S&P 500 Update

On March 26, the Profit Radar Report published the projection below and stated: “We anticipate a recovery towards 3,000 (for the S&P 500) over the next couple months and quite possibly new all-time highs in 2020.”

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.

Less then two month later, the S&P 500 reached and exceeded 3,000. Are new all-time highs next?

To answer this question, we will take a chronological look at many indicators and studies published (in the Profit Radar Report) over the past couple of months.

April 6, 2020 Profit Radar Report

90.43% of NYSE-traded stocks closed higher for the day. We have seen large clusters of 80% or 90% ‘all or nothing’ days (where 80% or 90% of NYSE-traded stocks and/or volume occur to the up or down side). This too is rare, and has been longer-term bullish (S&P 500 traded higher 6 and 12 months later 90% of the time).”

April 7, 2020 Profit Radar Report

It took the S&P 500 just 11 days to retrace more than a Fibonacci 38.2% of the previous losses. This is a very quick retracement. Since 1970, there were only 5 other times where the S&P retraced more than 34% that quickly. The chart below shows the forward performance of those 5 times along with the average. As you can see, returns were rock solid.” Note: Chart below was updated to include price action until May 27.

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April 12, 2020 Profit Radar Report

More than 90% of volume went into advancing stocks on 2 days last week (April 6: 91.87%, April 8: 93.13%). This is rare and usually significant. The chart below plots the forward performance of the 6 other times when there were more than 2 90% up volume days in a 3-day period within 1 month of a 52-week low.

April 19, 2020 Profit Radar Report

Historically, rising stocks despite falling earnings are not unusual. Since 1970, there were 8 other earnings seasons following a 30% drop in the S&P 500. The chart below shows the 1-year forward performance of every instance along with the average forward performance.

April 19, 2020 Profit Radar Report 

The March and April PRRs included a ton of data points and studies analyzing the market from all sorts of different angles. Most of the studies and projections pointed to a signifiant rally with a minimum target of 2,900 – 3,000 … and potentially new all-time highs later in 2020.

The S&P 500 has almost reached the ‘first phase’ of our forecast (2,900 – 3,000). While the up side has become more risky, price may continue to move higher as long as the S&P does not fall below support at 2,730 – 2,700.”

May 3, 2020 Profit Radar Report

The April 11 Profit Radar Report fiirst remarked on the strength of this rally, which implied further gains. Below is an updated look at the same chart, which shows that even the strongest rallies from a 52-week low started to take a pause right about 29 days after the low was struck.”

Summary

In late April the S&P 500 got very close to our up side target and I was looking for a pullback. This pullback was more shallow than expected. Instead of providing a better buying opportunity at even lower prices, it sparked another rally leg.

The S&P 500 is now trading above the upper Bollinger Band with RSI-2 nearing short-term over-bought. RSI-35 on the other hand continues to confirm new price highs.

Short-term, this leaves the S&P 500 in ‘melt up’ mode. Usually it does not pay to chase an over-bought market (in fact the risk of a nasty pullback is high), but this could be one of those rare times where stocks defy the odds and grind higher.

At some point, however, there should be a pullback. The weight of evidence suggests that any pullback will be a buying opportunity (minimum target: open chart gap at 3,328.45).

Continued updates, projections, buy/sell recommendations 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. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

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

S&P 500 Update – What Will Follow the Fasted Drop and Pop Ever?

It’s been kind of quiet the last 2 weeks, but lets not forget stocks distinctive performance prior to this relative calm.

For some perspective, the chart below compares the first 48 days of the 2020 bear market with the first 48 days of the 1929, 1987 and 2007 bear markets. By day 12, the Dow Jones Industrial Average (DJIA) showed it was intent on carving out its own path. By day 29, it was down 37.09% an destroyed any correlation to prior crashes.

It was around the crash low, on March 26, when the Profit Radar Report stated that: “We anticipate a recovery towards 3,000 for the S&P 500 over the next couple months,” which implied a 36% rally from the low.

