Is the ‘Bear Market’ Already Over?

On December 24, 2018, the S&P 500 closed at 2,351.10. Much of the financial media pronounced a bear market that very day:

  • CNBC: We are Now in a Bear Market – December 24, 2018
  • Yahoo! Finance: S&P 500 Enters Bear Market: December 24, 2018
  • Investors Business Daily: S&P 500 Enters Bear Market – December 24, 2018
  • Motley Fool: Here’s Why the S&P 500 Plunged into a Bear Market – December 27, 2018

As the chart below shows, Google searches for ‘bear market’ also soared to an all-time high.

The entire bear market discussion is superfluous in my humble opinion. I explained why in the December 19 Profit Radar Report:

“‘Bull market’ and ‘bear market’ is a status like ‘online’ or ‘offline.’ Just because someone is offline today, doesn’t mean they can’t be online tomorrow. As any momentary snapshot status, the bull/bear market status is not predictive of future events.

In fact, statistically, most bear markets end after the S&P 500 declines 16%. The red graph below shows the average path of the past 10 bear markets (as defined by Ned Davis Research). The S&P has almost reached the maximum down side of the average bear market.”

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.

Below is an updated version of the chart published in the December 19, PRR.

Even though the S&P overshot to the down side, and now to the up side, it is following the average bear market trajectory … if one considers this a bear market.

Also note how the S&P bounced from support shown in the first chart.

Is this Bear Market Already Over?

Breadth thrust says: Yes.

On December 26, and January 4, 87% and 90% of NYSE-traded stocks advanced. Since 1985, there have been 5 other times when >85% of NYSE-traded stocks advanced within a 2-week period. Those 5 times are listed below. To the right of each date is a thumbnail chart, which shows how the S&P 500 performed over the next 6 month.

  • In 1987, and 2016 the S&P retested the initial panic low.
  • In 2009 and 2011, the S&P took off to the up side.
  • The 2008 thrust was followed by a rally, but ultimately failed.

Divergences say: No.

Divergences, bullish or bearish, are a helpful forecasting tool. Why?

Prior to a major market turn, market internals tend to divergence from price. If there is no divergence, the odds of a major turn are lower.

For example: At the January 2018 top, the S&P 500 and RSI-35 peaked on the same day. The January 31, 2018 Profit Radar Report stated that: “There was no RSI-35 divergence at Friday’s high. This very likely means that Friday’s high will eventually be exceeded.”

That’s what happened. But, there was a bearish divergence at the September 2018 high, which means new highs are no longer guaranteed.

More importantly, there was no bullish divergence at the December low. This doesn’t mean stocks can’t reach new highs, but due to the bearish divergence at the September 2018 top and the lack of bullish divergence at the December 2018 bottom, the odds of new all-time highs are reduced.

Conflict

Unfortunately there is a conflict between two pretty reliable indicators/studies. The breadth thrust suggests new highs, while divergences (or lack thereof) suggest new lows.

Tie-breaker

The S&P reached the black trend channel, which has been my up side target. The channel has acted as support/resistance numerous times over the past year, and may do so again. A re-test of previously broken support has ‘last kiss good bye’ potential.

Unfortunately that matter is complicated by the fact that the popular 50-day SMA (blue line) coincides with the hand-crafted trend channel. The market likes to see-saw popular SMAs to fool the masses.

The 2-hour chart provides some more details: Yesterday, the S&P 500 broke above the gray trend channel (blue circle). While above that trend channel, trade may continue higher (note the potenial triangle outlined by the purple lines, or diagonal outlined by the blue lines).

However, the larger black trend channel near 2,625 may end this rally leg (perhaps with some see-saw, courtesy of the 50-day SMA). A break back below the gray trend channel should usher in a 100+ point correction, possibly even a re-test or break of the December low.

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: Now or Never?

The June 6 bigger picture S&P 500 update showed 3 projections, all of them were bullish.

2 month later, the S&P 500 filled the open chart gap at 2,851.48 (chart gaps act like price magnets) and is within spitting distance of a new all-time high.

As the chart below shows, the S&P 500 is also near a pretty significant resistance cluster.

The confluence of trend channels and the January all-time high almost make it seem like it’s ‘now or never’ for bears, but is it?

Now or Never?

The July 25 S&P 500 update discussed the tug of war between a massively bullish pattern and bearish divergences. Despite the bearish divergences, the update concluded that: “Further gains are possible while above 2,830 and 2,800, but bearish divergences (while they exist) suggest the risk is elevated.”

