Stock Market Melt-Up Alert?

The S&P 500 is at new all-time highs, so it may be appropriate to call to mind – and then discgard – all the bear market chatter of recent months.

Here is just a small selection of bear market headlines:

  • Barron’s: “Bracing for a Bear Market” – February 19, 2016
  • Forbes: “Investor Alert: We’re Firmly in a Bear Market” – January 25, 2016
  • MarketWatch: “If it Looks Like a Bear and Feels Like a Bear, it Probably is a Bear” – January 14, 2016
  • Benzinga: “The Bear Market is not Over Yet” – September 30, 2015
  • Forbes: “Here Comes the Recession and Bear Market” – January 6, 2016
  • Kiplinger: “Best Funds for Riding out a Bear Market” – September 15, 2016
  • Time: “The Next Bear Market Won’t Roar a Warning Just for You” – September 12, 2015
  • Motley Fool: “3 Timeless Tips for Surviving a Bear Market” – September 11, 2015
  • Investorplace: “Why the Bears will Keep Winning” – February 9, 2016

We never bought into the bear market idea.

The Profit Radar Report’s 2016 S&P 500 Forecast expected new all-time highs in 2016, as illustrated by this projection published at the beginning of the year.

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

Double Kickoff

Our bullish outlook was confirmed by the February ‘Kickoff’ rally, which was discussed in this article: 2016 Bear Market Risk is Zero Based on this Rare but Consistent Pattern

The April 17 Profit Radar Report featured another liquidity study and a more detailed S&P 500 projection (see chart below) along with the following commentary: “The most likely longer-term implications of our liquidity study remain in harmony with our 2016 S&P 500 Forecast: New all-time highs.”

Another breadth thrust, or kickoff rally, launched in late June, two trading days after the Brexit vote (see chart below).

The post-Brexit kickoff rally sported three bullish developments:

  • Up volume surge
  • Advancing stocks surge
  • New NY Composite a/d highs

The July 4 Profit Radar Report included a detailed analysis of this triple breadth thrust and concluded: “The NY Composite a/d lines are already at new highs, although the S&P 500 is not yet. This, along with the breadth thrust, strongly suggests that the S&P will follow in the not so distant future.”

The ‘not so distant future’ became reality five trading days later.

Buoyed by the breadth thrust, the S&P 500 gained the escape velocity needed to break above the glass ceiling near 2,130, which now serves as initial support (horizontal green bar).

Stocks may pull back due to short-term overbought conditions, but with or without pullback, higher highs are likely. It’s a buy the dip market.

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.

 

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S&P 500: The Tug of War Between the Need of New Lows and ‘Magnet’ Highs

Stocks are caught between a rock and a hard place.

On one hand, there’s the ‘need’ for a new low (more about why this is a ‘need’ in a moment). On the other hand, there’s a bullish reversal (selling climax), a breadth thrust, and an open chart gap (about 7% higher) that needs to get filled.

Who will win this tug of war? Bulls or bears?

Bullish Factors

Reversal Week: The S&P 500 painted a weekly reversal candle on January 22. The January 24 Profit Radar Report pointed out that: “All but one weekly reversals since mid-2013 were followed by at least another week of gains.”

Last week’s strong performance locked in the second week of gains. More details about the significance of weekly reversals (especially after a 52-week low) is available here: Spike in Selling Climaxes Leads to S&P 500 Reversal Week

Chart Gap: There is an open chart gap at 2,043. Since 2009, all open chart gaps have been closed. This one is unlikely to be different. At some point in 2016, the S&P will take care of this unfinished business.

Breadth Thrust: Last Friday (January 29), the S&P 500 soared 2.42%. 92% of S&P 500 stocks ended that day with gains. This was the strongest up day since September 8, 2015.

In theory, 90% up days, are an indication that buyers are ready to step up and drive price higher. But theory is not always reality.

The chart below marks all recent 92% up days. The two 92% up days during the V-shaped recoveries of 2014 led to new all-time highs. The two 92% up days in August/September 2015 were followed by a retest of the prior low.

The January 24 Profit Radar Report outlined this path for the S&P 500 (solid yellow projection more likely, dashed yellow projection less likely).

Thus far, the S&P is following the projection quite closely.

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Does the January 29 breadth thrust conflict with the solid yellow projection? No.

Bearish Factors

As the chart below shows, there were numerous 92%+ breadth thrusts in August/September 2011, which closely resembles the yellow projected show above. The S&P eventual dipped below its initial panic low.

Why are we looking at the 2011 chart?

  1. This was the last 10%+ correction.
  2. It’s been more than three years since the S&P had a 2011-style correction (2012 was the last time), where the initial panic low is broken after weeks of sideways W action.

Throught 2013 and 2014 we’ve only seen V-shaped recoveries. The August/September 2015 correction was W-shaped without break of the initial panic low.

This doesn’t mean a 2011 correction (W-shaped with break of the initial panic low) has to happen now, but based on the principal of alternation (the stock market rarely delivers the same pattern over and over), the odds of a 2011-style correction are higher than before.

New lows against bullish divergences would likely be a good opportunity to buy. We are always looking for low-risk entry levels, thus the ‘need’ for new lows.

The 2016 S&P 500 Forecast has just been published. It includes a detailed analysis of supply & demand, technicals, investor sentiment, seasonality, cycles & patterns. The forecast answers whether a major top is in or not, and shows the maximum up-and down side for 2016. Numerous unique data points are combined to craft an actual 2016 S&P 500 performance projection chart. The 2016 S&P 500 Forecast is available to subscribers of the Profit Radar Report. Subscribe now and become the best-informed investor you know.

Simon Maierhofer is the publisher 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 and 17.59% in 2014.

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