Earnings, and one Famous Wall Street Adage to Ignore

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. This market outlook below was sent out on April 29. If you’d like to sign up for the free e-newsletter, you may do so here (we will never share your e-mail with anyone, just as we don’t accept advertising).

There’s a Wall Street adage that says: “Never short a dull market.”

Boy, has it been a dull market. One way to spot a dull market is when you don’t receive a Thursday e-mail from me (like last Thursday). This may be silly, but I respect people’s inboxes and only send out updates when I feel like there’s something worth writing (or when I didn’t send one out last week).

Anyway, is the adage never to short a dull market true?

First, let’s define dull. From Monday – Wednesday the S&P 500 average maximum daily percentage change (based on closing prices) was 0.09%. Yeah, let’s call that dull.

The yellow lines in the chart below mark every time (since 2014) when the maximum daily % change (3-day SMA) was 0.10% or less (we’ll call this the signal).

Although this week was the first signal since 9/19/2019, it happened many time before. Throughout 2017, it was a good idea not to short a dull market, but shorting a dull market 2014 – 2016 would have yielded positive short-term returns most of the time.

In short, it’s better to know the facts than trust an adage. That’s, by the way, what the Profit Radar Report is all about, getting the facts of what’s really going on.

Talking about facts, the stock market has delivered some rare phenomena recently, like:

– Very bullish breadth readings and all-time highs

– Incredibly low volume

I wanted to find out:

  1. If breadth has gotten so good (too good to be true) that it’s actually a negative
  2. If new all-time highs on record low volume are bearish for stocks.

My findings along with S&P 500 forward returns after similar setups in the past are available here: What are the Implications of Rare Stock Market Phenomena?

The April 15 Free Market Outlook highlighted shorting TSLA as the new FOMO trade. The entire April 15 Market Outlook along with the rationale to short TSLA was posted here.

The chart below shows how TSLA has done since I recommended shorting it on April 14. What’s real ‘curious’ is that TSLA’s decline accelerated after it delivered a solid earnings beat.

This is one reason why I tend to ignore earnings. Two, even better reasons, (one of them being the Buffett Indicator) for ignoring earnings – and perhaps more importantly sky high valuations – are discussed here: 3 Reasons for Ignoring Earnings and Valuations

Continued updates, out-of-the box analysis and forward performance based on historic precedents are available via the Profit Radar Report.

The Profit Radar Report comes with a 30-day money back guarantee, but fair warning: 90% of users stay on beyond 30 days.

Barron’s rates iSPYETF a “trader with a good track record,” and Investor’s Business Daily writes “Simon says and the market is playing along.” 

What Are the Implications of Rare Stock Market Phenomena?


‘Knowledge is power’ is one of my favorite truisms, and I want to empower my subscribers. To do that, I’ve beefed up the research presented via the Profit Radar Report.

‘Beefing up,’ to me, means extracting and presenting facts few investors are aware of.

Here are a couple examples of what I mean:

On April 8, the stock market delivered the following trifecta:

 – >90% of S&P 500 stocks closed above their 50-day SMA

 – >90% of S&P 500 stocks closed above their 200-day SMA 

 – >7% of NYSE stocks set new 52-week high

This is an amazing feat of strength. The question is: How amazing? And is that good for stocks … or too good to be true?

The chart below, published in the April 12 Profit Radar Report, identifies when and how often the above conditions existed before.

Barron’s rates iSPYETF a “trader with a good track record,” and Investor’s Business Daily writes “Simon says and the market is playing along.”

The chart outlines how rare this trifecta is, but it’s hard to discern detailed forward performance on a 20-year chart.

The performance tracker, included in the same update and shown below, graphs S&P 500 forward returns for 1 year after the first signal of each cluster (called the signal date).

The table at the bottom of the chart shows average returns and the percentage of positive returns after 1, 2, 3, 6, 9, 12 months.

A sample size of 4 is not huge, but there are a couple of common themes:

1) Returns for the first few months were rocky

2) Any gains were given back about 5 months later (dashed red line)

But, there is another interesting wrinkle to the ‘trifecta feat of strength.’ April trading volume has fallen off a cliff.

Are new all-time highs on low volume bearish?

To find out what history says, the April 18 Profit Radar Report identified current markers and searched for historic parallels. Here are last week’s markers:

  1. S&P 500 at all-time high
  2. NY Composite a/d line (cumulative) at all-time high
  3. NY Composite OCO a/d line (cumulative) at all-time high

But:

 – NYC trading volume more than 20% below its 200-day SMA

 – Volume of advancing stocks less than 56%

The orange lines in the chart below highlight when the above conditions existed. Again, we are looking at a rare constellation with one common eventuality: Further gains were possible, but given back at some point over the next few months.

Shown above are only two of dozens of studies conducted every month.

My first step is always to find the common theme conveyed by each individual study. The next step is to find the common theme conveyed by all conducted studies.

The Risk/Reward Heat Map (RRHM) is a simple visual aid that identifies future periods of risk or reward conveyed by hundreds of individual studies.

The RRHM is available for free to subscribers of the Profit Radar Report (you can read more about it here).

