Comprehensive S&P 500 Update

The latest S&P 500 all-time high clocked in at 2,440 as the S&P 500 continues to plow over bearish forecasts

Will the S&P 500 in particular, and stocks in general, continue to slog higher?

Here is our comprehensive forecast based on the “four stock market engines:”

  • Supply & demand (liquidity)
  • Technical analysis
  • Investor sentiment
  • Seasonalities and cycles

Supply & Demand

We first unveiled our favorite liquidity indicator in 2014. This indicator correctly foreshadowed the 1987, 2000 and 2007 market top and – aside from a timely caution signal in 2015 – persistently pointed towards continued bull market gains.

For readers of our free website, we’ve dubbed this indicator ‘secret sauce.’ Why, and how this indicator is used is explained here.

In short, major market tops have been preceded by bearish divergences (S&P 500 rallies to new all-time highs, secret sauce does not).

Throughout 2016 and 2017 however, there’ve only been bullish divergences (secret sauce rallies to new all-time highs, but the S&P 500 lags behind). The last four times this happened was on April 30, and April 9, 2017, September 22, and April 16, 2016 (see green arrows).

Each time the Profit Radar Report stated that: “[Secret sauce] is already at new highs. The S&P 500 will soon follow.”

Secret sauce just confirmed the latest S&P 500 high, which means a major market top is still many months away (this doesn’t mean we can’t see a correction though).

Technical Analysis

The most exotic ‘tool in the technical analysis box’ has also been the most accurate: Elliott Wave Theory. Therefore we will focus on Elliott Wave Theory for this update.

The charts below were initially published in the August 28, 2016, Profit Radar Report, and have been our roadmap ever since as the S&P moves toward 2,500.

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

We have made some minor adjustments recently, which place the S&P near the beginning of a more pronounced, choppy correction (see ‘we are here’ on top graph). This correction would be labeled as wave 4 (likely intermediate degree).

Despite rising prices, there has been a measure of internal weakness (see chart below). There have been no strong up days (90% days, where 90% or more of volume flows into advancing stocks). The percentage of stocks above their 50-day SMA is also lagging.

This is compatible with a rally that’s nearing a (temporary) point of exhaustion.

Investor Sentiment

The chart below provides a long-term comparison between investor sentiment near the 2007 high and today.

In short, investors are not as euphoric about stocks today as they were in late 2007. Based on investor sentiment, stocks are not at a major market top.

In fact, stocks may still benefit from the pessimistic extremes seen in January/February 2016 (when the S&P traded below 1,900).

The January 29, 2016 Profit Radar Report stated that: “Sentiment turned pessimistic enough to become a bullish tailwind for the coming months.”

Seasonality & Cycles

Cycles project weakness later on in 2017 and seasonality is hitting a soft spot until September/October.

Conclusion

Once the S&P 500 reaches our up side target we will be looking for a more pronounced correction, but not the end of this bull market.

Continuous updates and actual buy sell recommendations (we haven’t had a losing trade since June 2015) are provided 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 profile 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, and 24.52% in 2015.

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

 

2017 Oil Forecast

Although volatile, 2016 was a good year for crude oil. The January 10, 2016 Profit Radar Report printed this outlook for 2016:

Sentiment is bearish (which should be positive for oil), but seasonality has a minor weak spot until early February. The overall setup for oil in 2016 looks positive, with a potential buy signal early February.”

Crude oil bottomed on February 11 at 26.05.

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Bussines Daily says “When Simon says, the market listens.”

For the second half of 2016 our indicators never really lined up to point in the same direction. There was no clear signal, which helps explains the choppy performance since the June high.

What are key indicators projecting for 2017?

Investor Sentiment

Commercial hedgers (the smart money) are betting on lower oil prices. In fact, hedgers are holding a record amount of short exposure.

The chart below was published in the January 11, 2017 Profit Radar Report. At the time, hedgers were short to the tune of 465,400 futures contracts (this has increased to 509, 138).

Nevertheless, the January 11, 2017 Profit Radar Report stated that: “As long as trade stays above 48 – 50, we will allow for higher prices.” Why?

