5 Tempting High Reward S&P 500 Sector ETF Setups

If you like team sports, you know that a team may win even though some of its players had a bad day, or vice versa.

Just as a team is made up of individual players, the S&P 500 is comprised of individual sectors. Not all sectors perform at the same level at the same time, in fact, some may boom while others bust.

Here is a look at some sector ETF setups (boom and bust, ripe and stale):

Health Care Select Sector SPDR ETF (XLV)

The April 17 Profit Radar Report noted that the following about XLV:

The health care sector represented by XLV has taken a beating, too. XLV dropped to the lowest level since January 4, and sentiment has become extremely bearish. Purely based on sentiment, when there was so much pessimism, XLV has rallied over the next month 90% of the time, with an average gain of 5%. Seasonality is positive for the next month as well.

Aside from the green bar, there’s no ‘must hold’ support level, but RSI-2 is over-sold. We are committing a small amount to buying XLV below 86.”

We bought XLV when it dipped below 86 on April 18, and sold XLV when it became over-bought and reached the 5% average gain threshold at 90.50 and May 6.

XLV is now in neutral territory, and the setup has become stale.

Real Estate Select Sector SPDR ETF (XLRE)

The April 14 Profit Radar Report featured the chart below and stated:

The Real Estate Select Sector SPDR (XLRE) looks interesting. 3 support and resistance levels meet up to form resistance at 36.80 on Wednesday. Price is wedging higher with a small bearish divergence. Based on the wedge, the down side risk is significant if price fails to hold support. For now, we will go short if XLRE moves above 36.85 and subsequently drops below 36.50.”

Unfortunately XLRE missed my sell limited by 15 cents. After a sizeable drop, XLRE bounced from support, but a break below that support (around 35) is likely to unlock the next down side target. The potential down side risk could be significant, partially because XLRE’s sector ‘cousin’ may be in trouble.

SPDR S&P 500 Homebuilders ETF (XHB)

The May 5 Profit Radar Report pointed out that: “The SPDR S&P Homebuilders ETF (XHB) is wedging higher, and close to wedge resistance and general resistance with a bearish RSI-35 divergence. In terms of seasonality, May and June are the worst months for XHB. We will short XHB if it spikes above 41.80 and subsequently moves below 41.70 (stop-loss at day’s high). Considering futures, XHB may open lower tomorrow, and we may consider to go short on a drop below 40.70.

XHB fell below lower wedge support, which unlocks significant down side potential. RSI-2 is near over-sold, and a bounce is possible. In fact, any bounce that gets close to the broken purple trend line (such a re-test of previously broken support is often a ‘kiss good-bye’) would be another low-risk set up to go short.

Utilities Select Sector SPDR ETF (XLU)

March 27 Profit Radar Report:

The utility sector (represented by XLU) rallied to new all-time highs with more than 80% of its components at a 52-week high..

In addition, XLU was rejected by trend line resistance. Additional trend channel resistance is around 59.50. Support is around 58.20 and 57.20. There was a bearish RSI-35 divergence on the daily chart.

Based on technicals and statistics, shorting XLU has high odds of being profitable. Unfortunately XLU seasonality is very bullish for March/April. 

XLU could move a bit higher, but we will leg into a short position now (and will probably add more if it moves higher). There is no good inverse utility ETF, so we will short XLU above 58.40.”

XLU is making slow down side progress, but it’s not been able to move below support around 57 – 56.75. A move below support could unlock further down side, but immediate down side may be limited due to a near over-sold RSI-2.

PHLX Semiconductor Index (SOX)

The PHLX Semiconductor Index is often the ‘MVP’ that drives the ‘team’ to more gains (or vice versa). SOX is at a convergence of support (black trend channel and green trend line). If bulls are going to make a stand, it would be here. If not, the next stop is around 1,440.

