S&P 500 Update – Trading Range Breaks

Sunday’s (September 29) Profit Radar Report concluded that: “If 2,938 breaks, the S&P 500 may quickly drop to 2,890 and potentially 2,820.” On Tuesday the S&P closed at 2,938 and yesterday/today fell as low as 2,855.

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.

This was one of the easier short-term setups, but how does this breakdown fit into the bigger picture?

Bigger Picture

The September 15 Profit Radar Report featured the chart below, which showed that S&P 500, Russell 2000 and Dow Jones Transportation Average were at key resistance.

One major financial news website declined to publish the chart and story because “it doesn’t say much.” I politely disagreed, because the message – although not sensational – was profoundly simple and important:

Don’t buy stocks while three major indexes are below resistance and still have to prove themselves. Or, as the September 15 Profit Radar Report put it:

While below 3,045, we allow seasonality and cycles to pull stocks back down. A move below 2,945 is needed for lower targets though.”

Down-turn Confirmed?

Does the drop below 2,945 confirm a new down-turn?

We are getting close, but as mentioned in yesterday’s Profit Radar Report, we need another up/down sequence. How come?

The dashed blue lines below highlight recent directional moves. None of them (rallies and declines) unfolded in a discernable 5-wave pattern. According to Elliott Wave Theory, 5 wave moves identify the prevailing trend. The lack of 5-wave moves explains why the market has been range-bound rather then trending.

On a smaller scale, the decline from the September 19 high appears like only 3 waves, thus far. Another up/down sequence (waves 4 and 5) would make for a small 5-wave decline and increase the odds of a trend reversal (a projection of the ideal next move was published in yesterday’s Profit Radar Report).

Until that happens, we note that the S&P 500 is near support, getting over-sold and ready for a bounce (the up portion of the up/down sequence?).

There is another simple reason why I want to see a clear 5-wave move lower before getting more bearish: The August selloff triggered a number of sentiment extremes usually seen near a bottom, and the subsequent rally triggered a number or breadth and momentum signals usually indicative of further gains.

Continued updates, projections, buy/sell recommendations 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

Russell 2000 and Transports at Crossroads?

The Russell 2000 (RUT) and Dow Jones Transportation Average (DJT) racked up some pretty significant losses since their 2015 all-time highs.

From the 2015 peak to the 2016 trough, the RUT lost as much as 27.23%, DJT as much as 31.22%. The S&P 500 lost ‘only’ 15.20%.

It was the prevailing opinion for much of 2015 and early 2016 that the RUT and DJT would lead U.S. stocks into the next bear market.

It is correct that small cap underperformance is one of the stages of an aging bull market, and in line with our analysis (view 3 Stages of a ‘Dying’ Bull Market). However, the timing for an immediate bear market didn’t seem right.

The February 11 Profit Radar Report listed six reasons why stocks are likely to rally. The ‘six reason buy signal’ is also discussed here.

After almost three weeks of rising prices (RUT up 11%, DJT up 17%), the RUT and DJT have arrived at their first inflection point.

Russell 2000 (RUT)

The RUT is back-testing the ascending green trend line (currently at 1,045), which originates at the March 2009 low. Sustained trade above this trend line is bullish until the signal is reversed.

Dow Jones Transportation Average (DJT)

The DJT is threatening to break above the 7,400 – 7,500 zone. This zone served as support a few months ago.

This is not only price resistance for DJT, it’s also momentum resistance as DJT’s prior rallies failed at similar RSI readings.

Conclusion

When the Profit Radar Report issued a buy signal at S&P 1,828, it wasn’t clear whether this rally would only move to the initial up side target at 1,950 or beyond.

Based on investor sentiment, there was a distinct chance that a runaway rally (with higher targets) would develop.

The S&P is not in the clear yet, but the RUT and DJT charts may help gauge the broad market’s prospects. RUT and DJT above their respective resistance levels is a positive for the S&P and other indexes.

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.

 

Is the Dow Jones Transportation Average Forming a Bull Flag?

The Dow Jones Transportation Average (DJT) has been on fire, since late 2012.

A V-shaped correction, and a prolonged period of sideways trading interrupted the parabolic up trend and there’s been no net gain since September 2014.

Trading action since the November 28 all-time high has been contained by a parallel channel, that looks like a flag.

In fact, the DJT may have formed a bullish flag formation.

A bull flag is described as a consolidation period that interrupts a sharp, almost vertical rally. The consolidation range is defined by a parallel channel with a slant to the down side, and tends to separate two halves of a steep rally.

A break above the upper boundary (around 9,150) would be the first step of a bullish breakout, with a measured up side target around 10,000.

Buying against support (around 8,500) is a low-risk buying opportunity to get in on the ground floor. It’s low-risk because the nearby support level provides a clear point of ruin (stop-loss).

Never Miss a Beat! >> Sign up for the FREE iSPYETF e-Newsletter

A break below 8,450 would void the bull flag and allow for much lower prices.

I doubt there’s enough buying power to lift the DJT to 10,000, but trade around 8,500 (or breakout above 9,150) offers some low-risk setups.

The iShares Transportation Average ETF (NYSEArca: IYT) is the most widely traded transportation sector ETF.

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.

Bullish or Bearish? Dow Jones Averages are All Over the Place

All for one and one for all may have worked for the Three Musketeers, but it’s not working for the Dow Jones Averages.

All three Dow Jones Averages are pulling in different directions.

The Dow Jones Industrial is near its all-time high. The Dow Jones Utility just came off a nine-month low and the Dow Jones Transportation Average has been stuck in neutral for four months.

Here’s a look at all three averages and an attempt to interpret the meaning of the broad Dow Jones disharmony.

Dow Jones Utility Average (DJU)

The Dow Jones Utility Average (DJU) lost as much as 14% from January 28 to March 11.

On March 11, the Profit Radar Report noted that: “Utility stocks are down 13% from their recent high, and every stock component of the Utility Select Sector SPDR ETF (NYSEArca: XLU) is trading below its 50-day SMA. RSI is at a level that sparked rallies in June 2013 and August 2014. XLU trend line resistance is just below today’s close. Unlike XLU, the Dow Jones Utility Average already close below its trend line. Nevertheless, utility stocks are compressed and should soon spring higher.”

The latest rally started on March 12, and as long as support at 585 – 574 holds, DJU may continue higher.

Dow Jones Transportation Average (DJT)

The Dow Jones Transportation Average (DJT) has been stuck in a multi-month triangle, and is threatening to close below triangle support.

A break down below the ascending green trend lines has to be graded bearish (unless it reverses). Next support is at 8,800 and 8,600.

The iShares Transportation Average ETF (NYSEArca: IYT) tracks the DJT.

Dow Jones Industrial Average (DJI)

The Dow Jones Industrial Average (DJI) just fell below long-term Fibonacci support/resistance at 18,004, which is also where the 20-day SMA is.

This allows for continued weakness.

The SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) tracks the DJI.

Bearish Divergences?

The lack of confirmation among the Dow Average isn’t a bullish development, but thus far the key U.S. indexes are not displaying signs of a major market top (for more details about the indicator that’s identified the 1987, 2000 and 2007 tops go here: Is the S&P 500 Carving Out a Major Market Top?).

Until we get the same kind of deterioration seen at prior bull market highs, divergences among the Dow Average may just be a distraction.

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.

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.