Seasonality

Oil is one of those commodities with a very distinct seasonal pattern. Seasonality turns strongly bullish in February.

Tiebreaker: Technical Analysis

Investor sentiment suggests risk is rising while seasonality should buoy prices.

How do we reconcile this conflict between sentiment and seasonality?

Such conflicts often cause stalemates or relative trading ranges.

Based on Elliott Wave Theory, oil appears to be in a wave 4 rally (which retraces part of the 2014 – 2016 drop from 107 to 26.

Ideally wave 4 will extend higher (towards 60) before falling towards and below 26 in wave 5.

Here are the most liquid oil ETPs (Exchange Traded Products):

United States Oil Fund (USO)
iPath S&P GSCI Crude Oil ETN (OIL)

ProShares UltraShort Bloomberg Crude Oil ETF (SCO)
VelocityShares 3x Inverse Crude Oil ETN (DWTI)

Continued updates and trade recommendations will be 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 profile 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, and 24.52% in 2015.

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

Long-and Short-term S&P 500 Outlook

At the same time last year, the S&P 500 was in the early stages of a 270-point drop and logged one of the worst Januaries in history.

On January 20, and February 11, the S&P was as low as 1,810. Headlines, such as the one below, sprouted up everywhere (talk about financial bloopers):

  • “Warning: The Stealth Bear Market is About to Show its Teeth” – MarketWatch
  • “Here Comes the Recession and Bear Market” – Forbes
  • “Marc Faber: Assets will Crash like Titanic” – Bloomberg
  • “Soros: It’s the 2008 Crisis all Over Again” – CNBC
  • “Gartman: It’s Definitely a Bear Market this Time” – CNBC
  • “The Bear Market in Stocks has Finally Arrived” – MarketWatch
  • “Market could Go from Bear to Worse” – TheStreet
  • What a difference a year makes.

The chart below plots the S&P 500 against six different investor sentiment gauges. Sentiment has gone from extremely bearish in January/February 2016 (green bar) to extremely bullish today.

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

Here is the elephant in the room: From a contrarian perspective, is investor sentiment bullish enough to cause a significant drop right now?

When viewed in isolation, the answer is: Yes. By some measures, today’s sentiment extremes rival extremes seen in late 2007 (December 31 Profit Radar Report includes a comparison between investor sentiment in 2007 and 2016).

We never rely on any one single indicator, and other indicators – which predicted this rally before it started – continue to point higher (our longer-term bullish indicators were discussed here: S&P 500 – Expect the ‘Abnormal’ – Comprehensive S&P 500 Analysis).

The S&P 500 has yet to reach the up side target published by the August 5 Profit Radar Report (see chart below).

There are times where stocks continue to climb despite sentiment extremes. Now may be such a time.

Short-term Outlook

The December 14 PRR stated that: “Yesterday’s high could be the end of wave 3 (perhaps a wave 3 within a larger wave 3), to be followed by a choppy wave 4 correction with much sideways action (sideways action following strong moves has certainly been a pattern in 2016).”

After three weeks of choppy trading, the market did what it does best. It fooled the crowd by briefly dropping below the 20-day SMA and double trend line support at 2,245.

This drop triggered another set of buy signals for the S&P 500 SPDR ETF (SPY) and Nasdaq QQQ ETF (QQQ), and the January 2 PRR stated that: “The S&P 500 broke below support at 2,245. This may just be a fakeout move. The DJIA, Russell 2000 and Nasdaq are at support. We will allow stocks to regain their footing and move higher from around current levels.”

The strongest part of this rally is behind us, but further gains are still likely. Instead of straight up, future gains will probably take the shape of ‘two steps forward, one step back.’

Continuous updates with actual buy/sell recommendation 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 profile 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, and 24.52% in 2015.

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

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Some Investor Sentiment Indicators Show Excessive Pessimism

There hasn’t been a truly noteworthy investor sentiment extreme since the January/February lows, when the Profit Radar Report recommended buying.

