Inflation, Gold, S&P 500 Update

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on August 26. 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).

Stocks actually pulled back a bit last week, but last Wednesday’s Profit Radar Report showed the chart below (price has been updated) and stated the following (the chart was also included in last week’s Market Outlook):

“On Monday, the S&P made it as high as 4,480.26 and has fallen below some minor support levels since. RSI-2 is now over-sold, which has marked the end of any pullback since May (dashed gray lines). Since the 4,485 target was not fully met, the market has still the option to reach and perhaps briefly exceed it.“

While the bounce to tag our target around 4,485 was not unexpected, I was surprised to see such oomph behind that move.

On Friday, Monday, Tuesday (3 consecutive days), more than 68% of NYSE-traded stocks advanced and, more noteworthy, more than 75% of volume flowed into advancing stocks all 3 days.

The chart below highlights the 10 other days (since 2003) when the S&P 500 rallied into an all-time high, while a bearish NY Composite advance/decline divergence exists, with the 3-day SMA of up volume and advancers >77% and >70%. This has been bullish since the 2020 low, but a bit more mixed prior to that.

In my opinion, this mini breadth trust neutralizes some of the bearish divergences reported recently.

Nevertheless, my Risk/Reward Heat Map still projects risk for August/September, the up side target has been met, a small 5-wave rally may have concluded. At minimum a brief pullback is likely (such as today), but it still will take a break below support to dent the bull market.

Below is just a quick glance at some inflation metrics. What they mean for consumers and investors and how to hedge against inflation is discussed here: How Bad is Inflation?

The August 8 Profit Radar Report featured the gold chart above and stated that:

“If gold reaches the green target box, the decline from the August high could be counted as 5 waves, which would clarify the longer-term picture and set up some better trading opportunities (i.e. buy in the target range).”

Within hours of that update, gold tumbled 5%, touched the upper end of the target box, and bounced back. It all happened overnight. The rally from the low appears to have traced out 5 waves, which suggests another (brief) pullback before a more sustainable advance.

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.

How Bad is Inflation?

Inflation is on the rise and it’s a real concern for consumers and investors. To help readers assess and navigate the inflationary environment I am publishing excerpts of recent Profit Radar Reports below:

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.”

Excerpt from the August 22, 2021 Profit Radar Report:

The June 6, 2021 Profit Radar Report talked about inflation and stated the following: 

“From a contrarian perspective, when a trend becomes too popular, it’s usually nearing its end. However, unlike any other class, inflation can turn into a movement and instead of reversing it could turn into a self-fulfilling prophecy. How so? If the fear of inflation becomes engrained enough for consumers to buy items today because they fear it will cost more tomorrow, the cost of goods will rise regardless or despite of supply and demand forces.

I don’t think we are there yet and we may see inflation stabilize for a while. Nevertheless, inflation will likely become more of an influence for our recommended trades. In times past, when cash was king, we were more content sitting out a trade knowing the purchasing power of cash will remain stable. Moving forward, more research will be devoted to identifying sectors and commodities more likely to prosper in an inflationary environment.”

Since the above assessment, the CPI’s 12-month rate of change (ROC) increased from 4.2% to 5.3% but Google searches from inflation dropped 43%. At this point it doesn’t seem like consumers’ fear of inflation is pronounced enough to turn it into a self-fulfilling movement.

Commodities in general, one of the better inflation hedges, haven’t moved any higher over the last couple months. 

DBC (Invesco Commodity ETF) dropped 8.7% from its high, but is at support while over-sold. 

DBA (Invesco Agriculture ETF) was unable to break higher, pulled back, and is also near support while almost over-sold.

This is a short-term inflection zone for DBC and DBA. We’d like to ultimately see a deeper pullback (possibly after a bounce).

Excerpt from the August 18, 2021 Profit Radar Report

EWZ (iShares MSCI Brazil ETF) failed to close the open chart gap (dashed purple line) at 42.09 by a few tics and has since dropped some 15% and sliced through the rising support trend line. By many measures (in addition to RSI-2), EWZ is oversold. 

About 25% of Brazilian stocks are in the materials sector, as such EWZ is a partial commodity play, and as mentioned in the June 6, 2021 Profit Radar Report, commodities are historically one of the best inflation hedges. Short-term, EWZ would have to move back above resistance or meet the next support around 34 for a lower risk entry.

Continuous updates 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.

Stocks are Tired but Fighting

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on August 19, 2021. 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).

The stock market has coughed up some epic divergences and curious internals lately. First we’ll look at what we’re seeing and then at what it means.

– At the last 3 S&P 500 all-time highs (Aug. 12, 13, 16), less than 50% of NYSE-traded stocks advanced and less than 50% of trading volume went into advancing stocks. This happened 11 other times (since 2009).

