S&P 500, Bitcoin, Treasury Update

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S&P 500

Are you going to talk about the expanding diagonal again?

If a simple pattern works so beautifully in an incredibly challenging environment, you ride it and milk it as long as it works (if you haven’t read about the expanding diagonal yet, you can do so here:

S&P 500 Path is Deceptively Simple

The October 12 Profit Radar Report that: “This week’s new S&P 500 low meets the minimum requirement for a wave 5 low, and RSI-2 is nearing over-sold again.”

Starting on October 13, the S&P soared almost 300 points.

Obviously there are still a ton of economical and political cross currents, but the KISS approach is to look higher as long as double support (shown on the monthly chart) holds.

Treasuries

“Distrust in government is a global mega trend. The US Treasury market may just have carved out a key reversal and perhaps major market top.” March 15, 2020 Profit Radar Report

30-year Treasury bonds just suffered the worst one-year decline on record and are down 35% from their all-time high. The last 2 1/2 years have erased about 43% of the gains racked up during a 40-year bull market.

But, as mentioned in the October 23 Profit Radar Report, there is long-term support near current price, short-term RSI-2 is over-sold, RSI-35 is around support, and a furious rally is becoming likely.

The daily chart shows TLT up some 6% since October 24, now nearing over-bought and resistance, but price is compressed from almost 9 month of steady losses, so further up side (perhaps after a pullback) is very possible.

Bitcoin

October 23, Profit Radar Report: “Bitcoin futures are trading above trend line resistance. RSI-35 has been rising over the past 4 months where price was range bound. This is not a screaming buy signal, but the development is overall positive.

Aggressive investors may consider either 1) buying bitcoin with a stop-loss below either of the support trend lines or 2) buy after a break above resistance around 20,400. One ETF alternative for bitcoin is the Grayscale Bitcoin Trust (GBTC).”

Bitcoin has since broken out, and previous resistance is now support (and potential stop-loss) for longs.

Continuous updates for the S&P 500, Treasuries, Bitcoin are available via the Profit Radar Report.

If you want to be the best-informed investor you know, and have access to always relevant and purely fact-based research, sign up for 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.

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Confession: I didn’t See this Coming. Why?

From the March 2020 low, the S&P 500 rallied 63.70% in less than 6 months. This rally dwarfed my already bullish chart projection and outlook shared in the March 26 Profit Radar Report: “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

Although the March 26 Profit Radar Report outlined that new all-time highs were quite possible even in 2020, I expected a deeper pullback before actually reaching those all-time highs. Aside from a hitting a small speed bump in June, stocks never delivered such a pullback.

Throughout this rally, the S&P never dropped below key support, so reluctantly I had to allow for momentum to drive stocks higher even though stocks were over-bought and over-loved.

Fold or Stick to Your Guns?

Quite frankly, it was painful watching the market grind higher throughout August, and as an analyst I had to make a choice between:

1. Throwing all caution to the wind and buy (because it’s been working) or
2. Remaining true to historical facts and patterns.

What were the facts?

In early August, the S&P 500 came within striking distance of its February 2020 all-time high. The August 8 Profit Radar Report analyzed how the S&P 500 performed after it dropped 30% or more and subsequently rallied within 2% of an all-time high.

That forward performance was illustrated via the chart below. Forward performance was decent, but almost every time, the S&P 500 gave back all gains accrued.

This was not the only study suggesting that any accrued gains will eventually be erased. The chart below, which plots the Nasdaq-100 against its distance from the 200-day SMA (also published in the August 9 Profit Radar Report) projected one of two possible outcomes:

1. The Nasdaq-100 will either correct fairly quickly or
2. The Nasdaq-100 will continue grinding higher but eventually give back accrued gains (horizontal red lines)

Throughout August, stocks continued higher and risk of a pullback increased. The August 23 Profit Radar Report showed that there were 6 days where the S&P closed higher, but more stocks declined than advanced. The dashed purple arrow showed the most likely price trajectory. 

The August 30 Profit Radar Report showed that the Nadsaq-100 almost tagged long-term trend channel resistance and warned that: “S&P 500 Futures are in nosebleed territory.” For the first time since the start of this rally I actually suggested shorting stocks as a speculative trade for aggressive investors.

The September decline has erased all the August gains, which was the minimum expected down side. As the weekly S&P 500 chart shows, price is below double resistance, but above support. While below resistance, we need to allow for further down side, but a break below support is needed to get lower targets.

The question I keep asking myself is: How can I avoid underestimating a stock market move?

Lessons Learned

I will let you know when I’ve found a solution. For now, here are two lessons I’ve learned:

We are living in an age of extremes, and sometimes stocks just defy the odds

1. Don’t become emotional with everyone else.
2. One of my fellow market analyst wrote on September 2 that there is no sign of a top. Over the next 3 days the Nasdaq-100 lost some 10%. Investing peer pressure is powerful and as it becomes more intense it becomes more dangerous.

Continued 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. 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.

Would a New S&P 500 All-time High be Bullish or Bearish?

Who would have thought that 2020 will see the S&P 500 drop 32.80% from its all-time high and come within striking distance of recovering all of its losses.

To subscribers of the Profit Radar Report, that’s not big news, because the March 26, 2020 updated stated that: “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

Now that we are here, its a good time to ask: Would a new S&P 500 all-time high be bullish or bearish?

Historical Parallels

Sunday’s Profit Radar Report included the following study, which provides the best possible answer:

Over the last 50 years, the S&P 500 has lost 30% (or more) and subsequently rallied back within 2% of its prior all-time high 5 other times.

The chart below shows the forward performance of each individual occurrence along with the average forward performance. Here are the key takeaways:

• Only the 1980 rally relapsed immediately
• The 2007 rally eventually turned into a bear market
• Average returns were slightly negative for the first 3-4 months
• Aside from 2008, the S&P 500 traded higher 9 and 12 months later with an average gain of 5.88% and 7.30%
• After 4 months, the S&P 500 was either negative or gave up (most of) its gains every time (dashed red line)
• This study suggests that chasing the breakout doesn’t come with a sustainable reward
• This study has been included in the Risk/Reward Heat Map

Technical Analysis

In terms of technical analysis, the July 20 Profit Radar Report stated the following:

“Price broke out today, but breadth did not confirm, a bi-polar breakout. There are plenty of reasons to view this breakout as suspect, but while 3,220 and 3,190 holds as support, momentum could push price higher, erase the bearish divergences, and target the open chart gap at 3,328.45. Aggressive investors afraid of missing out on any upside may consider going long with a stop-loss below support.”

The chart gap (dashed purple line) was closed August 5, but – courtesy of strong up side momentum – price continues to grind higher.

Grinding higher is what momentum markets do … until a nasty pullback brings investors back to reality. Predicting such a rude wakeup call is nearly impossible, but a break below the convergence of support (blue oval) would be a yellow flag.

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

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.