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.

Such a strong rally would be quite unusual. How unusual?

The April 7 Profit Radar Report pointed out that: “It took the S&P 500 just 11 days to retrace more than a Fibonacci 38.2% of the previous losses. This is a very quick retracement. Since 1970, there were only 5 other times where the S&P retraced more than 34% that quickly. The chart below shows the forward performance of those 5 times along with the average. As you can see, returns were rock solid.”

Below is an updated version of the chart first published on April 7. The red graph represents the 2020 rally, which has been even more ‘fast and furious’ than the previous set of ‘most furious rallies from a 52-week low.’

In a nutshell, we just witnessed the fastest ever drop and pop in history. What’s next?

The S&P 500 is nearing 3,000, the up side target mentioned in the March 26 Profit Radar Report, and the April 15 Profit Radar Report warned that: “The S&P 500 has almost reached our target and up side potential has become less attractive.”

Here is one reason why: At 2,885, wave C equaled wave A, which is natural resistance. There are many different ways to interpret the structure (according to Elliott Wave Theory), but at this point the rally from the March low appears to be 3 waves.

We’ll have to see if it stays at 3 waves (usually indicative of a counter trend move) or turns into 5 waves (usually indicative of a directional change, in this instance from down to up).

Regardless, a break below support shown at 2,730 – 2,700 is needed to unlock more down side risk.

A break above 2,900 could lead to 3,000+, but such a rally may not stick.

Continued updates, projections, buy/sell recommendations 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. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

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

S&P 500 is the Latest Coronavirus ‘Casualty’

The ‘death cross’ has struck again, demanding the next ‘casualty,’ the S&P 500.

Yesterday, the S&P 500’s 50-day SMA crossed below the 200-day SMA, commonly – and ominously – considered the ‘death cross.’

Something with such a dire name has got to be bearish, right?

There were 5 other S&P 500 death crosses in the last decade (red lines, chart below). None of them was particularly bearish. But, all of those happened during one of the greatest bull markets of all time.

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.

Let’s expand the look-back period to 50 years and apply the following two filters to get the most similar precedents:

  1. First crossover (50-day SMA below 200-day SMA) in at least 10 months
  2. Crossover preceded by a 5% decline over the prior 4 weeks

Here are the signals: 2/1984, 11/1987, 4/1994, 7/2010, 8/2011, 8/2015, 12/2018.

The chart below shows the performance of each signal 40 trading days before the crossover and 250 trading days (1 year) thereafter. 

Short-term, the performance was rocky, but long-term performance was solid:

  • 1 month later: S&P 500 down 5 of 7 times (average loss: 1.47%)
  • 2 month later: S&P 500 up 6 of 7 times (average gain: 2.29%)
  • 3 month later: S&P 500 up 7 of 7 times (average gain: 4.58)
  • 6 month later: S&P 500 up 6 of 7 times (average gain: 7.00%)
  • 12 month later: S&P 500 up 7 of 7 times (average gain: 16.06%)

The chart below shows the S&P 500 performance for the past 40 days and the average forward performance of the past 7 signals projected forward.

Based on the past 50 years of history, the death cross has not been a bearish signal. The caveat is that the 2020 stock market has already defied many historic patterns.

Some of those historic extremes along with the short-term S&P 500 forecast are available here.

Continued updates, projections, buy/sell recommendations 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. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

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

S&P 500 Update

Before we get to the short-term S&P 500 update, here is a big picture look at the Dow Jones, going all the way back to 1896.

As of Friday, March 20, the Dow Jones lost an average of 9.56% every week for the past 4 weeks. The biggest 4-week loss ever. The only 2 times that come close to this losing record are 1914 (WWII) and 1929.

Shorter-term, the Dow Jones retraced 35% of the points lost since its February 12 high.

The first real bounce during the 1929 crash phase (red box) retraced 36%, but relapsed once more before delivering a 5-month, 50% bounce.