Barron’s rates the iSPYETF as a “trader with a good track record.” Click here for Barron’s assessment of the Profit Radar Report.

Last week saw some unusual sentiment readings.

Sunday’s (May 8) Profit Radar Report published the chart below and pointed out the following:

Some measures of sentiment are in unusually bearish territory. Unusual considering that the S&P just traded only 1% away from its all-time high! Shown below are the % of bullish investors (polled by AAII) and the CBOE equity put/call ratio.

The put/call ratio doesn’t have a perfect track record, but as the dashed red lines show, high readings mark some sort of low more often than not.”

In addition to these ‘odd’ sentiment readings, various indexes reached support levels.

This constellation led to the summary offered by the same Profit Radar Report:

As long as the bullish RSI divergence and support near 2,040 hold, odds favor either a bounce or rally to new recovery highs. We will be watching the open S&P chart gap at 2,079.12. Once/if the gap is closed, we’ll have to determine if this bounce has legs (new recovery highs) or if it is just a small bounce within a deeper correction.”

The S&P 500 is within striking distance of the open chart gap (2,079.12), we we’ll have to evaluate if this bounce ‘has legs’ or not.

Continued S&P 500 analysis is 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 profile 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, and 24.52% in 2015.

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

Gold and Silver Bulls Risk Painful Whipsaw

Gold and silver have been on a tear, but there’s reason to be cautious. Here are some facts to consider before following the crowded trade:

Gold Update

Since late December 2015, when we anticipated a tradable low, gold has rallied as much as 25%. Commercial hedgers (considered the ‘smart money’) are now heavily selling into this rally.

The chart below was published as part of the April 24 Profit Radar Report update.

Barron’s rates the iSPYETF as a “trader with a good track record.” Click here for Barron’s assessment of the Profit Radar Report.

Shown is the price of gold along with the net exposure of commercial gold hedgers. Hedgers have racked up the largest short position since 2012.

The April 24 Profit Radar Report stated that: “Out of the three driving forces we monitor for gold (technicals, sentiment, seasonality), technicals look the most bullish. Sentiment says risk is elevated. Immediate up side potential is limited based on seasonality.”

The May 1 Profit Radar Report included the following update: “Gold moved above resistance at 1,272 and above this year’s high at 1,290. It is next to impossible to peg the termination point of strong momentum moves, such as in February and currently. 2-day RSI is overbought and sentiment remains bearish, so the next resistance zone at 1,310 – 1,320 is a candidate for a pause/reversal. More up side is possible, but when the tide turns, it is likely to turn quickly and burn latecomers.”

As the updated gold chart shows, gold reversed just below the 1,310 – 1,320 zone, but remains above support. What this means is discussed in the latest Profit Radar Report update.

Silver Update

The chart below (published via the April 20 Profit Radar Report) shows that commercial hedgers are even more bearish on silver.

The May 1 Profit Radar Report included the following update: “Commercial traders ramped up their silver short positions to the highest level in decades, 2-day RSI is overbought and seasonality is getting close to the most bearish period of the year. Next resistance is around 18.5. A move to around 18.5 along with some bearish divergences would create the potential for a nice short trade (ZSL is one ETF option).”

The updated chart below shows silver reacting to its overbought condition and rising red trend line, but reversing before reaching resistance at 18.5.

The extreme short positions of commercial hedgers and the most bearish seasonal pocket of the year should be a worry for silver bulls, but may set up a nice trade for trading opportunists.

Continued gold and silver analysis is 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 profile 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, and 24.52% in 2015.

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

 

The Best Trade of the Year

We’ve had a number of good trades in 2016. In fact, only 1 of 7 trades was closed in the red.

It’s tempting to label our S&P 500 trade (bought at 1,828, sold at 2,040) the best trade of 2016 (thus far).

Barron’s rates the iSPYETF as a “trader with a good track record.” Click here for Barron’s assessment of the Profit Radar Report.

True, the S&P 500 trade was the most contrarian trade of them all. It required a fair amount of moxie to go against the crowd.

But the best trade was a rare ‘high probability trade.’