Thereafter the S&P fell 50 points, but support at 2,800 held.

The rally from the August 2 low has now erased many of the bearish divergences existent in late July (see chart below).

Resistance vs liquidity

The tug of war is now resistance (around 2,870) vs positive liquidity. How so?

Resistance may (and should) cause a pullback, but the new all-time highs of my favorite liquidity indicators (shown as secret sauce #1 and 2) suggest any pullback will be temporary.

Therefore it’s not ‘now or never’ for bears to step up, but they do have a window of opportunity.

The plan of action remains the same it’s been for years. Buy the dips.

Continued updates are available via the 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.

S&P 500 Update: Bullish Triangle vs Bearish Divergences

The S&P 500 is in the midst of a tug of war between a bullish triangle break out and bearish divergences. Who will win, bulls or bears?

Bullish Triangle

The weekly S&P 500 chart below illustrates the bullish triangle potential. Triangle resistance (now support) is around 2,800. The measured target is calculated by projecting the maximum depth to the up side (dashed green arrows).

Thus far the S&P has held above 2,800, which is the first step towards confirming the triangle. Yet, there is risk of a fake out break out. How so?

Bearish Divergences 

The S&P 500 closed at the highest level since January 29, but underlying breadth has been weaker than price leads us to believe.

The red bar shows that my favorite liquidity indicators (dubbed ‘secret sauce’, more details available here) failed to confirm the new recovery highs.

Admittedly, the bearish divergences could be erased by one strong day, but while alive, risk is elevated.

Bearish Divergences in Context with Technical Analysis

The July 15 Profit Radar Report stated that: “The S&P 500 is at the bottom end of the 2,800 – 2,850 zone, which is filled with resistance levels and open chart gaps. Resistance is at 2,808 (January 16 high), 2,830 (combination of two long-term Fibonacci projection levels), 2,839 (January 31 high), and 2,873 (January 26 high). Chart gaps (which act as magnets) are at 2,812.70 and 2,851.48.”

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 gap at 2,812.70 was closed on July 17. On July 25 the S&P overcome resistance at 2,830 and almost closed the open gap at 2,851.48.

Short-term Outlook

Further gains are possible while above 2,830 (and 2,800), but bearish divergences (while they exist) suggest the risk is elevated.

Long-term Outlook

The longer-term S&P 500 outlook is discussed here

Continued updates are available via the Profit Radar Report.

BONUS CHART

The chart below shows the bearish divergences leading up to the Nasdaq-100 QQQ top. The left portion shows the projection featured in the July 15 Profit Radar Report, the right portion includes updated price (as of yesterday’s close, before Facebook hit the fan). Bottom line, risk is elevated while trade is below resistance (red line @ 181.80 is Fibonacci projection resistance going back to 2002 low)

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.

February Mini Meltdown: Warning Signal or Buying Opportunity

What caused the February meltdown? If you are looking for another strong opinion, sorry, you won’t find it here.

Before we address the more important issue – whether now is the time to buy or sell – here is one tell-tale sign (of what contributed to the ‘meltdown’) brought out by the January 29 Profit Radar Report.

On Friday, the S&P 500 jumped more than 1% to a new all-time high with less than 55% of stocks advancing, another one of those unusual events. The only other times this happened was once in 1987 and thrice in 1999. All four events were followed by minor 2-8% immediate corrections, and eventually big corrections and bear markets.”

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 correction sure was immediate, and it didn’t stop at 2-8%.

Buy or Sell?

Since much of the recent market action happened overnight, we’ll first be looking at the S&P 500 futures chart, which includes overnight trading activity.

The February 5 and 6 Profit Radar Reports published the chart below and stated: “Based on the extremely oversold readings, a bounce is becoming highly likely. S&P 500 futures tested the 200-day SMA and 38.2% Fibonacci. From high to low, the S&P 500 futures lost 12.14%. This is already more than the 5-10% correction we anticipated and close to the 14.38% loss (on average based on the last 4 cycles) leading into the mid-term low (see 2018 S&P 500 Forecast).”

The S&P 500 cash index looks a little different, as the pullback was ‘only’ 9.74%.

Here is one reason why we expect eventual all-time highs: RSI-2 was overbought, which suggested risk, but RSI-35 confirmed the January 26 all-time high.