S&P 500 Update

The Sunday March 22 Profit Radar Report featured the chart below and stated that: “It is quite possible that the S&P 500 will jolt higher from the 2,190 – 2,130 range, and aggressive traders may act accordingly.

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.

On Monday, March 23, the S&P dipped as low as 2,191.86 and soared more than 400 points.

There was a lot of oomph behind the 400+ point rally as 85.79% of NYSE-traded stocks closed higher for the past 3 days. This is a new record, as the chart below shows, and has been a solid buy signal.

Does this mean the low is in?

The March 24 Profit Radar Report featured the following chart and two Elliott Wave Theory interpretations:

“Black: A 3-wave decline (potentially even 5-wave decline) completed at yesterday’s low. A large rally, possibly even to new highs, is under way.

Yellow: A 3-wave decline completed at yesterday’s low. A wave 4 rally is underway. Waves 4 tend to be very choppy and ultimately retrace around 38.2% of the prior wave 3 (2,542, see Fibonacci ruler), but could also go as far as the 50% level (2,655).”

Short-term, another new low (yellow projection) is still possible, but has become less likely.

Continued updates, projections, buy/sell recommendations 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. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

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

S&P 500 Update – Panic in Context

In response to the relentless Q4 2019 rally in stocks, I created the Risk/Reward Heat Map (RRHM) to objectively asses upcoming risk  (and reward) based on literally hundreds of indicators and historic precedents. RRHM methodology is explained here.

Below is the very first RRHM, published in the December 25, 2019 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.

The red bars projected significant risk, and the market delivered much more risk then even anticipated by the RRHM.

In fact, the market decline is unlike any other we’ve seen before. Below is an excerpt from the March 10 Profit Radar Report, which puts the recent panic into context.

* * * * * March 10, 2020 Profit Radar Report * * * * *

97.70% of NYSE-traded stocks ended down yesterday, the 2nd worst 90%+ down day since 1970. Below is the comple list of 95%+ down days:

  • 08/08/2011: 98.73%
  • 03/09/2020: 97.70%
  • 10/19/1987: 95.98%
  • 10/09/1979: 95.56%
  • 08/04/2011: 95.56%
  • 09/29/2008: 95.11%
  • 08/24/2015: 95.05%

Chart #1 outlines the above dates in ‘big picture’ context (dashed blue lines).

Chart #2 provides thumbnail performance for each instance (highlighted in blue). There were two 95%+ days in 2011.

53.04% of NYSE-traded stocks closed at 52-week lows yesterday. Since 1970, there have only been 10 other days where more than half of all stocks sat at 52-week lows (5 of them in 2008).

Chart #3 shows those instances in ‘big picture’ context (dashed blue lines).

Chart #4 provides thumbnail performance for each instance (highlighted in blue). There were 5 instances in 2008, 3 in 1970, and 2 in 1987. 50%+ lows have come in clusters, does this mean we should expect another 50%+ reading before this correction is over?

The S&P 500 lost 7.60% yesterday, it’s 4th biggest daily loss. Since 1970, the S&P lost more than 7% only on 3 other days:

10/13/2008: 11.58%

10/28/2008: 10.79%

10/21/1987: 9.10%

Chart # 5 below provides big picture context for the top 4 daily % losses.

The more extremes this market delivers, the smaller the list of precedents becomes. 2008 and 1987 are two of the few time periods that come up fairly consistent in our list of precedents.

The 1 – 3 month forward performance for the above studies was positive 55-75% of the time. If we were to exclude the 2008 instances, the forward performance would turn positive 90%+ of the time.

1987 was a brief but nasty ‘rip the bandage off’ type of a decline.

2008 was a long and persistent decline that plowed past the initial extremes seen.

Despite today’s strong gains, it doesn’t look like more than 80% of NYSE-traded stocks closed higher. NYSE-up volume, on the other hand, may have delivered a small breadth thrust (we’ll determine tomorrow after final numbers are in).

