Under the Hood: S&P 500 Deteriorating

We observed on April 21, that the stock market was actually stronger than the S&P 500 (NYSEArca: SPY) chart led to believe (Article: Under the Hood is more Strength than the S&P 500 Chart Shows).

Subsequently, the S&P 500 moved to a new all-time high on April 27 (2,126.92).

However, this condition of underlying strength quickly morphed into underlying weakness.

The April 26 Profit Radar Report observed this: “Interesting, 1-2 weeks ago, the percentage of NYSE stocks above their 50-day SMA was actually higher than the S&P 500 chart would suggest. Now, the percentage of NYSE (and S&P 500) stocks above their 50-day SMA is visibly lagging the new all-time highs. RSI is also lagging.”

The chart below shows that bearish divergences between the S&P 500 and the percentage of NYSE stocks above their 50-day SMA tend to lead to weakness (only 2 out of 8 corrections since 2014 were not preceded by this divergence).

Although the Nasdaq-100, QQQ and AAPL (Nasdaq: AAPL) staged a bullish breakout (as reported here: Nasdaq QQQ ETF Break out of Bull Flag and here: Fascinating AAPL Formation Telegraphed Bullish Breakout), the Profit Radar Report did not issue an official buy signal for the following reason:

Based on breadth and seasonality, this rally is not built on a solid foundation. Also, the Nasdaq-100 has gapped up 1% to at least a once-year high 50 other times besides Friday. Over the next three sessions, it added to its gains only 38% of the time, averaging a return of 0.6%. Its maximum gain during the next three days averaged +1.3%, the maximum loss -3.2%.”

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The above-mentioned articles warned that: “The trend is up, but lagging breadth and the open chart gap suggest an eventual pullback is likely,” and “In terms of Elliott Wave Theory, any new AAPL high could complete a 5-wave move and result in a larger-scale reversal.

AAPL spiked to a new all-time high on Tuesday (April 28) and has fallen 10 points since.

This week’s down side reversal of the S&P 500, Nasdaq and AAPL after a bullish breakout (according to technical analysis) emphasize why it is helpful to monitor multiple indicators.

That’s why the Profit Radar Report looks at supply & demand, technical analysis, investor sentiment, seasonality and price patterns for a comprehensive outlook.

How a combination of the above indicators is used to spot high probability trades is shown here (with an actual recent example): How to Spot High Probability Setups

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.

 

Fascinating AAPL Formation Telegraphed Bullish Breakout

The April 22 Profit Radar Report highlighting this fascination AAPL (Nasdaq: AAPL) formation with the following commentary:

AAPL, the most important stock in the world, hasn’t been able to nudge the S&P, Dow Jones or Nasdaq in either direction. That’s because AAPL is stuck in its own trading range/triangle. The consolidation pattern is similar to that of Q3 2014. AAPL closed at 128.62 today. This mini-breakout increases the odds of more upside.”

 

Below is an update AAPL chart. The next meaningful resistance cluster is around 140, but the open chart gap (and various breadth divergences) allows for a ‘digestive pullback’ at any time. In terms of Elliott Wave Theory, any new high could complete a 5-wave move and result in a larger-scale reversal.

AAPL’s pop also propelled the Nasdaq-100 and PowerShares QQQ ETF (Nasdaq: QQQ) out of a formation called a bull flag. More details here: Nasdaq QQQ ETF Break out of Bull Flag

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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XLF Financial ETF Breaks above Resistance to New 6-year High

The XLF financial ETF just soared to new highs not seen since September 2008. Perhaps more interesting than this new high is the pattern of this breakout. Interestingly, this week’s XLF push mimics the June breakout almost tit for tat.

The Financial Select Sector SPDR ETF (NYSEArca: XLF) has been on fire and just busted through resistance that kept a lid on prices throughout July.

The XLF chart below shows Thursday’s breakout along with various other support/resistance levels highlighted in the past.

The blue boxes highlight the similarities between two recent patterns:

  • Triple top (red dots)
  • Selloff (red arrows)
  • Eventual break to new highs (green arrows) on elevated volume (green boxes)

The question on most investors’ minds is whether this breakout will stick.

If the pattern repeats itself, XLF would enjoy limited upside, a consolidation period and another pullback.

I am not sure if the pattern will repeat, however the prior resistance right around 23.05 is likely to act as support in the days/weeks to come. A drop back below 23 would caution that the bullish breakout is due for a pause.

