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.

Advertisements

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 Forecast – Crash Wave Update

To put it mildly, U.S. stocks have been in a severe funk since December 29.

How low can stocks go?

We are dealing with a stock market rogue wave. By nature, rogue waves are unpredictable freak waves. Nevertheless, they occur often enough to discern certain rogue wave patterns.

The January 10 Profit Radar Report Pointed out that: “The S&P is nearing the next support zone and our down side target. The next support and inflection zone for a bounce is 1,895 – 1,870.”

The January 13 Profit Radar Report shared this chart and commentary, illustrating the most likely outcome:

The chart below plots the S&P 500 against the CBOE Equity Put/Call ratio (dark blue) and the VIX (light blue). We are not quite seeing the same panic readings as in August, but we’re reasonably close. It’s worth noting that there is a small bullish divergence (green circles) between the S&P 500 (which dropped to a new low) and the VIX and p/c ratio (which did not reach new extremes).

Upon completion, rogue waves tend to be followed by either 1) A snap back rally (dashed yellow projection) or 2) A choppy bounce, another low, and then a snap back rally (solid yellow projection).

The August meltdown (black circle) was followed by a hybrid of the above two scenarios. Rogue waves don’t follow rules and may extend further than anticipated, however, based on nearby support at 1,890 – 1,870, this decline could be near its termination point (or already over).”

At this point in time, the S&P is enjoying the biggest intraday gain of the year. Now we’ll have to see if it follows the dashed or solid yellow projection more closely.

For continuous updates and hand-crafted out-of-the-box research, test drive the Profit Radar Report and become the best-informed investor you know.

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.

 

S&P 500 Suffers from Lack of Participation

Friday was the first time since October 15 that the S&P 500 displayed a blatant lack of internal deterioration. The ensuing Friday/Monday slump quickly erased three weeks of up side progress.

Sunday’s Profit Radar Report featured the chart below along with the following warning:

On Friday the S&P 500 reached a new intraday and closing all-time high. The percentage of NYSE stocks above the 50-day SMA did not confirm Friday’s price high. That’s the biggest divergence between price and % of stocks > 50-day SMA since this rally started.

The success of this rally now rests on the shoulders of fewer companies. This doesn’t mean it has to end, but distributing weight on fewer shoulders generally accelerates the process of tiring.

Near-term support is around 2,040 – 2,030. I’m not yet sure if and how much lower the S&P 500 will drop, but the deeper the correction, the better the next buying opportunity.

It’s worth noting that the % of stocks above their 50-day SMA was the only indicator I follow that actually showed a small bullish divergence at the October 15 low. I’m not sure if this correction will be long enough to create a bullish divergence, but if it does, it shouldn’t be ignored.

For the first time this year, small cap stocks look actually more attractive than large cap stocks. The iShares Russell 2000 ETF (NYSEArca: IWM) has the potential for a bigger year-end pop compared to the SPDR S&P 500 ETF (NYSEArca: SPY).

Continued analysis and buy/sell signals for SPY and IWM will be available to subscribers of the Profit Radar Report.

Recent Profit Radar Report analysis for the Dow Jones is available here: Dow Jones Repelled by 12-year ‘Insider’ Resistance

Recent Profit Radar Report analysis for the Nasdaq-100 is available here: Nasdaq-100 ‘Stuck on an Island’

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 to get actionable ETF trade ideas delivered for free.

Is Apple’s Decline Over?

Wow! Apple, the world’s largest company lost 31.6% of its market capitalization since mid-September. This week’s new price low showed the first real bullish divergence. Is AAPL’s decline over, at least for now?

The shares of the world’s largest company recovered a bit after falling as much as 31.6%. What’s the bigger story, the 31.6% drop or Wednesday’s 4% recovery?

The chart below shows that Wednesday’s low at 483 occurred right around double green trend line support.

This is pretty much in line with the expectation I shared via the December 10, article about Apple here on iSPYETF: “It seems to me that Apple is heading for a new low, perhaps around 480 – 490.”

The same article stated that: “A new low unconfirmed by a new RSI low would create a bullish divergence and possibly prove as a springboard for a more sustainable rally into Q1 2013.”