RSI-35 also confirmed the December 2016 and March 2017 highs. As we mentioned many times in recent years, stocks rarely ever carve out a major top at peek momentum.

Conclusion

This clearly is a market that plays by its own rules (the rules are: there are no rules). Nevertheless, nearly all our studies and indicators suggest a resumption of the bull market once this correction is over.

S&P 500 futures already met our down side target, the S&P 500 cash index not yet. Ideally we’ll see a test of the panic low with a bullish divergence for a higher probability buy signal.

Either way, we consider this a buy the dip market. Continued updates and trade 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.

S&P 500 Analysis

A couple weeks ago, I declared 2,040 as target and ‘make it or break it’ zone (Why 2,040? Is explained here).

I realize this is a strong statement, and although the S&P 500 easily reached the 2,040 target, it appears like the ‘make it or break it’ zone was a non-event. Nevertheless, 2,040 actually did what it was supposed to do. How so?

First, 2,040 acted as price target. The target was reached.

The October 4 Profit Radar Report (PRR) proposed that: “If the S&P doesn’t turn around at 1,953, the odds increase for a push to 2,040.”

What does ‘make it or break it’ mean anyway?

The October 7 PRR explained that: “The rally from the September 29 low has been stronger than it should have been, and a sustained move above 2,040 would likely mean that the correction is over. A break above 2,040 could also validate a W-bottom formation, and significantly reduce the odds of another low in 2015.”

Second, 2,040 didn’t require a reaction, but market action around 2,040 would indicate whether the S&P 500 will break the August low (1,867) or not.

The S&P moved above 2,040, thereby diminishing the odds of another low dramatically. The S&P 500 made it. This doesn’t mean there won’t be a pullback.

In addition to price, we’ve also been focusing on market breadth. Price is important, but it’s not the only thing that matters.

To illustrate, an electric car can only deliver the full horsepower (or kilowatts) if the battery is charged. An empty, or near empty battery, won’t get the driver far, regardless of how many horses are under the hood.

We wanted to see how things look under the hood as the S&P approached (and surpassed 2,040). Is there enough horsepower and battery life left to move stocks higher?

At times, market breadth was quite weak (especially on Friday, October 23). However, there were no bearish divergences suggesting a pullback.

The October 18 PRR stated that: “A decisive move above 2,040 would unlock the next up side target around 2,080.”

It would be a stretch to call the move decisive, but 2,080 was reached nevertheless.

The hourly chart shows that the S&P 500 reached and eventually (after appropriate testing of resistance) exceeded all up side targets (blue ovals). There was a bearish divergence at yesterday’s high.

There is also trend channel resistance (going back to 2009) at 2,093 (increasing about 0.75 points per day).

It will now take a new RSI high and a move above 2,093 (adjusted for time) to unlock further up side targets. There is risk of a shallow pullback as long as the RSI divergence persists and trade remains below resistance.

Simon Maierhofer is the publisher of the Profit Radar ReportThe 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.

 

Is the Bull Market Over?

It’s time for an update on the most powerful stock market indicator in recent history – the major market top indicator.

This indicator (dubbed ‘secret sauce’) correctly foreshadowed the 1987, 2000 and 2007 market tops. The same indicator also ‘told us’ that the bull market will continue after the corrections of 2010, 2011, 2012 and thereafter.

A detailed explanation of this indicator (and why we call it ‘secret sauce’) is available for review here.

The October 8 column “The Missing Ingredient for A Major Market Top” mentioned a fledgling bearish non-confirmation (the first one since 2007).

Non-confirmations between the S&P 500 and ‘secret sauce’ are the first indication of a major market top. Here is how the October 5 Profit Radar Report assessed this fledgling divergence:

There is a small bearish divergence between the S&P 500 and the [indicator name replaced with ‘secret sauce’]. 
It is conceivable that this small divergence could mark a major top, but it is unlikely. Prior tops were preceded by multi-month divergences. Based on strong Q4/Q1 seasonality and the ‘need’ for a multi-month divergence, we expect new bull market highs later in 2014 or 2015.”

As proposed, strong seasonality and the ‘need for a multi-month divergence’ erased the fledgling divergence, and the S&P 500 moved to new all-time highs in 2015.

The May 17 Profit Radar Report noted a renewed bearish non-confirmation.