The March 6 Profit Radar Report observed the following setup:

Natural gas futures fell to a multi-decade low ($1.611 per one million British Thermal Units – BTU).Sentiment is very bearish (bullish for gas) and seasonality is turning bullish. Trade is at or near support and there is a bullish divergence on the daily chart. This is shaping up for a rare high probability trade. We are looking for a low-risk entry point.”

The monthly bar chart shows a birds eye view of the setup.

The daily chart shows a bullish RSI divergence and the touch of double support.

Natural gas seasonality turned bullish in early March.

Some measures of investor sentiment were at or near bearish (bullish for gas) extremes.

Technicals, sentiment, and seasonality all pointed in the same direction (up). The pieces for a high probability buy signal were in place.

We bought on March 10, after trade poked above the initial red resistance line. We sold on March 30, when trade was overbought and against resistance.

The profit was about 14% for natural gas futures and about 9% for the related ETF (UNG) trade (corresponding commodity ETF returns tend to be lower due to contango).

Based on seasonality, there is more up side for natural gas, but the probability of further gains is not as high as it was in early March.

The Profit Radar Report is always on the prowl for rare high probability trades.

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 profile 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, and 24.52% in 2015.

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

S&P 500 Forecast for Remainder of 2016

The full year S&P 500 forecast is my biggest project of the year, and quite frankly it’s kind of a thankless job. Why? It gives every critic a documented, black and white foundation for criticism.

It is impossible to predict a full year of stock market future, that’s why market forecasts are loaded with ‘ifs,’ “buts,’ and other ambiguities. Anyone attempting to predict the unpredictable is doomed to miss the mark.

That’s why no other newsletter (at least not that I’m aware of) publishes an actual full year S&P 500 chart projection. Accountability is an underrated (if not entirely ignored) concept on Wall Street. But, what’s the purpose of following many time-tested indicators if we don’t put them to work?

The 2016 S&P 500 Forecast was published on January 31, 2016 and is available to subscribers of the Profit Radar Report. Below is an excerpt of the 2016 S&P 500 Forecast (with some minor edits in consideration of paying subscribers).

Barron’s rates the iSPYETF as a “trader with a good track record.” Click here for Barron’s assessment of the Profit Radar Report.

At the time of publication, the S&P 500 traded in the mid 1,800s. One of the key questions addressed by the forecast was whether the May 2015 all-time high at S&P 2,134 marked the end of the bull market.

The S&P 500 Forecast is based on the four most powerful market-moving forces:

  • Supply & Demand
  • Technical Analysis
  • Investor Sentiment
  • Seasonality & Cycles

Supply & Demand

Technical Analysis – Support/Resistance Levels

There is Fibonacci support at 1,855 (Fibonacci projection level going back to 2002).

There is an open chart gap at 2,043.62 (just above Fibonacci resistance at 2,041). This is the bare minimum target for a Q1/Q2 rally.

Technical Analysis – Elliott Wave Theory

Investor Sentiment

Bull markets die of starvation. Just as a fire needs wood to burn, the stock market needs fresh buyers to move higher. Fully invested investors can only do one of two things: hold or sell. Neither action buoys price any higher.

Excessive optimism is an indication that buyers have become rare (because everyone who wants to buy has already bought). That’s why excessive optimism usually precedes a new bear market or sizeable correction. However, investor sentiment near the May 2015 all-time highs was not as euphoric as at prior tops.

Historically, sentiment around May 2015 was not bullish enough for a major market top.

What about current sentiment? Sentiment dropped towards extreme pessimism in January (some indicators triggered panic readings), which should provide a bullish tailwind for the weeks/months ahead.

Summary

The 2016 S&P 500 Forecast did not expect much down side following the January meltdown, but anticipated a market comeback with a ‘bare minimum up side target of 2,043.’

This target was already captured. What’s next? A short-term outlook is available here.

Continued updates are available via the Profit Radar Report. Barron’s graded iSPYETF (and the Profit Radar Report) a “trader with a good track record.”

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 profile 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, and 24.52% in 2015.

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