Are Stocks Quietly Deteriorating or Revving up for More Gains?

Every major market index has been marching to the beat of their own drum.

The Nasdaq-100 just slid to the lowest level since May 18, while the Dow Jones Industrial Average (DJIA) set a new all-time (intraday) high just on Monday. The S&P 500 is about a percent below its all-time high.

Some reason that there’s no longer enough liquidity to buoy the whole market.

This begs the question, if all this range bound churning is a sign of internal deterioration (and the ‘inevitable’ drop) or if stocks are just taking a breather and revving up for the next spurt higher?

KISS – Bottom Line

The May 29, 2017 Profit Radar Report already observed this: “There are times when indicators line up and we discuss (high) probabilities, and there are times when indicators conflict, and we are forced to discuss possibilities. Unfortunately the later is the case right now.

Each of the major indexes is tracing out a different EWT pattern, breadth measures, seasonality and investor sentiment do not offer a clear message. Therefore we are reduced to dealing with possibilities.

The weight of evidence suggests that in the not so distant future stocks will run into some trouble. The up side target for the S&P 500 is 2,450 – 2,530. The S&P 500, Russell 2000, DJIA and Nasdaq-100 are all overbought, but above short-term support. As long as this support holds, more gains are likely.”

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Bussines Daily says “When Simon says, the market listens.” Find out why Barron’s and IBD endorse Simon Maierhofer’s Profit Radar Report.

Not Exciting, but Effective

Ever since we’ve been watching support (which has been at 2,420 for the S&P 500) as stocks have gone nowhere. It should be noted that the 2,420 support level is becoming too obvious and therefore less important. The June 25 Profit Radar Report stated that: “A move below 2,420 (especially 2,400) would increase the odds that a multi-week/month top is in.”

Watching support (and resistance) is not the most exciting approach to market forecasting, but there are times where it’s best to realize there are no clear signals (such as in May), and simply wait for the market to offer the next actionable clue.

This approach protects against overtrading or the anxiety associated with a non-performing (or worse, losing) trade. In short, it provides a measure of peace of mind, a rare commodity in this market.

Summary

Mid-and long-term, our comprehensive S&P 500 forecast remains on track.

Short-term, we are waiting if the S&P pushes deeper into the 2,450 – 2,530 target zone, or if the June 19 high at 2,454 was the beginning of a more protracted (but temporary correction).

Whichever direction the market breaks, it will eventually be reversed. Ideally, we are looking to sell the rips (above 2,454 if we get it) and buy the eventual dip (although this dip may last longer than many expect).

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.

Will the Dow’s Record Streak End with a Bang?

On Monday, February 27, the Dow Jones Industrial Average (DJIA) recorded its 12th consecutive up day. This is the second longest such streak since 1930 (the longest run was 13 days in January 1987).

The S&P 500 hasn’t dropped more than 1% a day for 104 trading days.

The record gains haven’t gone unnoticed. Many sentiment indicators are in uber-bullish (bearish for stocks territory).

The investment advisors and newsletter-writing colleagues polled by Investors Intelligence are more bullish (63.10%) now than at any other time since 1987. This tumultuous span includes the 2000 tech bubble and the 2007 leverage bubble tops.

The Relative Strength Index (RSI-14) finished February above 70 on the daily, weekly and monthly chart.

However, trading volume has been suspiciously low. Despite solid gains, less than 40% of NYSE volume has been flowing into advancing stocks.

History’s Most Important Lesson

Record optimism and strong gains on low volume … anyone with a bearish disposition could (ab)use those facts to paint a pretty bearish picture.

However, history cautions against that.

Several times throughout the post-2009 bull market – and most recently on December 14, 2016 – the Profit Radar Report pointed out that historically stocks rarely ever top on peak momentum.

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Bussines Daily says “When Simon says, the market listens.” Find out why Barron’s and IBD endorse Simon Maierhofer’s Profit Radar Report.

The February all-time highs occurred on peak momentum.

The green vertical lines (chart below) mark previous peak momentum (based on RSI-35) highs. None of them market major tops.

The blue lines mark strong rallies to new all-time highs on low volume (less than 40% of NYSE volume flowing into advancing stocks).

Most of those instances were followed by corrective pullbacks, but nothing worse.

Expect the Abnormal

Sometimes stocks simply push the envelope and plow higher than anyone thought possible (the S&P 500 already surpassed the 2017 year-end targets analysts set in December).