The new low was carved out against a bullish RSI divergence. Will that be enough to get Apple shares moving higher again?

percentR, the same indicator we used to confirm Apple’s top, has moved from below to above 20. This is considered a bearish low-risk entry. The regular ‘default trade’ is to go short with a stop-loss (based on closing prices) at Wednesday’s high.

However, going short may not be the greatest idea since Apple precisely hit our down side target against a bullish RSI divergence. It may be better to use RSI as an initial change of trend confirmation. A close above 510 would be positive.

Apple Sentiment Gauges

I like looking at sentiment extremes to gain an extra edge. Bullish extremes are bearish for the stock and vice verse. Unfortunately, there are no sentiment extremes for Apple.

The short interest on AAPL is within the normal range (about 2% of outstanding shares) as is the options put/call ratio. Other options measure a closer to optimistic than pessimistic extreme, which is odd considering Apple’s 31% tumble.

Apple Cycles and Seasonality

AAPL has enjoyed a multi-year bull market with average annual gains of 63% since 1998 (the first year of profitability after Steve Job’s return to Apple).

For that reason Apple’s seasonality has a distinct bullish bias. The beginning of the year is generally less bullish for Apple shares, but obviously a 14-year predominantly bullish seasonality chart is little help during this bear market period.

Summary

Sentiment and seasonality don’t provide much of an edge, so we’ll keep technicals in the driver’s seat. Based on the bullish RSI divergence there’s good potential for a bounce. percentR suggests to wait for a close above 510 before going long.

Due to the potential for an upcoming S&P 500 reversal, it will be smart to elevate stop-losses if prices do rally and keep a stop loss no lower than 480 initially.

Will Google’s Fumble Take Down the Entire Technology Sector?

Due to a combination of facts, Google shares dropped as much as 11% on Thursday before trading in GOOG was halted by the Nasdaq. What caused this meltdown and will it carry over and drag down the Nasdaq and technology sector?

Google couldn’t wait to share its disappointing Q3 earnings with Wall Street. Although slated for an after-hours earnings report, Google accidentally spilled the beans around 12:30 EST.

At first it looked like a refreshing change to Washington’s modus operandi of extend and pretend or snore and ignore. But as it turns out, R.R. Donnelley (the company that does Google’s financial filings) accidentally filed Google’s 8-K form too early.

Heading for the Exits

Surprise turned into disappointment and distain as investors dumped GOOG as fast as they could. At one point GOOG was down $83.43 or 11%. Nasdaq even suspended trading in GOOG. Why the rush for the exits?

Analysts surveyed by Thomson Reuters expected earnings of $10.65 a share and net revenue of $11.86 billion.

The actual profit was only $9.03 a share on revenue of $11.33 billion. Another  major concern was that the average price that advertisers paid Google per click fell 15% from a year earlier. If Google, the king of monetizing advertising dollars, can’t charge top dollars anymore, how will Facebook and others?

What’s Next for Google?

Google is the third largest component of the Nasdaq-100 Index (corresponding ETF: PowerShares QQQ) after Apple and Microsoft. What does Google’s sell off mean for the Nasdaq QQQ and the technology sector (corresponding ETF: Technology Select Sector SPDRXLK)?

GOOG trading volume was through the roof as prices tumbled below the 20 and 50-day SMA and a couple of trend lines. Prices generally stabilize somewhat after large sell offs like this before falling a bit further. A new low parallel to a bullish price/RSI divergence would be a near-term positive for Google. Next support for GOOG is around 660 and 630.

Will Google Drag Down the Technology Sector?

The Nasdaq Indexes and the Technology Select Sector SPDR (XLK) has been much weaker than the Dow Jones and S&P 500 as of late. There were no bearish divergences at the recent S&P and Dow highs. This lack of indicators pinpointing a major top limits the down side of the tech sector.

Key support for the Technology Select Sector SPDR (XLK) is at 29.50. A move below 29.50 would be technically bearish although there may not be much more down side. Traders may use 20.50 as trigger point for bullish and bearish trades.

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.