S&P 500 Downside Target Triggered

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on February 24, 2022. 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).

Much has happened and yet not much has changed. The February 2 Profit Radar Report (and February 3, Free Market Outlook) pointed out that a standard S&P 500 impulsive decline (Elliott Wave talk for trend conforming 5-wave move) is no longer possible (due to a wave 4, wave 1 overlap), but plotted out the diagonal shown below.

This diagonal, which required a wave 5 down (to new lows and beyond) has been my default ‘blue print’ since first publishing it on February 2.

As the pattern matured, it provided validation and invalidation levels. Two of those were published in the February 16 Profit Radar Report:

– Invalidation level: 4,596

– Validation level: 4,364

The S&P fell below 4,364 last Friday to further validate the diagonal.

As a side note, the yellow line shown is the 18-day SMA. It was plotted because a subscriber had asked if the S&P 500 closing above the 18-day SMA (on February 16) is bullish.

The explanation was a bit longer than you’ll want to read, but the short answer – considering the circumstances – was: No, not bullish.

Back to the diagonal though. In addition to providing validation and invalidation levels, it also provides a minimum down side target.

In fact, it’s not a diagonal if the down side target is not met. Since we knew the minimum down side target from the beginning, we’ve been looking for lower prices … and continue to do so.

In terms of chart support, the S&P tagged minor support around 4,130 today and closed the open chart gap at 4,116.93 (dashed purple line).

RSI-2 is over-sold, which normally causes a bounce, but – based on Elliott Wave Theory – stocks are likely in a wave 3 decline (the most powerful portion of a down leg), which means over-sold readings can be ignored for a while.

Perhaps most importantly though, the minimum down side target of the diagonal has not been reached. Once it is – with or without prior bounce – we are actually looking for a low-risk entry to buy.

The minimum down side target of the diagonal, and objective fact based research updates 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.”

Will the Shocking January Barometer Come True?

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on February 10, 2022. 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 January 30 Profit Radar Report stated that: “Once the S&P 500 reaches the up side target (4,500 – 4,600) we’ll assess whether new all-time highs or another leg lower are next.”

The S&P is still in that resistance zone.

The S&P already bounced over 350 points from January’s low, fooling many bears (we were not one of them). Nevertheless, the month of January entered history books with a steep 5.25% loss.

Many consider this the January Barometer: As January goes so goes the rest of the year (invented and popularized by StockTradersAlmanac).

Other barometers are the Santa Claus Rally (last 5 days of the old and first 2 days of the new year) and the first 5 days of January.

The table below shows the performance of all three barometers. Red numbers mean that the barometer was incorrect. As the table at the bottom shows, the accuracy ratio, since 1970, is 60% – 70%.

Highlighted in blue are other years, there were 4, when the Santa Claus rally was up, and the first 5 days of January and the entire January were down (as this time around). 3 of 4 years, the S&P ended the year with a loss.

The above data is interesting, but it’s not a key ingredient of my analysis. I calculate and tabulate performance to get an objective read on indicators and barometers (StockTradersAlmanac cherry picks a bit and claims the January barometer has 90% accuracy).

I won’t present a ‘faulty 90% accurate’ indicator to my subscribers. There are some very high probability studies and indicators, and when I mention them they are tested and factual.

Since we’re talking about seasonality, I find the average S&P 500 performance for mid years of the election cycle more helpful. It actually harmonizes with many of the indicators and is available in the 2022 S&P 500 Forecast.

QQQ bounced from the support outlined weeks ago and is now approaching noteworthy resistance.

In summary, most indexes have reached resistance which could spark a pullback, the ‘messy’ bearish option outlined last week is still possible.

Continuous updates, the 2022 S&P 500 Forecast and out-of-the box technical and historical analysis is 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.”

Nasdaq & 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 February 3, 2022. 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 January 19 Profit Radar Report gave a down side target of 4,300, which was reached and slightly exceeded on January 24.

The decline into the January 24 low looks like a 3 wave affair. As mentioned in last week’s Free Market Outlook, I thought the decline would turn into 5 waves, but it hasn’t.

In fact, price overlapped the January 10 low (wave 1). In a standard 5-wave decline, wave 4 is not allowed to exceed wave 1 (an explanation of Elliott Wave Theory is available here).

There are other, more messy, patterns that allow for a continuous decline (such as the expanding diagonal outlined in purple below), but a 3-wave move into a low can also mean this leg of the correction is over.

The QQQ chart below, featured in the January 26 Profit Radar Report, highlighted support and the odds of a bounce. QQQ bounced as much as 10% from the low, but this doesn’t change the fact that QQQ dropped almost 17% over the prior month.

This sounds scary, but quick tumbles like that happened before.

Are they a sign of selling exhaustion or do they usually trigger bear markets?

To find out, I identified the time periods that most closely correlate to the Nasdaq-100 price pattern over the past 6 months (which includes the last leg up and subsequent selloff).

I limited the precedents to 10 and calculated the forward returns for the next 1, 2, 3, 6, 9 and 12 months (as usually).

A common theme emerged and the results were quite surprising. The entire study was published in the January 30, 2022 Profit Radar Report.

Continuous updates, the results of the Nasdaq study and out-of-the box technical and historical analysis is 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.”