The August 28, 2016 Profit Radar Report outlined why to expect such ‘abnormal’ gains.

1) Bullish breadth thrust off the February and June 2016 lows

2) Bullish Elliot Wave Theory patterns

Although the risk of a temporary pullback is increasing, the body of evidence points towards further gains in the months to come.

The historic Dow Jones winning streak is unlikely to be followed by a “thud”.  Any correction should be viewed as a buying opportunity.

Visual forward projections (published back in August, but still valid today) and up side targets are available here: S&P 500 Update – Expect the Abnormal. In fact, the up side targets given in August have been reached. Now what? Here is the latest update: S&P 500 Reaches Up Side Target – Now What?

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.

 

Did the Dow Jones Just Invalidate the Ominous Rounding Top Formation?

There’s been a lot of talk about a super bearish long-term formation called a rounding top.

The bearish rounding top interpreation has been circulating for months, but particularly gathered steam near the January/February lows, when even more market pundits jumped on the already crowded bear market wagon.

Below is just one of many rounding top articles. This one was featured in Barron’s on March 2, 2016. It points out two bearish patterns:

  1. Rounding top
  2. Low trading volume

* * * * * * * * * *

* * * * * * * * * *

Rounding Top – R.I.P.?

The Profit Radar Report never even mentioned the rounding top pattern in its analysis, for two reasons:

  1. Everyone was talking about it. The market likes to surprise investors not fulfill their expectations.
  2. According to many ‘pros’, a rounding top sent stocks into a tailspin in 2000 and 2007. It would have been highly unlikely for the market to deliver the same pattern three times in a row.

Contrary to this bearish doom-and-gloom pattern, the February 11 Profit Radar Report recommended to buy and issued an up side target of 2,040 (S&P 500).

What’s the status of the rounding top pattern?

The chart below shows that the Dow Jones Industrials Average (DJIA) moved above the rounding top resistance.

On March 19, Chip Anderson with Stockcharts.com declared the rounding top pattern R.I.P.

Low Volume Doesn’t Matter

The Barron’s article mentioned the bearish implications of low trading volume.

Technical analysis 101 teaches that low volume rallies are doomed to fail, but the fact is that every single rally leg since the 2009 market low has been on low volume.

My analysis published here on MarketWatch shows that low trading volume is basically meaningless. In fact, as the article shows, volume patterns actually helped us predict some of the mini-meltups that ultimately carried the S&P 500 above 2,040.

More Important than the Rounding Top

More pertinent than the rounding top resistance is the red trend line resistance that connects all recent DJIA spikes.

Furthermore, prior to yesterday’s small loss, the DJIA logged seven consecutive daily gains. This rally pushed every single DJIA component above its 10, 20 and 50-day SMA.

Historically, this is a sign of long-term strength, but tends to result in short-term weakness (to digest the overbought condition). In summary, there’s reason to expect a pullback, but such weakness may be more temporary than many anticipate.

Continuous stock market updates will be 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.

Tell Tale Signs from the Dow Jones Averages

Sunday’s Profit Radar Report featured the following charts and analysis for the Dow Jones Averages:

Dow Jones Industrial Average (DJI):

The Dow Jones Industrial Average (DJI) appears to offer the most clues at this moment. The weekly bar chart shows double support (trend line and prior September high) right around 17,350 – 17,300. The 20-month SMA is at 17,198. This is not must hold support, but it’s a general zone worth watching for a potential bounce.”

Dow Jones Transportation Average (DJT):

The Dow Jones Transportation Average (DJT) broke above double trend line resistance (green circle) on July 29, but didn’t produce the ‘escape velocity’ needed to continue moving higher. In fact, the DJT has now returned to its original breakout trend line (blue circle). This kind of back test often serves of launch pad for the next spike. We’ve seen a few failures of a similar launch pad lately, but this is still one of the more reliable technical patterns.”

If you enjoy quality, hand-crafted research, >> Sign up for the FREE iSPYETF Newsletter

Summary:

We don’t want to ignore some credible indicators pointing towards a correction, but based on sentiment (in particular the equity put/call ratio), it is hard to believe that stocks will drop hard. A bounce is more likely.”

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.

 

Dow Jones Averages Did Not (Yet?) Confirm S&P 500 Highs

The S&P 500 is at new all time highs, and, as the weekly bar chart shows, there’s some room until it hits next resistance.

However, the Dow Jones Industrial Average (NYSEArca: DIA) and Dow Jones Transportation Average (NYSEArca: IYT) failed to surpass their prior highs.