No amount of knowledge can consistently predict stock market movements, but a fact-based approach assures that every decision is an educated decision, a decision that tilts the odds in your favor.

The world has never been more uncertain. Get the facts you need to make decisions you can feel good about. Get 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. 

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

Short TSLA, Long XLE – The New FOMO Trade?

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on April 15. If you’d like to sign up for the free e-newsletter, you may do so here (we will never share your e-mail with anyone, just as we don’t accept advertising).

Everyone knows that S&P 500 and Dow Jones price action has been as pristine as it’s been boring … and there’s a trace of that’s ‘too good to be true’ in the hair.

I wanted to find out how the most recent rally stacks up to others in the past and if that calm turned out to be the calm before the storm. Here is what I found.

I personally don’t like chasing an over-bought market (although that’s not been a great mantra to live by) and prefer lower-risk setups … like this one discussed in the April 11 Profit Radar Report (chart includes original annotations but updated price):

There’s been a fierce battle between value and growth – risk on vs risk off sectors. XLE (SPDR Energy ETF) appears to offer one of the more attractive entry levels near current price. XLE is testing the trend channel (48) with next support around 46.80 (blue circle).

The chart includes a potential Elliott Wave Theory count, which makes an eventual rally into the 55.65 zone likely. Wave 4 (or IV) corrections can be complex and drawn out, but buying XLE around current price or after a quickly reversed dip below the trend channel looks attractive. More aggressive investors may buy XLE around current price, but we’ll look at buying XLE after a successful test of the 47.20 zone.”

Who would have thought that short TSLA is the new S&P or Nasdaq FOMO (fear of missing out) trade?

But there was a solid setup to short TSLA, as discussed in Monday’s special Profit Radar Report update (chart includes original annotations but updated price):

TSLA closed at 762 today. According to Elliott Wave Theory (EWT), the decline from the January high to March low traced out 5 waves. The bounce from the March low looks like 3 waves. The 78.6% Fibonacci retracement is at 762.53 and wave c = wave a at 769.37.

The TSLA bounce could finish in the 762 – 769 zone. Additional resistance is around 795 (trend channel) and 823 – 838 (78.6% retracement and C = 1.382 x A).

EWT has been essentially useless for the major indexes and excess liquidity may also void this signal, but it’s been rare to get such a clear read and confluence of resistance levels like seen here.

As mentioned, TSLA is a fast-moving stock not for the faint of heart . We will initiate a small short position at tomorrow’s (Wednesday) open.

TSLA opened at 770.70 on Wednesday and quickly fell to 730. There is a small chance that TSLA will still reach the 823 – 838 range (breakout of the purple triangle) but with a stop-loss at breakeven we can wait if TSLA finds support around 700 – 710 or not.

Continued updates and factual out-of-the box analysis are available via the Profit Radar Report

The Profit Radar Report comes with a 30-day money back guarantee, but fair warning: 90% of users stay on beyond 30 days.

Barron’s rates iSPYETF a “trader with a good track record,” and Investor’s Business Daily writes “Simon says and the market is playing along.”TSL

Is Boring Grind Higher the Calm Before Storm?


S&P 500 and Dow Jones price action has been remarkable in many ways. I wanted to find out just how remarkable when viewed in the context of history. Here is how the recent price action stacks up (information below was published in Tuesday’s 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

Last Friday, the S&P 500: closed at an all-time high, which was 13.4% above its 200-day SMA, which was confirmed by the cumulative NY Composite advance/decline lines (a measure of liquidity). The same may happen again today. The yellow lines in the first chart below show other times that’s happened. Never (aside from the most recent cluster).

We can’t learn much from a sample size of 1, so let’s loosen our filter to see how big of a sample size we get. 

The next chart highlights periods when the S&P 500 closed more than 13% above its 200-day SMA.

Now we have too big of a sample size. If we restrict the criteria to catch only those times when the S&P 500 traded >10% above its 200-day SMA while at an all-time high (confirmed by the cum NYC a/d) we get the following hits.

In an attempt to identify breadth readings and price action comparable to current, we’ll now adjust the parameters to show times when the S&P 500 traded >13% above its 200-day SMA while the cum NYC a/d line was at an all-time high. There are only 3 other clusters in the past half century. The first of the most recent signal cluster triggered on 11/16/20.

Tuesday’s Profit Radar Report shows exactly how the S&P 500 did after the first signal date of each cluster (see above chart). This performance tracker details the S&P 500 forward performance after the signal date via graphs and tables (detailed returns for the next 1, 2, 3, 6, 9, 12 months along with odds of positive returns).

Of course there are other parameters that could be used to assess and compare the current market. Monday’s Profit Radar Report, for example, identified other times when more than 90% of stocks trade above both their 50-and 200-day SMA while more than 7% of stocks trade at a 52-week high.

Obviously history does not repeat itself, but it provides insight on how price (which is a reflection of investors, which is based on crowd behavior) reacts in certain situations. Examining historic precedents often reveals recurring patterns useful in assessing what’s next.

Continuous updates along with the performance tracker of similar precedents 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. 

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