S&P 500: Long-term Explains Short-term

In late October we were looking for a strong counter trend rally (S&P 500 projection published here), and wanted to short the S&P 500 in the 2,830 – 2,850 zone (red bar). The S&P fell short of our target, and relapsed at 2,817.

This week we wanted to buy the S&P 500 after a brief dip below trend channel support (2,615 – green bar). Again, the S&P fell short of our target, and bounced from 2,631.

Why is the market falling short of our targets, and what does it mean?

Long-term Outlook Explains Short-term Movements

Here is one explanation (in my humble opinion the most plausible one):

In mid-October I analyzed various indicators to help determine the S&P’s larger pattern, and ideally future path. Indicators included:

  • Breadth & momentum
  • Price patterns
  • Support & resistance levels
  • Liquidity & breath
  • Investor sentiment
  • Elliott Wave Theory
  • Seasonality & cycles

The entire analysis, along with the three most likely scenarios were published in the October 14 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 chart and commentary below were published as scenario #1:

Scenario #1: The September high is wave 3 (primary degree). The current decline is wave 4. Waves 4 are generally choppy, drawn out, frustrating and nearly impossible to predict. Shown are the two most common Fibonacci retracement (down side) targets: 

— 23.6%: 2,500 — 38.2%: 2,228. Once this correction is complete, the stock market will rally to its final bull market high (wave 5). 

Although a new multi-year bear market with much lower targets is possible, the size of the bearish divergence at the September high and lack of absolute investor bullishness surrounding the top, suggest that scenario #1 or #2 are more likely than #3.”

“Waves 4 are generally choppy, drawn out, frustrating and nearly impossible to predict.” True to that! Although we correctly anticipated the decline from the 2,800s and the bounce from the 2,600s, the notion that the S&P is in a larger-scale wave 4 correction would explain why price keeps falling short of my targets.

Short-term Outlook

The hourly chart below, published in the November 27 Profit Radar Report, showed that 2,685 was a short-term inflection point, because that’s where a number of trend lines met up with an open chart gap.

As it turns out, the break above 2,685 uncorked quite a pop (I personally would have preferred a drop). Next resistance is not far away, but as long as trade remains above the breakout level (2,685), it can continue to move higher (likely in a choppy fashion) … and reach the 2,830 – 2,850 range missed earlier this month.

Nasdaq-100 – QQQ ETF

Unlike the S&P 500, the Nasdaq-100 QQQ carved out a bullish divergence at the November 20 low. The November 21 PRR stated that: “The Nasdaq-100 QQQ gave back most of its gains, but closed above short-term support. Since QQQ already carved out a bullish divergence, bulls already have their window of opportunity to take trade higher, as long as support around 160 holds.”

Bulls took advantage of their window of opportunity, but resistance is not far away, and RSI-2 is nearing over-bought.

Summary

First the S&P 500 missed our up side target (2,830 – 2,850), then our down side target (2,615).

This is likely caused by the unpredictable nature of choppy wave 4 corrections. Nevertheless, the weight of evidence suggests that the S&P will hit (and exceed) both of the above target zones in the coming weeks/monhts.

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.

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S&P 500: Short-term Outlook

This is a short-term S&P 500 outlook. A longer-term S&P 500 outlook is available here.

Below is a close-up look at the long-term forward projection in the October 21 Profit Radar Report and here. The original projection (in yellow) is drawn on a daily chart (instead of weekly) to show more short-term detail.

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.

As expected, the S&P rallied from 2,600. Although this rally met the minimum requirement (61.8% Fibonacci retracement at 2,812), it fell short of the ideal target at 2,830 – 2,850 (or higher).

When price fails the reach the ideal target (in this case 2,830 – 2,850+) at the first attempt, it often reserves the right to do so on a second attempt. On the other hand, the decline from the November 7 low has the ‘right look’ for the projected decline.

Up or Down?

The second chart shows some additional support/resistance levels. At yesterday’s low, the S&P closed the open chart gap at 2,685, which also coincided with the 61.8% Fibonacci retracement level.

It’s tough to pick a key level inside a multi-week trading range, and the S&P could trace out a variety of complex unpredictable patterns. For now though, we may be able to keep things simple by using the 2,685 level.

