me share my take on TSLA first.

I published the following analysis about TSLA in the February 8 Profit Radar Report:

“It’s rare to see a mania big enough to create the ‘support bowl’ line, but TSLA managed to do it. The last big mania with a similar trajectory was bitcoin in November/December 2017. The last one in the automotive industry was VW in October 2008. Ironically, the rally in VW shares (from below 300 to above 1,000 in less then 2 months) was also driven by short sellers, spooked by Porsche taking control of VW. Within a couple months after its spike above 1,000, VW fell back below 100. 

The chart below allows for a comparison between TSLA and Volkswagen. Inserted in the upper right is a chart of bitcoin along with its corresponding ‘bowl’ support.”

Since then, TSLA fell from 969 to 361.

Knowing what happened to TSLA and what led up to TSLA’s fall explains why I compared 30-year Treasures und the iShares 20+ year Treasury ETF (TLT) to TSLA. The analysis below is from the March 8, Profit Radar Report:

“30-year Treasury prices spiked more on Friday than the S&P 500 fell, and TLT was up almost twice as much as 30-year Treasury futures. 30-year Treasury futures are up another 2.5% tonight. Appears like a historic flight to safety, and quite likely sign of panic. It’s hard to apply rational analysis to a market that’s acting irrational. 

The stock market has shown that what goes up, comes back down, and it can do so very quickly. Odds are the same will happen to Treasuries sooner or later. 

In fact, the chart includes curved ‘bowl support,’ the same kind of support/pattern that the  showed for TSLA. Down side risk is very high, and aggressive traders may consider adding to shorts.”

Below is an updated chart for 30-year Treasury futures:

There is a support shelf at 167 – 164, which should cause a bounce, but as long as resistance around 178 holds, the trend is lower.

Continued updates, projections, buy/sell recommendations are available via the Profit Radar Report.

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 evaluation 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, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

S&P 500 Update – Panic in Context

In response to the relentless Q4 2019 rally in stocks, I created the Risk/Reward Heat Map (RRHM) to objectively asses upcoming risk  (and reward) based on literally hundreds of indicators and historic precedents. RRHM methodology is explained here.

Below is the very first RRHM, published in the December 25, 2019 Profit Radar Report:

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

The red bars projected significant risk, and the market delivered much more risk then even anticipated by the RRHM.

In fact, the market decline is unlike any other we’ve seen before. Below is an excerpt from the March 10 Profit Radar Report, which puts the recent panic into context.

* * * * * March 10, 2020 Profit Radar Report * * * * *

97.70% of NYSE-traded stocks ended down yesterday, the 2nd worst 90%+ down day since 1970. Below is the comple list of 95%+ down days:

• 08/08/2011: 98.73%
• 03/09/2020: 97.70%
• 10/19/1987: 95.98%
• 10/09/1979: 95.56%
• 08/04/2011: 95.56%
• 09/29/2008: 95.11%
• 08/24/2015: 95.05%

Chart #1 outlines the above dates in ‘big picture’ context (dashed blue lines).

Chart #2 provides thumbnail performance for each instance (highlighted in blue). There were two 95%+ days in 2011.

53.04% of NYSE-traded stocks closed at 52-week lows yesterday. Since 1970, there have only been 10 other days where more than half of all stocks sat at 52-week lows (5 of them in 2008).

Chart #3 shows those instances in ‘big picture’ context (dashed blue lines).

Chart #4 provides thumbnail performance for each instance (highlighted in blue). There were 5 instances in 2008, 3 in 1970, and 2 in 1987. 50%+ lows have come in clusters, does this mean we should expect another 50%+ reading before this correction is over?

The S&P 500 lost 7.60% yesterday, it’s 4th biggest daily loss. Since 1970, the S&P lost more than 7% only on 3 other days:

10/13/2008: 11.58%

10/28/2008: 10.79%

10/21/1987: 9.10%

Chart # 5 below provides big picture context for the top 4 daily % losses.

The more extremes this market delivers, the smaller the list of precedents becomes. 2008 and 1987 are two of the few time periods that come up fairly consistent in our list of precedents.

The 1 – 3 month forward performance for the above studies was positive 55-75% of the time. If we were to exclude the 2008 instances, the forward performance would turn positive 90%+ of the time.

1987 was a brief but nasty ‘rip the bandage off’ type of a decline.

2008 was a long and persistent decline that plowed past the initial extremes seen.

Despite today’s strong gains, it doesn’t look like more than 80% of NYSE-traded stocks closed higher. NYSE-up volume, on the other hand, may have delivered a small breadth thrust (we’ll determine tomorrow after final numbers are in).

The S&P 500 bounced from support around 2,740, but was not able to overcome resistance around 2,860. Based on the cluster of 50%+ NYSE low days in the past, it would not be a first to see another 50%+ NYSE low day.

* * * * * END – March 10, 2020 Profit Radar Report * * * * *

Today may deliver another 50%+ down day, which may spark a sizable rally. Long-term trend line support for the S&P 500 is just below 2,500.

Continued updates, projections, buy/sell recommendations are available via the Profit Radar Report.

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 evaluation 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, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.