S&P 500 Update: Top or Not?

The last S&P 500 update outlined why 2,500+/- has been our up side target for over a year.

Our view has been that S&P 2,500+/- is not the target for a major top, but it should lead to a 5-10% correction.

The August 7 Profit Radar Report zoomed in on 2,495 as short-term target (based on the ascending red trend line) and stated:

The S&P 500 ETF (SPY) closed at a new all-time high at the lowest volume of the year. The ideal scenario (and tempting setup to go short) would be a spike to 2,495+ followed by an intraday reversal.”

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

New Highs! Why?

On August 8, the S&P spiked to 2,490.87 and reversed lower. It initially looked like the 5-10% correction had started, but the August 13 Profit Radar Report warned that:

Odds for a bounce are high, and based on the wave structure, the likely up side target is 2,465 – 2,470. Purely based on the oversold condition however, the bounce could be stronger.”

The August 23 Profit Radar Report noted a bullish RSI divergence on the hourly chart, and stated:

Based on Elliott Wave Theory, this correction could even reach new all-time highs without violating any wave 4 guidelines. Whether this is the case remains to be seen, but it’s an option. Hourly RSI is fairly strong, therefore continued gains are easily possible.”

New Highs! Top or Not?

On Tuesday, the S&P surpassed the August 8 all-time high. In terms of Elliott Wave Theory, this high could be wave b of an ongoing wave 4 correction or wave 5 of wave 3, which would lead to the wave 4 correction (other options are possible, but those are the two most likely).

This article explains how and why Elliott Wave Theory has been such a valuable indicator.

The S&P 500 is nearing overbought, there is a bearish RSI divergence on the daily chart and seasonality is soon hitting a weak spot.

However, our reliable liquidity indicator (which has an incredible track record when it comes to sniffing out major tops) confirmed Tuesday’s new S&P highs.

Conclusion

The next inflection range spans from 2,500 – 2,540. Our working assumption is that the 5-10% correction will start then.

Our major market top indicators strongly suggests that the next correction will only be temporary and followed by new highs.

Continued analysis, with down side targets and buy/sell signals 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.

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S&P 500 Update: Is This Rally Leg Over?

The September 5, 2016 Profit Radar Report published the chart below along with the following commentary:

The chart below shows the long-term up side target purely based on projected symmetry. Based on the 1997 – 2013 trading range, the measured up side target is S&P 2,330 – 2,485, which is in the general vicinity of the 2,290 – 2,342 Fibonacci levels mentioned in the 2016 S&P 500 Forecast. Higher targets are possible, but we’ll reassess once we get there.”

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.

The second chart shows the trading activity over the past year along with short-term bars and trend lines we used to narrow down the up side target (the latest up side target was 2,494).

Short-term X-Ray

A special August 7 Profit Radar Report update featured this potent warning:

The S&P 500 ETF (SPY) closed at a new all-time high at the lowest volume of the year. For the first time in a while, there is a bearish divergence between the S&P 500 and the NY Composite a/d lines. The ideal scenario (and tempting setup to go short) would be a spike to 2,495+ followed by an intraday reversal.”

This is almost exactly what happened. The S&P 500 spiked as high as 2,490.87 before falling 52 points.

However, this drop quickly caused an oversold condition.

A special August 10 Profit Radar Report update featured this chart and stated that:

The CBOE equity putt call ratio (last chart) spiked to the highest reading (0.88) since April. The VIX is overbought. The VIX/VXV ratio jumped and contango fell. Both are near levels that have been seen at VIX highs. Stocks are oversold and ready to bounce. Based on the wave structure, we anticipate this bounce to be brief (2-6 days) and stay below the prior all-time highs (although the extent of the oversold condition would allow for a stronger bounce).”

Conclusion

The August 28, 2016 Profit Radar Report featured a bullish Elliott Wave Theory count with a projected up side target around S&P 2,500 (more details here: S&P 500 Update – Expect the Abnormal).