– The cumulative NYSE advance/decline line has failed to confirm S&P highs since July 6. With 32 consecutive days, that’s the longest divergence since July 2014 (see chart below).

– There’s never been a bigger spread between Nasdaq-100 and Nasdaq Composite components trading above their 50-day SMA (in August, as high as 73% for the Nasdaq-100 and as low as 31% for the Nasdaq Composite).

– Yesterday, the VIX soared 20.44% even though the S&P dipped only 1.07%. This happened only 6 other times since 2009. 

Usually when there’s a big VIX spike knee-jerk reaction, it’s a positive for stocks (almost like a flush out the weak hands event). This time, the figures tell a different story.

The chart below shows every time the VIX spiked more than 20% on a day the S&P dipped less than 1.10% (there were 7 total signal dates). A quick glance reveals that 5 of 6 signals preceded some pretty rough markets.

Yesterday, the VIX soared 20.44% even though the S&P dipped only 1.07%. This happened only 6 other times since 2009.

The chart below shows S&P 500 forward performance after each signal date. Two things jump out:

– Forward returns were anemic.

– Odds of positive returns were only 50% for the first 6 months.

Those are dismal return figures considering that the signals occurred during one of the strongest bull markets in history.

Needless to say, there’s a lot of activity under the stock market hood and I’ve seen the media coming to misleading conclusions without checking the facts.

The Profit Radar Report always looks at the facts. Recent updates identify other times when similar conditions existed (i.e. 3 consecutive all-time highs with less than 50% participation, NYSE a/d line divergences lasting longer than 9 days, Nasdaq-100 vs Nasdaq Composite spread) and how the S&P 500 performed thereafter.

The stock market is unprecedented as it is, but there is no excuse for at least getting our facts straight and make fact-based decisions.

Short-term, as brought out in last night’s Profit Radar Report, the S&P 500 ended yesterday over-sold (dashed gray lines, chart above), which marked the last 3 pullback lows.

Failure to get above resistance (red lines) and progress to the down side would suggest this pullback has more bite than prior ones.

My Risk/Reward Heat Map (more info available here if you are not familiar) shows elevated risk for August/September.

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.”

S&P 500 Update

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on August 5. 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).

Please accept my apologies for the lengthy newsletter pause. My brother and I had to go to Germany to take care of some property-related issues.

Thank you for the concern many have shown about the devastating floods. Fortunately those occurred north of where we were, but we feel for many who have lost their homes and lives. This is the view from our balcony after it stopped raining.

I always work remotely and have never skipped a scheduled Profit Radar Report update, but since I didn’t expect any big moves (and nothing changed) there was no absolute need for Market Outlook updates. I hope you are enjoying a good summer (up until today uninterrupted by my e-mails :).

From a timing perspective, the S&P 500 encountered an interesting 114-day turning cycle that’s been working since 4/26/2019. Thus far, the cycles has not been validated nor has it been invalidated, but if the cycle is going to show its teeth it should do so soon.

Two developments I always monitor, especially with the S&P 500 at or near all-time highs, are breadth and sentiment.

The chart below plots the S&P 500 against a variety of breadth gauges, all of which have failed to confirm the latest S&P highs. The bearish divergence between the S&P and the cumulative NY Composite advance/decline lines are considered highly bearish by many analysts.

While the 1987, 2000 and 2007 market tops were preceded by S&P 500 / NYC a/d line divergences, not every divergence causes a major top.

The Profit Radar Report looks at the big picture and now consistently identifies how the market reacted in the past to conditions we see today.

For example, in addition to the bearish divergence, at the July 26 all-time high:

– only 43.62% of volume flowed into advancing stocks

– only 45.75% of NYSE stocks advanced

– NYSE highs outpaced lows by only 1.85%

– 56.31% of stocks traded above their 50-day SMA

– 87.98% of stocks traded above their 200-day SMA

The first 3 data points are based on 10-day SMAs to smooth out outliers. Aside from the 200-day SMA figure, that’s some seriously ‘bad breadth.’

One could (and many do it every day) cherry pick one of the above indicators, look at past precedents, and paint a bearish picture (the percentage of stocks above their 50-day SMA is particularly ominous). But, and that’s a big but, if you you look at all of the above indicators, you get the signal dates below.

Unfortunately those signals dates are neither bullish nor bearish and are not very actionable, so what’s the point?

This knowledge protects us against falling prey to biased, ignorant or fear-mongering analysis.

The latest Sentiment Picture features the same kind of analysis for investor sentiment and shows at what other times the 9 sentiment gauges we monitor stood at levels most similar to today.

In short, based on cycles we are watching if there’s enough weakness to draw the S&P 500 below important support. As long as there isn’t, stocks can continue to grind higher.

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.”