Continued sector and stock market analysis 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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Comprehensive S&P 500 Update

Short-term S&P 500 Analysis

In the April 7 Profit Radar Report I introduced a very simple approach to analyzing the S&P 500. See chart and commentary below:

Red trend line resistance has held thus far, and has not become main stream enough to be negated. Green trend line is near-term support. An immediate break above trend line resistance may lead to closure of the open chart gap (2,921.36).”

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.

Troughout April, the S&P has been clinging to the red trend line like a tourist hooked to a zip line. Chart gaps are not reversal levels, but they are like magnets, and once that gap was filled on April 17, there was one less reason for the S&P to move higher.

The April 14 Profit Radar Report warned that: “Technicals do not indicate an immediate break down, and trade may continue to grind higher. However, any gains are likely to be slow and choppy, and risk of a drop lower – where a one-day drop can erase days or weeks of gains – exists.”

Longer-term S&P Analysis

The first few trading days of May basically almost all of April’s gains. But more importantly, prior to the May drop, the S&P 500 actually reached a new all-time high.

This new high was the minimum requirement outlined in my 2019 S&P 500 Projection (published in the 2019 S&P 500 Forecast, see below).

Why was a new all-time high ‘required?’ As explained in the 2019 S&P 500 Forecast, there were not enough bearish divergences for a major market top at the September 2018 high, and no bullish divergences at the December 2018 low.

New all-time highs – as projected – were the only possible way to reconcile those indicators.

Even though the S&P has reached the minimum requirement before a larger (and quite possibly nasty) pullback, the yellow projection carries the S&P 500 to trend line resistance around 3,000.

My preferred scenario was featured in the May 1 Profit Radar Report (see below). Based on this scenario, the S&P would drop to 2,890 – 2,865 (in wave 4) and rally towards 3,000 (in wave 5).

Why is this my preferred scenario? Because waves 4 (especially when comparatively long-winded) tend to drag down high breadth and momentum readings (seen at wave 3 highs), which creates the bearish divergences usually seen at the wave 5 top (although the upcoming top should be noteworthy, I don’t expect this to be a major market top).

There was a bearish RSI divergence at the April 30 closing high, which could be enough for a sizeable drop, but a more pronounced set of divergences at higher prices would be a clearer signal.

Summary

The expected down side risk became reality, and the S&P may continue lower, but the 2,890 – 2,865 zone is where a rally to about 3,000 may start. How big is the eventual down side risk is one of many questions answered in continuous Profit Radar Report updates. You may take the Profit Radar Report for a ‘test drive’ here.

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.

New S&P 500 Highs Reduce Long-term Bear Market Risk to Zero

Yes, this is a pretty bold headline, but it’s not just a sensationalistic attention grabber, it’s simply the result of my research.

I published a similar article before in February 2016, when the S&P 500 traded below 1,900. The title then was: 2016 Bear Market Risk is Zero Based on this Rare but Consistent Pattern

In fact, a pattern similar to February 2016 played out in January of this year (discussed here: Is the ‘Bear Market’ Already Over?)

But the reason for this bullish long-term article is the new S&P 500 all-time high, not a breadth thrust from the low (as in February 2016 and January 2019). Here is why this is bullish:

Bullish ‘Round Trip’

Last week’s new S&P closing high completed a tumultuous round trip: A 20% drop sandwiched by two all-time highs in 146 days (see chart below).

Since 1928, something similar (at least a 14% drop sandwiched by all-time highs) has only happened 12 other times, 6 of those occurred since 1980 and are listed in the table below (the table includes the 2018 round trip, although it was only 10.16%).

‘Round Trip’ Implications

The stat is interesting, but does it mean anything? Yes, it does.

As the right column (table above) shows, 1 year after the S&P eclipsed its prior all-time high, it was higher every time, on average 12.66%.

The chart below shows the average performance for the year following the day when the S&P 500 fully recovered its prior losses (based on the data shown in table).

Based on the average trajectory, the first 80 trading days (about 4 month) after the all-time high tended to be choppy, but price action is outright bullish thereafter.

Odds of a deep but temporary S&P 500 pullback in the 3,000 range are high.