One of the images featured was a conceptual “We are here” chart (shown below). The green dots mark where we were in August 2016 (along with probability scores).

The red circles highlight where we are at today. The upcoming correction should be a choppy and frustrating wave 4 decline to be followed by another rally to new all-time highs. It then remains to be seen whether that high will be a major top or not.

Since the S&P did not quite reach our up side target, there is an alternate interpretation, which allows for continued gains almost immediately. However, that remains only an alternate unless the market tells us otherwise.

Continued analysis, with down side targets and buy/sell signals 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.

 

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.

 

Short-term S&P 500 Outlook

Tunnel vision is almost always a risky approach to investing, however, this is one of those rare times where tunnel vision is actually the best way to go.

With tunnel vision I mean focusing on the (only) indicator that’s been working, and tuning out all other indicators.

Elliott Wave Theory (EWT) has been the indicator deserving of investors’ focus. EWT (interpreted correctly) has persistently pointed to higher prices.

Months before the Trump rally, EWT strongly suggested a S&P 500 rally into the mid 2,300s and higher (original price projection was published here: S&P 500 Update – Expect the Abnormal).

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.

Short-term Outlook

The December 14, 2016 Profit Radar Report expected a prolonged period of sideways trading, and after over a month of ‘go nowhere’ action, the January 29 Profit Radar Report stated that:

The sideways trading since Wednesday looks to be wave 4 with a possible down side target of 2,280 – 2,290 (open gap at 2,284.63). Based on the bearish divergences the S&P may peel lower, but based on EWT there’s a good chance the S&P will find support in the 2,280 – 2,290 range and rally into the low-mid 2,300s.”

We now know that EWT prevailed over bearish divergences and rallied into the EWT-based up side target mentioned in February 5 Profit Radar Report:

The S&P 500 moved above 2,290 on Friday. Measured EWT-based up side targets are in the 2,320 – 2,370 zone. Various bearish divergences (RSI-35, stocks above 50-day SMA) and near oversold condition still suggest some caution.”

No Can Do Tunnel Vision

To maintain a diversified research and forecasting approach, the Profit Radar Report looks at the most potent indicators and never relies solely on any one indicator.

Today’s push to new all-time highs erased (almost) all larger bearish divergences, and synchronizes EWT more with many other indicators (only cycles are short-term bearish).

The weight of evidence points to more strength ahead (2 steps forward, 1 step back, as outlined by the January 4 Profit Radar Report). Any pauses caused by overbought conditions or investors sentiment should be short-term in nature.

Next resistance (and chance for a pullback/pause) is around 2,342. Support is at 2,320, 2,300 and 2,285 (see chart).

At some point in 2017 however, we should see either a major market top or a 15% correction. More detail is available in the multiple-indicator based 2017 S&P 500 Forecast.

Popular S&P 500 ETFs include:

  • SPDR S&P 500 ETF (SPY)
  • iShares S&P 500 ETF (IVV)
  • Vanguard S&P 500 ETF (VOO)

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.

If you enjoy quality, hand-crafted research, >> Sign up for the FREE iSPYETF Newsletter

S&P 500 Update

Summer was great … as long as you didn’t spend your days staring at charts, because nothing happened there.

From July 11 – September 8, stocks didn’t go anywhere. We didn’t even bother trading stocks.

But all boring periods must come to an end. The August 28 Profit Radar Report stated that:

What we are focused on for now is the most likely scope of any pullback. We prefer to see lower prices (the lower the better) and will start to leg into long positions at different levels.”

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.

Since late July, our first buy trigger has been waiting at S&P 2,140 (=SPY 214.20). Months of patience (and not chasing the up side) paid off on September 9 when the S&P 500 dropped below 2,140.

Since buying SPY on September 9, we also bought the iShares Russell 2000 ETF (IWM) and the VelocityShares Daily Inverse VIX ETN (XIV). This article explains why shorting the VIX via XIV is such an attractive trade: The Spectacular VIX Tailwind Trade

We started to leg into various long positions because the weight of evidences suggests higher prices for the remainder of 2016.

