The Most Promising S&P 500 Setup Since February 11 (when it was at 1,810)

In terms of actual trading recommendations, 2016 has been a fairly quite year for the Profit Radar Report. We’ve had only seven actual trade recommendations (only one losing trade).

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

Until last week, the only stock-related trade was the S&P 500 buy at 1,828 on February 11 (closed on March 17 for a 11.6% gain).

Based on hindsight, not trading the choppy range from March 20 to June 8 has been the right decision.

Stalking Pays Off

Starting on May 24, the Profit Radar Report was looking for a false S&P 500 breakout and subsequent reversal.

After stalking the S&P 500 for two weeks for a low-risk entry, our carefully selected short trigger was met at 2,110 on June 9 (click here for more details on how we ‘stalked’ the S&P and avoided shorting prematurely). The corresponding ETF trade was to buy the ProShares Short S&P 500 ETF (SH) at 19.80.

This became the first S&P 500 trade since February 11, 2016. What’s special about this trade?

The FOMO (Fear of Missing Out) Trade

The chart below (published in the June 8 Profit Radar Report) shows that the ATR (average true range) dropped to the lowest level since June 29, 2015. ATR is a measure of volatility, and it showed a dangerous level of complacency (dotted red arrows).

As the horizontal red lines indicate, there was a cluster of resistance levels at 2,110 – 2,139. There was also an obvious bearish divergence on the hourly chart (not shown).

In short, the S&P was ripe for a reversal in a strong resistance range. The ingredients for a pullback where in place. The fact that the S&P 500 was near its all-time high (which means considerable down side potential) added to the intrigue.

Therefore, the June 8 Profit Radar Report stated the following:

At this point, we can’t quantify the maximum down side risk, but we know there’s potential for a deeper pullback once this rally is complete. We are attempting to carefully short so we have some skin in the game should there be a sizeable decline. This is an insurance trade against missing outWe will go short if the S&P 500 drops below 2,110.”

The decline since the June 8 high has been kind of odd. The S&P 500 has been down for six consecutive days, the VIX went soaring (click here for recent VIX anomalies), but the S&P loss has been relatively small (2.8%).

At this point, the S&P is oversold, by may have entered a powerful wave 3 down (according to Elliott Wave Theory). There are a number of open chart gaps, which suggest that the S&P will recover once this correction is done.

Continued S&P 500 analysis is 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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Oil and Gold Update

Oil Update

The February 21 Profit Radar Report said the following about crude oil:

Crude oil filled the massive gap left by Wednesday spike and is sitting right atop trend line support. Seasonality is strongly bullish until late April. For anyone interested in trading oil, this is a tempting setup to go long.

The problem with this trade is that oil has had massive daily swings, which makes identifying an effective stop-loss level nearly impossible. One of the goals of the Profit Radar Report is to keep risk at a minimum.

There is much up side to oil. Investors who don’t mind short-term drawdowns in exchange for potentially sizeable profits, this is a trade worth taking. However, since we cannot effectively limit risk, this won’t be an official trade.”

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The updated chart below shows that oil soared higher until it hit resistance near 38.

This resistance paused the rally and generated a bearish RSI divergence. More weakness is possibly, but ultimately higher prices are likely.

Gold Update

The March 2, Profit Radar Report pointed out a potential triangle formation for gold, and stated:

Gold appears to be carving out a triangle. Upon completion, triangles often lead to strong, but temporary breakouts. A quick spike to 1,300 +/- could mark the end of the initial up leg from the December low. Such a quickly reversed spike higher followed by a multi-week/months correction (see yellow projection) would harmonize to a satisfactory degree with seasonality and sentiment. A break above 1,255 would be the first steps towards a post-triangle spike.”

The chart below was published via the same update.

The second chart provides more long-term context. The purple lines outline the triangle formation. The initial post triangle thrust stopped at trend line resistance (ascending red line), and created a bearish RSI divergence. Gold found support today, and rallied higher. This keeps the potential of a move to 1,300+/- alive, but chasing this move would take impeccable timing.

Continuous updates for oil, gold, silver, S&P 500 and other assets classes are available via 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, 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.

Nasdaq QQQ ETF Breaks out of Bull Flag

The April 22 Profit Radar Report showed this chart of the Nasdaq-100 and stated:

There are similarities between AAPL and the Nasdaq-100, which is forming a potential bull flag. A break above 4,465 – 4,485 (corresponding level for QQQ = 109.10) could drive the Nasdaq-100 to next resistance around 4,600. Aggressive investors may buy QQQ with a break above 109.10.”