The S&P 500 bounced from support around 2,740, but was not able to overcome resistance around 2,860. Based on the cluster of 50%+ NYSE low days in the past, it would not be a first to see another 50%+ NYSE low day.

* * * * * END – March 10, 2020 Profit Radar Report * * * * *

Today may deliver another 50%+ down day, which may spark a sizable rally. Long-term trend line support for the S&P 500 is just below 2,500.

Continued updates, projections, buy/sell recommendations 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. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

S&P 500 Update – Will Panic Lead to Bear Market?

The market is bi-polar … and so are many pundits covering the market. I’ve never seen so many analysts flip bullish (in December/January) and flop back to bearish (in February).

Everything that was gold a few weeks ago has suddenly become fool’s gold. Yes, investing requires a measure of flexibility, but flip-flopping is not a methodical or intellectually honest investment approach.

Rather than being dominated by emotions, I developed a comprehensive and objective new risk forecasting tool, the Risk Reward Heat Map (RRHM – methodology explained here).

The RRHM is a very in depth risk assessment tool designed to project risk (and reward) over various time periods. The RRHM boils down an avalanche of data into one simple chart.

Below is the very first RRHM ever published for free on iSPYETF (on January 9, 2020). As you can see, it projected a ton of risk for January and February.

The January 15 Profit Radar Report stated that: “Based on our risk/reward heat map, we are approaching a pressure period, resistance in time so to speak, a period of increased risk in January and February).”

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.

The January 27 Profit Radar Report clear warned of the following:

Here is what we know:

  • Under normal conditions, current sentiment extremes result in pullbacks, but momentum can trump sentiment and drive prices higher than expected
  • Markets that become over-extended to the up side, will eventually over-extend to the down side.”

The 2020 S&P 500 Forecast even mapped out the expected correction. The annual S&P 500 Forecast always includes a full year projection. While it wouldn’t be fair to subscribers to publish the full-year projection here, the chart below shows the projection up until now (S&P 500 performance updated) and for the next few weeks.

Obviously, this week’s pullback was quicker and deeper than expected. Only the kind of perma-bears who’ve been calling for a crash since the S&P was at 2,500 will claim that they saw this coming.

How Bad Will it Get?

As the weekly chart below shows, the S&P 500 created an enormous gap on Monday and kept going. Is this the biggest gap on the weekly chart ever? Not quite, there were a few in the 1940s and 1950s, but it’s the biggest gap since.

Support around 3,130 (2007 trend line) failed with next support around 3,030.

By many measures we are in uncharted territory and there’s no certainty about what’s next.

However, when looking at time periods similar to right now, I see the following common denominator:

  • Short-term: Volatility with bounces and risk of further weakness
  • Longer-term: Stocks market recovery, new highs still possible (even likely)

Since last Friday, I’ve run 15 new studies, indicators, signals (ISS), such as, what happens after:

  • Stocks suffer two consecutive days where 90% of stocks are down
  • Stocks drop from all-time high to multi-month low within 2 weeks
  • Stocks fall sharply and ‘save haven’ assets (gold, Treasuries) rise to new highs

The purpose of the above ISSs is to isolate market environments similar to this week and see how stocks performed in such situations.

The chart below shows the net change of the Risk Reward Heat Map based on just those 15 studies. Reward trumps risk in the long-term.

Although stocks may fall further (another bigger up/down sequence perhaps), based on an objective long-term analysis, this pullback appears to be an opportunity to buy at lower prices.

Continued updates, projections, buy/sell recommendations 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. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

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

 

S&P 500 Update – Was Risk Flushed Out?

The last S&P 500 update introduced the risk/reward heat map (RRHM), which projected increased risk in January/February (see image below). How exactly the RRHM is produced is discussed here: Risk Reward Heat Map Methodology

The January 15 Profit Radar Report warned that: “Based on our risk/reward heat map, we are approaching a period of increased risk with an initial emphasis on late January.”