However, although the S&P (and Russell 2000) reached our first down side target, the performance since hasn’t been too confidence inspiring. It is missing the escape velocity we saw in February and June.

In February, the S&P bottomed near 1,800 and experienced a breadth thrust (we discussed this here: 2016 Bear Market Risk is Zero Based on this Rare but Consistent Pattern).

There was also a breadth thrust right after the Brexit low in June. This kickoff rally along with two longer-term projections was detailed here: Stock Market Melt-Up Alert?

In the spirit of risk management (a bird in the hand is better than two in the bush), we trimmed our positions in XIV and IWM and cashed in some profits. Although today’s spike looks good, 2-day RSI is reaching overbought, and seasonality tends to be weak this time of year.

For now, we are happy to have bought SPY, IWM and XIV near the September lows. When stocks are up, it’s better to be long and worry about a possible relapse than being in cash (or worse short) and worry about having missed the bottom. We can now play with ‘house money.’

Continued S&P 500 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 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 Update – Refocus on What Matters

Brexit! What Brexit? The Brexit reaction doesn’t even register on the monthly S&P 500 chart. ‘A tempest in the teapot’ as the British would say. This is yet another example why we do not focus (and sometimes ignore) news events.

The Brexit vote did cause undeniable ripple effects, but only temporarily. It’s time to tune out the noise and stop using Brexit as excuse or cause for everything that happens.

As the headlines below show, Brexit can’t be savior and scapegoat at the same time:

  • Morningstar: Stocks Climb as Investors Shake off Brexit Concerns
  • MarketWatch: US Stocks Open Lower as Brexit-Inspired Selloff Continues
  • MarketWatch: Dow Ends up 270 Points as Brexit Fears Abate
  • Morningstar: Stocks fall as Brexit Worries Resurface

Chart Analysis

The June 19 Profit Radar Report expected a temporary drop to 2,002 – 1,928 followed by a resumption of the rally. The ideal down side target was 1,970 – 1,925 (original chart is available here).

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

The structure of the post-Brexit selloff confirmed that the decline would turn out to be temporary. In a section titled “Chart Gaps and Major Market Tops” the June 26 Profit Radar Report noted open chart gaps and stated the following:

Following a tumultuous night, the SPDR S&P 500 ETF (SPY) opened Friday 3.42% lower than Thursday’s close (see chart). Since the inception of SPY (1/22/1993), there’ve only been 7 bigger gap down opens, and a total of 11 opening gaps with losses in excess of 3%. Five days later, the S&P traded higher 10 out of 11 times with an average post gap gain of 4.96%.

One of the reasons we continuously anticipated new all-time highs in recent years were open chart gaps left near the top. This is again the case now. There are open gaps at 2,104.57 and 2,117.96”

On June 27, the S&P fell as low as 1,991.68. This was in the general target zone, but short of our ideal target zone at 1,970 – 1,925. Nevertheless, the June 27 Profit Radar Report stated that: “two separate price patterns suggest a bounce is brewing.”

Initially, we anticipated this bounce to be choppy and relapse into the ideal 1,970 – 1,925 zone, but as the June 29 Profit Radar Report brought out, “this bounce has been stronger (in terms of breadth) than it was ‘supposed’ to be. Preliminary data suggests that the S&P may be experiencing a breadth thrust similar to what we saw in mid-February (see February 21 PRR). Based on the strong kick off from Monday’s low, we must consider the possibility that a more lasting low is already in.”

The February kickoff analysis, originally published in the February 21 Profit Radar Report, is available here: 2016 Bear Market Risk is Zero Based on this Rare but Consistent Pattern

Summary

Last week’s kickoff rally suggested a short-term digestive lull (with initial support near 2,070) followed by higher prices eventually. However, we never put all our eggs in our basket. No matter how compelling last week’s breadth thrust is, we are waiting for price to meet our parameters (buy triggers) before going long.

Until this happens, we may see more choppiness, and even more down side (although unlikely). 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 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.