As long as the S&P stays above 2,685 (or quickly recovers after another brief wave 5 dip below), it may still move higher to reach the ideal up side target (2,830 – 2,850+). A move above yesterday’s high (2,747) is needed to further increase the odds of continued gains.

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.

S&P 500: Pop and Drop?

In recent weeks I published several forward projections for the S&P 500. All of them had two things in common:

  1. A bottom somewhere around 2,600
  2. A rally towards 2,900

The first chart shows a progression of the ending diagonal (published in the October 24, 28, 29 Profit Radar Reports) we used to identify the bottom and subsequent pop (blue oval was ideal down side target).

The second chart is the longer-term projection published in the October 28 Profit Radar Report. According to this projection, the S&P 500 was to bottom around 2,600 and rally into the red box up side target.

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.

Up side Target (almost) Captured

Since the up side target has almost been reached, it’s time to discuss the odds of a potentially scary ‘pop and drop’ scenario.

The October 28 Profit Radar Report stated that: “The projection (see chart above) provides a visual of the ideal path ahead. The upcoming bounce (either wave 2 or B) should reach 2,830 and perhaps higher (wave B could even bring new all-time highs), followed by another leg down.”

At the time, it was not important whether the bounce is wave 2 or B. Why? Both had the same minimum target (around 2,830). Now that the S&P is close to the minimum target, it’s important to know the difference.

Wave 2 vs Wave B

  • Wave 2: If this bounce is wave 2, it is not allowed to exceed the September high (2,940.91), and should ideally stop in the 2,812 – 2,869 range (61.8 – 78.6% Fibonacci retracement). Once complete, the wave 2 rally is followed by a strong wave 3 decline (along with waves 4 and 5).
  • Wave B: If this bounce is wave B, it could, but does not have to, reach new all-time highs.

The chart below includes a number of updated resistance/target levels:

  • 2,830: Fibonacci projection level going back to 2002
  • 2,853: EWT wave A = C
  • 2,869: 78.6% Fibonacci retracement
  • 2,880 & 2,921: Open chart gaps, which tend to act like magnets for price

As of Wednesday’s close, the S&P ended near over-bought, but without bearish divergences. This suggests short-term weakness should be followed by at least one more high.

Conclusion

It appears that at minimum another down/up sequence is required before a larger drop becomes an option.

Based on seasonality, continued gains and new all-time highs are possible.

I will be monitoring breadth, momentum and sentiment for extremes, internal weakness, or divergences to assess the odds of a serious reversal to the down side.

Continued updates will be available via the Profit Radar Report.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s 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-term Update

This is a short-term S&P 500 update. A longer-term S&P 500 update is available here.

The October 21 Profit Radar Report warned that: “The chart constellation suggests the potential for a mini crash are elevated. The ideal (down side) target for wave c is 2,675 or 2,587. Waves c are called crash waves, so a couple of strong down days are quite possible.”

Starting on October 24, we expected the ending diagonal pattern (converging purple lines) to play out. Below are the S&P ending diagonal charts published in the October 24, 28 and 29 Profit Radar Reports.

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 October 28 Profit Radar Report stated that: “The S&P continues to respect the diagonal boundaries, so we respect the diagonal pattern. On Friday trade briefly dropped below the lower boundary (small blue circle), as it usually does at the end of the pattern. Another drop into the 2,600 range (big blue oval) is still possible, and would actually be preferred for a potential short-term buy signal. A sustained move above diagonal resistance (2,705 on Monday morning) would be an initial indication that a low could be in.”

The S&P 500 should now be in its way towards the up side target discussed in the longer-term S&P 500 update last week. Although unexpected, a drop below last week’s low could unleash another crash.

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, 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 Newsletter to get actionable ETF trade ideas delivered for free.

S&P 500 Update: Risk vs Reward Reversal

Back in February, the Profit Radar Report published the two most likely S&P 500 forward projections (one of them shown below, the other one was very similar), and stated that: “Both scenarios will eventually lead to new all-time highs.”

My ideal up side target has been 3,000+/-, but risk increased once the minimum up side target (new highs) was reached.

Based on a number of bearish developments and divergences, the September 19 Profit Radar Report stated that: “Chasing price here comes with more risk than reward.”