The bullish breakout materialized, but how legitimate is it?

 

Below is an update chart of the Nasdaq QQQ ETF.

  • The breakout occurred on elevated volume. Bullish.
  • There’s on open chart gap at 109.55, which will probably get filled.
  • There’s a long-term bearish RSI divergence. Potentially bearish.
  • RSI may be about to close above trend line resistance. Potentially bullish.
  • Next resistance at 111.50 – 112.20.
  • Ideal bull flag target is around 112.50.

The trend is up, but lagging breadth and the open chart gap suggest an eventual pullback is likely.

AAPL, the MVP of the Nasdaq and most important stock in the world, shows one of the most fascinating chart formations. More detail here: Fascinating AAPL Chart Formation Telegraphed Bullish Breakout

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.

 

3 Bearish Indicators Buck the Avalanche of Bullish Signals

Price is the most pervasive force on Wall Street. Stocks have rallied well over 5% since the recent low and almost all indicators are flashing green buy signals. Now is not the time to buck the trend, but here are 3 indicators that just won’t budge.

Price action trumps every other indicator, and the S&P’s eight-day 100-point rally has turned the dashboard of indicators overwhelmingly green.

There are just a couple of signals that refuse to jump on the bullish bandwagon.

Trading Volume

The chart below plots the S&P 500 (SNP: ^GSPC) against NYSE trading volume.

It’s quite obvious that volume did not confirm the direction of the S&P 500 and stocks in general.

The same can be said with the percentage of stocks trading above their 50-day or 200-day SMAs.

However, despite those bearish divergences, my proprietary indicators of supply and demand and various advance/decline lines have confirmed the S&P’s rally.

Resistance

The weekly Dow Jones (NYSEArca: DIA) chart below shows significant overhead resistance provided by two long-term trend lines/channels.

So far, the Dow Jones remains below this resistance level.

RSI Divergences

The S&P 500 chart below is an updated version of a projection first published in the February 3 and 5 Profit Radar Report.

Based on the assessment that: “There was a bullish RSI divergence. Selling pressure is subsiding. The potential for a roaring rally exists,” the Profit Radar Report expected a strong rally toward S&P 1,830.

Obviously, the S&P 500 (NYSEArca: SPY) has exceeded 1,830, but the general projection is still holding true and we are seeing a bearish RSI divergence on the hourly chart.

Based on the above indicators (albeit lonely, it standouts among the sea of green signals) this could be just a deep retracement rally followed by new lows.

How common are deep retracement rallies. Here’s a look at the most recent ones and how the S&P 500 fared thereafter:

Deep Retracement – The Last Hope for Bears

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.

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

The XLF Financial ETF Chart Looks Ominously Bearish

Uncertainty is one of the annoying staples of investing, but there are times when risk and uncertainty can be reduced to an absolute minimum. The Financial Select Sector SPDR ETF (XLF) is at such a low-risk inflection point right now.

Technical analysis is not infallible, but sometimes it allows you to pinpoint key inflection areas.

The Financial Select Sector SPDR ETF (NYSEArca: XLF) is at such a key inflection point right now.

The financial ETF (XLF) chart below offers a wealth of information:

1) XLF is butting against resistance created by the May 22 high.
2) The rally from the August 28 low has almost exactly retraced a Fibonacci 61.8%.
3) The current rally high could almost be considered the right shoulder of a head-and shoulders top (although there’s no real neckline).
4) Key resistance is at 20.32 – 20.60.
5) Key support is at 19.50 and 19.30.
6) There is a bearish RSI divergence at the July 23 high.

What Does All This Mean?

As long as trade stays below 20.60, odds favor lower prices ahead for XLF, potentially a sizeable decline.

How to Trade

There are two low-risk ways to trade XLF:

1) Go short now with a stop-loss above resistance or
2) Go short once support is broken.

Those are low-risk trades, not no risk trades.

Why Low Risk

Support/resistance levels act like traffic lights. A car driving down the street is most likely to stop (and reverse) at a traffic light. It doesn’t have to, but if the light is red it has to stop.

The XLF resistance level acts like a traffic light. XLF doesn’t have to stop there (in fact, a bullish case can be made if XLF breaks above resistance), but if XLF is going to stop and reverse, it will be at this ‘light.’

Overhead XLF resistance provides a stop-loss level, which exactly defines the risk of the trade. The potential gain is significantly larger than the potential loss, putting the risk reward ratio in favor of the short trade.