Just 4 days later, stocks suffered the biggest pullback since October 2019.

The pullback stopped on February 3, which makes the analysis from the February 2 Profit Radar Report (republished below) all the more interesting:

                                        * * * * *  February 3, Profit Radar Report * * * * *

“Based on preliminary data, 82.85% of NYSE-traded stocks ended Friday lower, the biggest down day since August 8, 2019. The chart below shows various breadth gauges. The bottom graph reflects down days. A cluster of down days (80% or 90%) tends to reflect selling exhaustion and is usually seen near bottoms, so we’ll be keeping an eye on that.

We’ve seen two 80%+/- down days already, so one could argue there’s already a measure of exhaustion.

Almost all of our short-term sentiment gauges perked up nicely and are already showing minor extremes. In times past, readings of similar degree have been enough to mark a bottom. Since we’ve seen some significant optimism extremes at the top, it is quite possible we need some more significant pessimism extremes. This, however, is not required.

The S&P 500 closed right on the green support trend line, which could be considered the minimum down side target for this pullback. Due to the sentiment extremes at the top and our RRHM, we would like to see lower prices, with 3,190 being the next and 3,130 +/- a more ideal down side target.”

                                      * * * * *  End February 3, Profit Radar Report * * * * *

The S&P 500 spiked 110 point this week. The chart below shows the resistance (red) and support (green) levels mentioned in the February 3 Profit Radar Report.

The S&P tagged the minimum down side target, which was based on a trend line going back to 2016. The S&P failed to reach the ideal target, which was based on a trend line going back to 2007, and would have reflected a more proportional correction.

Resistance is still at 3,336. A break above 3,336 would allow for a move to next resistance, but the CBOE equity put/call ratio is getting dangerously low once again, and the RRHM suggests we may not be out of the woods yet.

Continued updates, projections, buy/sell recommendations 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. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

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

Risk/Reward Heat Map Methodology

The Risk/Reward Heat Map (RRHM) is essentially a sophisticated ‘pros and cons’ list that visually expresses whether risk or reward will dominate over a specific time frame.

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.

Process of Compiling RRHM

  • The calculation starts with identifying a unique event, such as: The S&P 500 broke to a new all-time high for the first time in 1 year (more examples of events below are listed below).
  • Once the event is identified, we look for past events (or occasions) that fit the same criteria.
  • Once past events are identified, we calculate the forward performance (for each individual event) for the next 1, 2, 3, 6, 9, 12 month.
  • Once the forward returns are calculated, we consider the result an indicator, study or signal (ISS).
  • If 80% or more of a particular ISS show a positive return for a certain timeframe, it is added to the bullish column for that time period. One ISS can be bullish or bearish for multiple time frames (I.e. ISS is bearish for the next 2 and 3 month, but bullish for the next 6 and 12 month)
  • If 50% or less of a particular ISS show a negative return for a certain period of time, it is added to the bearish column for that time period.

Here is an actual example of an event and corresponding ISS published in the December 15, 2019 Profit Radar Report:

Event: For the first time since January 26, 2018 (474 days ago), the NY Composite set a new all-time high.

ISS: The NYC reached a new high for the first time in more than 400 days 8 other times since 1970.

2 weeks later, the NYC was up 4 times (50%), 1 month later up 6 times (75%), 2 month later up 7 times (88%), 3 month later up 8 times (100%), 6 month later up 7 times (88%), 1 year later up 8 times (100%).”

Below is a sampling of events that have been considered in the past. The examples are listed to show the depth and variety of events used to compile the risk/reward heat map. “X” and “[]” indicate variables.