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.

Is There a Bullish Breakout for the Gold Miners ETF – GDX?

Gold mining stocks and the gold mining sector as a whole have been in free fall mode since September 2012. The Market Vectors Gold Miners ETF (GDX) is still trading 55% below its peak, but it is showing signs of life. Is this a bullish break out?

The March 6, iSPYETF article on ‘Gold vs GDX’ mercilessly ousted the fundamental profit making flaws of the gold mining sector.

To say that gold mining stocks have had a hard time monetizing their mining activity in an environment of falling gold prices is like claiming hurricane Sandy was just a stiff breeze.

The Market Vectors Gold Miners ETF (GDX) lost 60.8% from top to bottom tick, but if there’s anything we’ve learned from QE is that what comes down likely goes back up.

Based solely on technical analysis, GDX just completed the first steps of a bullish breakout.

The May 20 low has three trademarks of a tradable bottom.

  • It sports a bullish RSI divergence where price dropped to a new low, but RSI did not.
  • Prices were able to close above the black parallel channel that confined much of the previous down trend.
  • Thursday’s pop canceled a bearish percentR low-risk entry. percentR (or Williams %R) is a momentum indicator. According to my personal methodology (which is correct about 60 – 70% of the time) the immediate down trend is now broken.

It obviously will take more confirmation for the fledgling breakout to ‘stick,’ but the above-mentioned bullish factors decrease the odds of being cut by trying to catch a falling knife.

A close above the first red resistance line at 31.27 will be further confirmation that a tradeable low is in while key support is located right around 27. Use illustrated support/resistance levels to spot low-risk entries.

Low-risk entries are not no-risk entries. But going long against support, or once resistance is broken (and then used as support and foundation for a stop-loss level), significantly limits your risk and lets you know exactly when you’re wrong.

Currently prices are 5%+ away from support or resistance. Using support at 27 as stop-loss, the risk (drop from 29.40 to 27) is 8.2%. It makes sense for prices to pull back or resistance to be taken out for a lower risk entry.

The Profit Radar Report specializes in pinpointing low-risk entries for the S&P 500, Nasdaq-100, euro, dollar, gold, silver and 30-year Treasuries. There’s always an opportunity somewhere, and the Profit Radar Report helps you find it.

Bullish Euro Gold Breakout May Be Misleading

Gold measured in US dollars has been treading water, but gold measured in euro just staged a bullish technical breakout. While this is good news, there’s reason to be cautious of another ‘shakeout’ move for gold prices.

Investors are forgetful and the market is relentless. The Cypriot Bailout was another reminder about gold’s safe haven advantages over fiat currency.

In times past, gold would have soared on similar economic scares. But not this time. Gold today trades around the same level as two weeks ago.

While the Cypriot Bailout failed to deliver the fuel needed for higher targets, gold could be getting a positive boost from elsewhere.

Gold prices measured in euros just staged a technical breakout above resistance (red circle). Gold measured in US dollars is trading well below similar resistance.

The red lines in the chart below mark previous times where euro-Gold broke above resistance. Euro-gold proved to be the bullish canary every time.

Price divergences between euro and dollar-Gold appear frequent at different degrees. The dotted boxes highlight some of the price divergences at larger turning points. More often than not, the euro pattern (gold colored boxes) sets the stage for the next move.

Based on the correlation between euro-and dollar-gold prices, higher prices seem likely (sentiment is sending the same message).

The question is when?

The Profit Radar Report has been expecting higher prices for gold. However, another new low below 1,555 would look like a more legitimate bottom. That’s why the March 3, update stated that: “Aggressive investors afraid of losing out on a possible up move may go long.”

One reason I would like to see a new low is the lack of an obvious bullish price/RSI divergence at the February 21 low (@1,555). There was a minor divergence, but the bigger the divergence, the bigger the confidence in the longevity of the bottom.

Over the past week gold prices have struggled to move past Fibonacci resistance. The reluctance to move beyond resistance (despite the ‘fear catalyst’ from Cyprus) and the lack of an obvious RSI divergence at the recent low, conflict with the bullish breakout of euro-Gold.

Since I’m always looking for low-risk entry points, buying gold at lower prices would represent a much more attractive risk/reward ratio.

Long gold ETF options include the SPDR Gold Shares (GLD) and iShares Gold Trust (IAU).