The May 31 Profit Radar Report observed the following:

At the latest all-time closing high for the S&P 500 (May 21), 27% of S&P 500 stocks traded within 2% of a 52-week high, while 13% of S&P 500 stocks already lost 20% or more since their latest high.
28% of S&P MidCap 400 stocks were within 2% of a 52-week high. 17% already lost more than 20%
16.8% of S&P SmallCap 600 stocks were within 2% of a 52-week high. 23% already lost 20% or more.
This internal deterioration and indication of buying selectivity is confirmed by [indicator name replaced with ‘secret sauce’] and the percentage of NYSE stocks above their 50-day SMA. 
Negative divergences like this tend to draw stocks lower. This doesn’t have to happen immediately, but this particular divergence has lasted longer than any other in the last years, and is likely to turn into a drag eventually.”

Eventually turned out to be August 19 – 24, when the S&P 500 lost 229 points in four days.

Is the Bull Market Over?

The updated chart below highlights the bearish non-confirmation noted in various Profit Radar Reports.

The 2015 divergence is more pronounced than the October 2014 divergence, but not as obvious as divergences seen prior to past major tops (4 – 24 months).

Based on the ‘secret sauce’ major market top indicator, the May 21 S&P 500 closing high could mark the last day of the post-2009 bull market. However, the bearish divergence is shorter than all recent historic precedents, so bulls and bears should be careful.

Old Bull or New Bear Market – It Doesn’t Matter (for now)

Just because the market hasn’t given a conclusive answer to the bull/bear market debate (yet) doesn’t mean we are in the dark.

Quite to the contrary, the S&P 500 has been following the path we identified months ago (we call it ‘our script’). What is ‘the script’?

The script is a comprehensive forecast (based on literally dozens of indicators and historical statistics) illustrated with one simple chart (read about it here and here).

The script pointed towards new lows (or at least a test of the August low at S&P 1,867). In fact, the September 20 Profit Radar report listed five reasons why stocks should head lower:

  • History: Panic declines, like in August, tend to be followed by a period of testing and another low, or at least a test of the low. Historical evidence: Since 1928, the S&P 500 dropped 10% or more from a 52-week high to a 3-month low, followed by a 3% bounce over 3 days (as was the case as of August 28) 21 times. 10 out of 21 times the S&P 500 tested or violated the low before going higher. 5 times the S&P staged a V-shaped recovery, and six times it eventually moved into a new bear market (3 of those 6 times the S&P rallied first before heading lower).
  • Seasonality: Late September/early October is one of the worst times for the S&P 500 in terms of seasonality (click here for S&P 500 seasonality chart).
  • The S&P 500 ended August with a loss of more than 5%. Since 1928, that’s happened 13 times (not including August 2015). The September after a 5% loss August was positive only 4 out of 13 times.
  • The 2011 script foretold a July/August sell off followed by weeks of sideways trading and another low.
  • Elliott Wave Theory combined with analysis of ‘rogue waves’.”

In short, our dashboard of indicators suggested that 2015 will follow the script of 2011.

A picture says more than a thousand words. For continued updates and out-of-the-box analysis, sign up for the Profit Radar Report.

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.

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2015 is Shaping up to Look a lot Like 2011

I researched volatility the other day and made two interesting discoveries:

  • Based on real volatility – actual price movements, not the VIX – 2015 is the most volatile year since 2009, and thus far mimics 2011.
  • There are actually a number of similarities between the year 2011 and 2015.

Here is why those similarities could be interesting:

The S&P 500 fell 20% in July/August 2011. 18% of that loss happened within a 3-week meltdown.

Could the same happen in 2015?

Here are three striking similarities between 2015 and 2011:

  • 2015, like 2011 is a pre-election year.
  • Thus far, the 2015 chart looks like the 2011 chart (see below).
  • Stocks are internally weak right now, like they were before the 20% drop in 2011. Internally weak in this instance means that more and more stocks are falling below their 50-day SMA despite new S&P 500 highs.

The first chart plots the S&P 500 against the percentage of stocks above their 50-day SMA in 2011.

The massive 2011 July/August summer drop was preceded by several months of bearish divergences.

The second chart shows that similar divergences exist right now.

The third chart compares the S&P 500 of 2011 with the S&P 500 year-to-date.

If the analogy holds up, we’re in for a wild ride (up, down, up), but no net progress at the end of the year.

Simon Maierhofer is the publisher of the Profit Radar ReportThe 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.