S&P 500 Path Deceptively Simple

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on September 29, 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 expanding diagonal pattern, first identified in the July 31 Profit Radar Report, continues to play out. The pattern is outlined via the purple lines below.

This pattern has been a surprisingly simple way to navigate an incredibly complex investing environment (I wrote about this here).

To continuously validate the pattern, I’ve also provided ‘the trend is down as long as’ resistance levels, such as the following:

September 18, Profit Radar Report: “Bears have the upper hand as long as the S&P 500 does not sustain trade above 3,920.”

September 21, Profit Radar Report: “Trade below 3,790 is another simple ‘line in the sand for short-term bearish risk.”

The ‘the trend is down as long as’ resistance levels are shown in red below. Neither of those level has been broken to the up side, so the trend continues down towards an eventual wave 5 low.

It’s beautiful when a pattern works out like ‘painting by numbers,’ but the market never consistently rewards one trick pony analysts.

Just last Sunday, I did a deep dive analysis of market breadth and investor sentiment to see if the weight of evidence supports or contradicts the expanding diagonal pattern.

Being aware of a wide spectrum of indicators prevents tunnel vision and getting blind sighted.

Market breadth

Shown below are 6 different breadth measures. Some of them are near their June lows (like the S&P 500) and others are reaching levels where a reversal to the mean becomes more likely.

Investor Sentiment

Only one out of the six short-term sentiment gauges plotted below is at a real extreme, the others still have room to grow.

In addition to just looking at the data, I also identify other times that most closely replicate today’s readings.

For example, there were 3 other signal dates that closely correlate to the market breadth data shown above and 9 signal dates that are closely correlated to current sentiment readings.

Would you like to know how the market reacted to similar conditions in the past?

Those findings, along with purely fact-based 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.”

Bearish S&P 500 Pattern Still Looms

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on September 15, 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).

Not much has changed since the last free Free Market Outlook (S&P 500 Reverses at Upside Target, Aug. 25).

Below is an updated version of the chart shown on August 25 and many times before. The S&P 500 tagged trend line resistance (of a pattern called expanding diagonal) and reversed.

The reaction to resistance is in line with what I anticipated in the July 31 Profit Radar Report:

“The purple lines outline an expanding diagonal (resistance around 4,350). The textbook blueprint for this diagonal would be to tag the purple line and then fall.“

The down side target for the expanding diagonal is pretty aggressive (and and seemed even more aggressive when the S&P 500 tagged resistance around 4,350). When I wrote the last free Market Outlook, back in August, I wasn’t willing to commit to that down side target. Why?

The rally from the June low triggered a number of bullish studies. One of those was that the percentage of stocks above their 50-day SMA cycled from below 2% to above 90%.

This rarely happens, and when it does it’s a good thing for stocks. The chart below shows 8 other signal clusters when the % of S&P 500 stocks above their 50-day SMA cycled from below 10% to above 90%. All of them were long-term bullish, and most of them also sparked short-term gains.

Did anything change since then to make you commit to a down side target? Yes something did change.

I noted a bearish overlap (according to Elliott Wave Theory) and pointed it out in the August 31 Profit Radar Report:

“One of the things we were watching is the overlap level at wave 1, which is 3,950 for the S&P 500 Futures. It looks like the rally from the June low ended after only 3 waves, and the decline from the August high looks like a developing 5 waves, neither of which is bullish.”

This bearish overlap is highlighted by the dashed red line seen in the first chart, and partially because of this overlap, I recommended the following in the September 5 Profit Radar Report:

“An over-sold bounce seems likely soon, and it’s prudent to use this bounce to reduce exposure.”

We reduced exposure last Friday, when S&P 500 soared with 91.74% of trading volume flowing into advancing stocks (this was the fifth 90%+ up volume day since the June low).

The chart below highlights every 90%+ up volume day. It was almost always long-term bullish for stocks.

However, just two days later, on Tuesday, 95.86% of volume went into declining stocks.

Fortunately the weight of evidence suggested to sell into strength, short term.

What about longer-term? Does Tuesday’s extreme down day void the bullish implications of the strong up volume days? Is the aggressive down side target of the expanding diagonal on the table?

Answers based on the weight of evidence (and I consider a ton of evidence) 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.”&P 5