Price studies like this are just one of many indicators that go into the Profit Radar Report’s market forecasts. If you have only a few minutes every week to become the best-informed investor you know, you’ll enjoy the Profit Radar Report. Take a test drive now.

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 – Outrageous Projection

The S&P 500 is following closely my projection (in yellow) published in the Profit Radar Report’s 2019 S&P 500 Forecast.

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.

Unfortunately we never got the pullback expected in Q1 2019, but the new all-time highs are right ‘on schedule.’

This doesn’t mean there wasn’t any uncertainty on the way up. The Profit Radar Report always looks at the market from different angles, and at the beginning of April there were enough conflicting indicators and signals to cause analysis paralysis.

Instead of further exploring the various cross currents, and burdening subscribers with information overload, I decided to take the approach described in the April 7 Profit Radar Report:

Perhaps a simplified approach will help navigate this environment. Red trend line resistance has held thus far, and has not become main stream enough to be negated. Green trend line is near-term support. An immediate break above trend line resistance may lead to closure of the open chart gap at 2,921.36.”

Below is an updated version of the chart published on April 7. Instead of breaking above the red trend line to close the gap at 2,921, the S&P 500 has been inching higher like pulled on a zip line.

Regardless of how, the gap has been closed, and the S&P 500 has now one less reason to continue higher without interruption (chart gaps act as magnets).

I wouldn’t be surprised to the see the S&P 500 grind a little higher, but then we should see whether the remainder of my S&P 500 projection – which is quite outrageous – will also prove correct.

Based on investor sentiment, a nasty decline is possible and becoming more likely, but based on liquidity any drop is probably only temporary. According to Elliott Wave Theory, an upcoming drop (once smaller waves 4 and 5 are complete) could be a steep wave C or wave 2, but as long as the S&P stays above 2,900, it can grind higher.

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.

Finding an Edge in a Dull Stock Market

How to gain an edge:

A bear jumps out of a bush and starts chasing two hikers. They both start running for their lives, but then one of them stops to put on his running shoes. “What are you doing? You can’t outrun a bear!” says one hiker, the other one replies: “True, but I don’t have to outrun the bear; I only have to outrun you!”

What’s the point? The market is the composite opinion of all other investors. In essence, you beat ‘the market’ (aka the ‘bear’) by knowing more than your fellow investors (aka the other ‘hiker’). Knowledge is the edge.

I consistently follow dozes of different indicators, which fall into one of these four categories:

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

When all or most indicators point in the same direction, there’s a good chance stocks will move in that very direction. I call this a high probability trade.

The last such signal occurred in December, when liquidity, sentiment, technicals and seasonality pointed higher. The bullish weight of evidence, at that time, was discussed in this article: Is the Bear Market Over?

Since then, the S&P 500 has gained more than 20%. How much further can stocks rally?

Investor Sentiment

Some sentiment gauges show elevated optimism, but considering the strong Q1 2019 performance, overall sentiment is surprisingly subdued. Shown below is a selection of six different sentiment indicators. None of them shows an extreme reading. Without extremes, sentiment doesn’t provide an edge. It is possible for stocks to move higher.

Technical analysis

Short-term: The S&P 500 is nearing over-bought and is facing mild resistance. The chart below highlights trend line resistance and horizontal volume resitance (volume by price not date) for the S&P 500 futures. Now doesn’t appear to be the time to chase price.

Longer-term: The trend is your friend, but the risk of being ‘un-friended’ exists, and it’s difficult to find low-risk entries in an market that’s driven by momentum, but on the edge of being over-extended.

Elliott Wave Theory, the most exotic tool in the technical analysis tool box, is up to interpretation and of little help (more details here).

Supply & demand

Liquidity continues to flow into US stocks. Uncertainty in the European Union and money on the sidelines in the US are a likely cause for the continued inflows. My favorite liquidity indicator suggested throughout 2016, 2017, and 2018 that new all-time highs will be reached, and that message continues to be the same.