But, the Dow Jones Transportation Average (DJT) managed to close above red trend line resistance (blue circle), which is short-term bullish.

Looking for more stock market analysis? >> Sign up for the FREE iSPYETF e-Newsletter

Viewed in isolation, the S&P 500 (NYSEArca: SPY) breakout is bullish, but it has not yet been confirmed by other major market participants.

The trend is your friend … until it ends. Seasonality suggests a rally pause. Here’s a brand new and detailed S&P 500 seasonality chart.

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.

The Biggest Theory Shattered by Dow Theory

Ouch, that hurt! Dow Theory expert considered the bull market in tact right before the Dow Jones and Dow Jones Transportation average shed 10%. Here is one theory that Dow Theory just shattered.

The other day I stumbled upon this interesting piece of Dow Theory research by Bespoke Investment Group titled “Dow Theory Still Bullish.”

The bullish Dow Theory message was summarized as follows: “Many investors look for the Transports to lead the way, and the fact that it has done so well is a bullish sign for the major indices like the Dow and S&P 500, in our view.”

The analysis and the Dow Theory interpretation was not wrong per say, but the timing was terrible. The article was published on September 17, and followed by an 11% drop in the Dow Jones Transportation Average.

No indicator is perfect, but an outright bullish assessment or signal prior to a double-digit selloff is worth examining.

The chart below enhances the Dow Jones Industrial Average and Dow Jones Transportation average with a few simple trend lines.

The bold red Dow Jones trend line resistance was my personal up side target (shared with subscribers to the Profit Radar Report) since late July. In fact, the September 17 Profit Radar Report warned that:

The Dow and S&P are moving towards our targets and risk is rising.”

The ensuing selloff drew the Dow Jones Transportation Average well below a strong 2-year trend channel.

Although bearish, it wasn’t time to panic, because both averages confirmed the September 19 high. There was no bearish Dow Theory divergence at the top.

Dow Theory is the Grand Daddy of market trend analysis and I’m not about to discredit it, however, no indicator should ever be viewed in isolation.

Dow Theory still suggests the bull market is in tact – which harmonizes with my research – but that doesn’t mean investors need to accept a 10% drawdown.

The bounce from the October low brought the Dow Jones back up to key resistance (not shown on chart, resistance available to subscribers of the Profit Radar Report). A move above this resistance is needed to confirm this bounce.

As with any long-term indicator, additional indicators can be used to prune long-term portfolios via better-timed sells and buys.

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.

3 Must Know Facts about the Most Economically Sensitive Company in the World

Many investors look at economic indicators to gauge what’s ahead for stocks, but price is always the final arbiter. Here is one stock that’s more heavily intertwined in the global economy that any other, it’s also the biggest Dow component.

What’s most likely the most economically sensitive company in the world? Here are three clues:

  • You probably carry it in your wallet
  • In 2008 it become the largest IPO in U.S. history (surpassed by Alibaba in 2014)
  • It is the most influential component of the Dow Jones Industrial Average

VISA (NYSE: V)

According to a 2008 Nilson report, Visa held a 38.3% market share of the credit card market place and 60.7% of the debit card market place in the U.S.

In 2009, Visa processed 62 billion transactions worth $4.4 trillion globally.

When consumers spend money, Visa makes money. When Visa makes money, the economy must be doing well. But, when Visa shares head lower, it may foreshadow trouble for the economy and the stock market.

Here are three must know facts about Visa:

  1. The Visa chart is showing a breakdown below a 3-year support line. Additional support is around 206. Resistance is around 219. Investors should know that Visa doesn’t issue cards or extend credit. Visa only provides the Visa-branded products and charges for processing transaction. Visa is not on the hook for delinquent or unpaid bills, but a decreasing volume of transactions (shy consumer) does affect its bottom line.
  2. There’ve been many calls for a market top, bubble burst and outright market crash. No doubt this QE rally is quite aged, but the final leg higher seems still ahead.

    The older bull markets get, the more selective investors become. In their search for value, investors tend to flock towards large cap stocks. Which are perceived to be safer in a late stage bull market. Visa should (once this correction is finished) benefit from this large cap preference.

  3. Unlike most other major market indexes, the Dow Jones is price-weighted. With a price tag of $210, Visa is the biggest component of the Dow Jones (NYSEArca: DIA).

Visa’s price affects the Dow Jones more than any other stock.

Visa is not just an economically sensitive company, its stock is also a big player on Wall Street.

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.