Only trading low-risk setups like this one results in about 60% winning trades, but the gains of the winning trades are 3-4 times bigger than the losses of the losing trades. The Profit Radar Report specializes in spotting such trade setups. The green bubble (August 5, 2012), marks when the Profit Radar Report stated: “Financials are currently underloved. With such negative sentiment, a breakout above 14.90 could cause a quick spike in prices.”

XLF echoes the current position of the S&P 500 (NYSEArca: SPY), which trades at a similar inflection point. The Nasdaq (Nasdaq: QQQ) has rallied much further than the S&P 500, the Dow Jones on the other hand (NYSEArca: DIA) has yet to catch up to the S&P 500.

Regardless of the short-term outlook for XLF, the financial sector is still plagued by serious issues.

Out of all people, it’s Hank Paulson – former Treasury Secretary (during the 2008 financial crisis) – who is addressing the vulnerability of the financial sector and actually warns of another financial ‘firestorm.’

More details here: Hank Paulson Warns of Another Financial Crisis

Simon Maierhofer is the publisher of the Profit Radar Report.

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Weekly ETF SPY: Semiconductor Index – Best Reflection of US Economy?

Since the 2008 low, the semiconductor sector outperformed the S&P by a sizeable margin. Despite a 5-year winning streak, semiconductors trade a 190% gain away from the 2000 high and might be the most accurate reflection of the U.S. economy.

There are always three sides to an argument: your side, my side and the truth.

There are also three sides to market analysis: A bullish spin, a bearish spin and the objective take.

The bullish spin on the semiconductor index emphasizes the 180%+ rally from the November 2008 low. The bears will argue that the semiconductor sector is still a 190% gain away from its 2000 high and would have to double twice to reach new all-time highs.

What’s the objective take?

Fact is, the PHLX Semiconductor Index (SOX) barely retraced more than a Fibonacci 23.6% of the points lost from 2000 – 2008. Compared to other indexes, even technology indexes, that’s quite pathetic.

The PHLX Semiconductor Index still trades below its 2007 and 2011 high. In fact, last week prices were rebuffed by the 2011 high.

Furthermore, last week’s high came with a bearish RSI divergence on the daily chart and two bearish RSI divergences on the weekly chart

Bearish RSI divergences alone do not consistently foreshadow price highs, but meaningful price highs are generally accompanied by bearish RSI divergences.

Semiconductors’ trouble to surpass the 2011 high and a daily and weekly red reversal candle emphasize the bearish undertone of the RSI divergence.

The path of least resistance for the coming weeks is down. Support is at 449 and resistance at 475.

The SPDR S&P Semiconductor ETF (XSD) tracks an index similar to the PHLX Semiconductor Index.

The UltraShort Semiconductors ProShares (SSG) aims to deliver 2x daily inverse performance of the semiconductor sector, but trades on very low volume.

The Direxion Daily Semiconductor Bear 3x ETF (SOXS) trades on more volume, but is 3x short.

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Weekly ETF SPY: Junk Bond ETFs Breakdown – Canary in the Mine?

Who is the best canary in the mine? It is said that bond traders are smarter than stock traders. Considering that junk bonds are showing cracks, it might be interesting what the ‘canary’ has to ‘chirp.’

‘Are Junk Bonds Ready to Fall?” – USA Today
‘Junk Bonds Flash Warning Signal’ – MarketWatch
‘Junk Bond Decline: Should You be Afraid?’ – Barron’s
‘Junk Bond Risk Climbs in Europe as January Issues Reach Records’ – Bloomberg
‘High-Yield Selloff Just Beginning?”

When times are good, junk bonds (or junk bond ETFs) are called high yield bonds. When times are bad, they’re called by their real name, junk bonds.

Based on the above headlines, high yield bonds have fallen out of favor. At least that’s the media consensus. What does technical analysis show?

The chart for the SPDR Barclays High Yield Bond ETF (JNK) doesn’t look impressive. JNK just closed below trend line support. The recent all-time high was also accompanied by a bearish RSI divergence.

Although the technical picture looks similar, the JNK breakdown is not confirmed by its ‘junkie cousin’ – the iShares iBOXX High Yield Bond ETF (HYG). HYG remains above trend line support.

Does HYG matter more than JNK or vice versa? Probably not. JNK trades more actively (4.3 M shares compared to HYG’s 3.5 M), but is smaller ($12.8 B vs HYG’s $16 B).

Anyone short JNK may use the red trend line as stop-loss guide. The prudent approach is to wait for HYG to confirm JNK’s breakdown.

JNK and HYG have both decoupled from the stock market. Bond traders are often considered smarter than stock traders and viewed as canaries in the mine. If that is true, stocks and bonds may be about to hit a rough patch.

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