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 September 30 Profit Radar Report tried to quantify the down side risk – based on the trend channel shown below – and stated: “A test of the lower trend channel (around 2,850) could be wave 4, followed by wave 5 towards or above 3,000.”

Obviously the S&P has already reached 2,850, and is now over-sold, and just above Fibonacci support around 2,830. Another area of support (based on Elliott Wave Theory for a diagonal) is the June 13 high at 2,791.

While in that range (2,850 – 2,780), the S&P can (and I think will) still find support for a year-end rally to 3,000+/-.

Of course there is a chance that the September high marks a more significant top with down side targets at 2,600 – 2,200.

We will likely reach those down side targets eventually, but a prior attempt to take out 3,000 would conform to seasonality, take out premature bears, and allow some of those bearish divergences to mature even further and set the stage for a bear market.

The months ahead should certainly be exciting!

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, 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 Newsletter to get actionable ETF trade ideas delivered for free.

S&P 500: Surprisingly ‘Normal and Predictable’

Considering the political cross currents, the S&P 500 has been acting surprisingly normal, even predictable.

In terms of support and resistance levels, the S&P has stopped and accelerated pretty much exactly where it ‘was supposed to.’

The weekly S&P 500 chart below highlights 3 different support/resistance levels.

  • Triangle with support at 2,800
  • January high resistance at 2,873
  • Trend channel with current support at 2,878

Past Interaction with Support/Resistance Levels

The daily S&P 500 chart shows that triangle resistance at 2,800 served as resistance (red dots) until mid-July. The July 15 Profit Radar Report highlighted this scenario: “The S&P is about to break out of a multi-month triangle with an up side target above 3,000.”

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.

Following the breakout at 2,800, resistance turned into support, and the S&P tested (now) support at 2,800 multiple times (green dots and ovals) before moving on to the next resistance formed by the blue trend channel and the January high (2,865 – 2,875).

Future Interaction with Support/Resistance Levels

Initially the S&P was rejected by resistance at 2,865 – 2875, this led to a test of support at 2,800. Eventually trade popped above 2,875, and made it as high as 2,916.

As before, prior resistance (2,875 – 2,865) is now support, and the August 29 Profit Radar Report wrote that: “It would be normal for the S&P 500 to test its breakout level around 2,875.”

The S&P tested 2,875 today, and as long as it stays above support, odds favor another rally leg.

Sustained trade below 2,875 will put bullish bets on hold.

The above analysis is based on simple support and resistance levels. The Profit Radar Report enhances basic common sense analysis with other trusted indicators – such as liquidity, sentiment, and seasonality & cycles – to increase the odds of winning trades.

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, 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 Newsletter to get actionable ETF trade ideas delivered for free.

Is FAANG Weakness Bearish for Stocks?

The spotlight has been on FAANG stocks (Facebook, Apple, Amazon, Netflix, Google) for much of this bull market, but lately it’s gotten kind of quiet around them. Perhaps that’s because they are actually under-performing the Nasdaq-100.

Is FAANG weakness bearish for stocks?

FAANG vs Nasdaq-100

The chart below plots an equal weighted FAANG index against the Nasdaq-100. The dashed lines highlight non-confirmations.

The black lines mark times where new Nasdaq-100 highs were unconfirmed by FAANG (as currently the case), the blue lines mark times where new FAANG highs were unconfirmed by the Nasdaq-100.

Since 2014, there have been 7 similar non-confirmations, where FAANG were lagging the Nasdaq-100. The last 4 very followed by micro pullbacks and renewed strength for both. The first 3 saw slightly larger pullbacks before renewed strength.

It was actually more of a warning sign when the Nasdaq-100 failed to confirm new FAANG highs (August and December, 2015 – blue lines).

Based on the short available history, FAANG under-performance is not bearish for stocks in general.

Nasdaq-100

The Nasdaq-100 QQQ ETF chart looks more bullish than bearish, as trade is above long-term Fibonacci resistance at 181.80, and on the verge of breaking out of a triangle formation.

Above analysis was initially published in the August 26 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.

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, 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 Newsletter to get actionable ETF trade ideas delivered for free.