  • [index] may refer to S&P 500, Nasdaq, Dow Jones, Russell 2000, NY Composite
  • [high or low] may refer to all-time high, 52-week high, highest or lowest level in X days/weeks/month, X above or below a moving average, bollinger band, or other indicator.
  • [indicator] may refer to RSI, MACD, CBOE put/call ratio, hedgers’ exposure, NY Composite a/d line, unemployment claims, yield curve, analyst estimates, sentiment polls, Hindenburg Omen signals, technical breakout or breakdown, period of time above/below certain threshold, or other sentiment, economic, breadth, liquidity indicator

Examples of Events

  • [Index] registered a new [high or low]
  • [Index] registered a new [high or low] for the first time in [X] days
  • [Index] registered a new [high or low] for the first time in [X] days, while [indicator] set new [high or low]
  • [Index] came within [X] percent of a new [high or low] while [indicator] stayed [X] above or below [high or low].
  • [Index] registered a new [high or low] while [x] percent of [indicator] set new [high or low]
  • [Index A] outperformed [index B] for [X]
  • [Index A] outperformed [index B] for [X] while [indicator] set new [high or low]
  • [Index] traded [X] consecutive days above [indicator]
  • [Index] traded [X] consecutive days above [indicator 1] while above [indicator 2]

Analysis

There are 3 ways to categorize the RRHM:

  1. Total signals (bullish and bearish)
  2. Net signals only
  3. Change (total or net) for a specific timeframe

Analysis #1 and #2 allow us to identify time periods of elevated risk or reward. Time is only one component of market forecasting, price is another – more important – one. A break below support or above resistance is usually required to start validating the message conveyed by the RRHM.

Analysis #3 allows us to identify changes. For example: The RRHM may project risk in February. If true to the projection, the S&P 500 drops X % in February, and ISSs start giving much more bullish signals, the RRHM change may indicate when a bottom is in.

The most recent RRHM will be available via the Profit Radar Report (along with a detailed interpretation and analysis of other factors), but below is a copy of the January 1 RRHM. Since January 1, an additional 56 ISS have been catolgued and included in the RRHM.

Continued updates, projections, buy/sell recommendations 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. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

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

 

S&P 500 Update: Epic Tug-of-War

Two of the most powerful stock market forces are facing off in an epic tug-of-war. Momentum vs sentiment.

On October 25, 2019, the S&P 500 broke above the blue triangle shown below. Although this break suggested higher prices, I did not – at first – expect such relentless momentum.

But in late November it became clear that we are dealing with a rare momentum market and I warned via the November 24 Profit Radar Report that: “Momentum markets tend to move higher than expected.”

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.

Here is one example of why momentum markets do not die easily: On December 12, the NY Composite hit a new high for the first time in 20 month. Since 1970, the NYC hit a 20-month high 8 other times. 3 month later, it was higher every time. 1 year later, it was higher 7 times.

Of course, a by-product of persistent gains is increase optimism. In fact, in mid-December we started seeing some legitimate extremes of enthusiasm. The equity put/call ratio set a number of extremes, one of them being a 1-year low. When this happened in the past, the S&P 500 was higher 1 and 3 month later only 33% of the time.

Here is the chain reaction extreme optimism tends to trigger:

  • Most investors have converted into buyers
  • There are few buyers left to bid up price
  • Sellers outnumber buyers and price falls, often rapidly

The Stage is Set

The stage has been set and the battle between momentum (bullish for stocks) and excessive optimism (bearish for stocks) has begun.

To better assess and gauge the risk/reward potential going forward, I introduced the risk/reward-meter or risk/reward heat map in December.

Risk/Reward Heat Map

Here is how this heat map is compiled: I look at various indicators, studies, signals (ISSs) and calculate their statistical forward return over the next 1, 2, 3, 6, 9, 12 month.

The ISSs include the two examples mentioned above, as well as other ISSs related to sentiment, momentum, money flow, technical break outs (or break downs), certain economic indicators (like the yield curve), seasonality, cycles, etc.

  • ISSs with positive forward returns 80% (or more) of the time are added to the green reward side.
  • ISSs with negative forward returns 50% (or less) of the time are added to the red risk side.