Seasonality & cycles

Bullish mid-term election year seasonal forces, discussed here, appeared late, but they did show up.

Based on mid-term seasonality, more gains are likely, but general S&P 500 seasonality is entering a higher risk window.

Cycles are conflicting.

Summary

There are times when most indicators point in the same direction (as in December), making a directional forecast easy.

And there are also times when indicators are in conflict, such as now.

That doesn’t mean we are left entirely clueless. Based on the market’s pattern in early March, we expected the S&P 500 to see-saw across obvious resistance at 2,815 and secondary resistance at 2,830. The S&P spent two weeks doing just that. But in order to unlock lower targets, it would have had to break below 2,785, which it didn’t.

Periods of relative uncertainty are always frustrating, but two things should be kept in mind:

  1. It’s good to know when visibility is limited and act accordingly. Would you trust on Uber driver who’s speeding in the fog? Can you trust an analysts who’s ignorant of ,or over confident in periods of uncertainty? Knowing there is no edge, is an edge in itself.
  2. Periods of uncertainty always end!

And when certainty returns, the Profit Radar Report will be there.

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.

Gold Update

In August 2018, gold carved out the bottom outlined via this projection published in the August 29 Profit Radar Radar Report.

Gold appears to have finished the first leg of this rally on February 20 at 1,350, which was followed by a 70-point drop.

The March 10 Profit Radar Report featured this gold chart, which projected a rally to about 1,320 followed by a drop back into the 1,250 range.

Gold made it as high as 1,325. As the updated chart shows, price dropped below the short-term black trend channel today (red arrow).

This is the first indication trade should work towards our buy target. The coming days will hopefully bring further confirmation.

Popular gold ETFs include:

SPDR Gold Trust (GLD)

iShares Gold Trust (IAU)

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 Update – Let’s Call it What it Really Is?

Last week’s S&P 500 update highlighted a triangle and complete 5-wave pattern likely to be followed by a ‘pop and drop’ with a minimum down side target around 2,720.

Price popped to 2,817, and subsequent dropped to 2,722, confirming (and possibly completing) this pattern.

As mentioned in the March 10 Profit Radar Report, to see more down side, the S&P would have had to stay below 2,764, otherwise odds would favor a new high.

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, the S&P moved above 2,764, and subsequently a new high.

How does that new high fit into the bigger picture?

Time to be honest

My analysis includes many different indicators, but the only one that’s really mattered is the December/January breadth thrust discussed here.

Elliott Wave Theory (EWT) on the other hand has been of little help. In fact, I have rarely seen more conflict among EWT analysts with many either adjusting their labels to match stubbornly held interpretations, or changing on a whim.

This can be (and usually is) costly for readers and investors. The honest approach is to just admit when the EWT structure is foggy.

The chart below shows the EWT conundrom: The wave structure going into, and coming out of, the December low is messy, and up to interpretation.

If you are not familiar with EWT, in order to pinpoint the main trend, it’s important to discern a clear 5-wave (or at least 3-wave) pattern. A 5-wave pattern usually marks the dominant trend, and is followed by a pullback, and trend continuation.

The blue stretch above labeled “5 waves” is the only clear pattern I’ve been able to discern (published real time in the March 3 Profit Radar Report, see chart below).

The completed pattern suggested a 100-point drop (or more). In reality it led to a 95-point drop. Since the drop reached my minimum target (2,720, green trend line, first chart) and stopped after only 3 waves (3 waves are counter trend), it may have completed the entire pullback.

The blue “a-b-c” labels show another valid path, which suggest the S&P 500 will soon relapse and re-visit the 2,700 range.

Technical Analysis

Basic chart analysis shows the S&P 500 bumping against a cluster of resistance (first chart). Risk is elevated while below resistance, but the more obvious a resistance level becomes (such as this one), the more likely it is for price to surpass or see-saw that level.

An immediate U-turn, or a quickly reversed spike above resistance, would be the first indication that the blue path illustrated above is playing out.

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.