The result is a visual heat map. Below is the first heat map published back in December. Since then, the visual has been refined and dozens of additional ISSs have been added.

The continuously updated heat map is available via the Profit Radar Report.

Technical Analysis

The risk/reward heat map allows us to properly and objectively assess current risk, but it is not a stand alone tool. Why? Risk only becomes reality when price follows.

The S&P 500 futures chart shows that price has been advancing within a trend channel. I am showing the futures chart because it includes over-night activity and reveals price action not seen in the S&P 500 cash chart.

For example, on Tuesday night, S&P 500 futures fell over 70 points or 2% to test trend channel support (this move happened overnight and is ‘invisible’ on the S&P 500 cash chart), but support held and the trend remains up.

Based on the risk/reward heat map, risk outweighs reward for the January/February period, but a break below support is still needed to trigger a deeper pullback.

Continued updates, projections, buy/sell recommendations 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. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

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

S&P 500: Short-and Long-term Risk vs Reward Analysis

it happened again: The S&P 500 erased a month worth of gains in just 3 days. Being aware of the up side potential compared to down side risk is always a good idea, but especially now.

Let’s objectively assess bullish and bearish factors to determine up side potential vs down side risk for the short-and long-term.

Up Side Potential – Short-term

The October 20 Profit Radar Report published the S&P 500 futures chart below and stated that: “A close above 3,002 (blue triangle) could eventually lead as high as 3,187.75 (3,167.74 for S&P 500).

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.

The S&P 500 came within 12 points of this target and then dropped 84 points in 3 days (as projected, see last chart of this article). Based on the above projection, near-term up side potential is limited.

Up Side Potential – Longer-term

On November 25, the VIX closed below 12 for the first time in 3 months. Over the past 20 years, this has happened 8 other times. 1 year later the S&P 500 traded higher every time (the blue lines below highlight the instances since 2013).

On November 25, the Russell 2000 reached a new 52-week highefor the fist time in a year. Over the past 20 years, this happened 5 other times. 1 year later, R2K traded higher 4 of 5 times.

For the first time since August 2018, the monthly MACD histogram for the NY Composite crossed above 0. The blue lines below highlight times when the MACD histogram exceeded 0 for the first time in a year. This signal was rare (only 6 times since 1980) and always followed by gains 1 year later (on average 16%).

Short-term Down Side Risk – Short-term

The November 24 PRR mentioned that VIX hedgers held a record amount of VIX positions and warned: “The last two times this happened, the VIX spiked and S&P 500 took a nasty spill.”

From November 27 – December 3, the VIX soared as much as 50%. This may have satisfied the need for a VIX spike already, but more could still be to come.

Longer-term Down Side Risk

The November 20 PRR noted that: “Unlike stocks, junk bonds have been trending lower. The chart below plots the S&P 500 against the SPDR High Yield Bond ETF (JNK). The blue boxes highlight other periods where JNK trended lower while the S&P trended higher. It usually and eventually led to stock market pullbacks of various degrees.”

It is difficult to put a time-frame on this ‘setup’ as the bearish divergence could be followed by weakness sooner or later.

Conclusion

When compiling my forecasts I look for ‘signal clusters.’ Those are times when indicators and studies coherently suggest a specific performance over a certain time frame.

Right now, a cluster of bullish studies suggests that stocks will be higher about 1 year from today.

Another cluster of indicators projects lower prices over the next 3 month. This cluster, however, is in conflict with the strong momentum market we’ve seen since early October.

In short, the weight of evidence suggests that pullbacks over the next 3 month are an opportunity to buy.

The yellow projection below, published in the December 1 Profit Radar Report, outlined a path in harmony with a number of indicators.

As you can see, the projection correctly captured the decline from 3,150 to below 3,100. Another rally to the high is quite possible and – if all goes according ‘to plan’ – should be followed by another pullback, potentially a much deeper, but also temporary one.

Continued updates, projections, buy/sell recommendations 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. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

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