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.

 

Advertisements

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.

Spike in Selling Climaxes Leads to S&P 500 Reversal Week

There were 105 S&P 500 selling climaxes last week. This means that 105 of the 500 S&P stocks (21%) dropped to new 52-week lows, but bounced back to end the week with a gain.

Selling climaxes are considered a sign of accumulation as ‘strong hands’ buy the stocks offered for sale by ‘weak hands.’

The S&P 500 Index itself also saw a selling climax. The chart below highlights all weekly reversals (not all of them led to 52-week lows) since mid-2013. All but one (August 24, 2015) were followed by at least another week of gains.

The weekly bar chart also shows that the S&P 500 reached (and exceeded) the minimum down side target at 1,848.77 and the October 2014 low at 1,820.66.

The January 18 Profit Radar Report proposed that a break below S&P 1,870 would lead to a swift drop to 1,820, but listed five reasons why stocks should bounce thereafter.

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

With the minimum down side target(s) met, the odds of a bounce or more lasting low have increased.

It remains to be seen whether this bounce will stick or eventually (perhaps after weeks of chopping around) roll over.

A break below 1,812 would unlock the next down side targets. Such a break, if it does occur, would probably set up a better buying opportunity (assuming there will be a number of bullish divergences).

Continued updates and analysis are provided 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 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.

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.

 

This is the First Time the Dow Jones has Done This in 105 Years

Assuming this hasn’t put you asleep, you know that the Dow Jones (NYSEArca: DIA) has been taking a giant dirt nap.

In fact, by one measure, it’s the longest dirt nap since 1910, and soon to be the longest ever.

The Dow Jones has not recorded a 1-month high or low (based on closing prices) for 42 days.

According to Lyons Fund Management, the longest such stretch dates back to 1910 and lasted 45 days.

In itself, this is remarkable, but the next stat makes it even more remarkable.

For the past 26 trading days, the Dow has been stuck in a 2% trading range (based on closing prices). This is one of the tightest ranges of the last 25 years, and the tightest range without a new 1-month high or low ever.

 

If you read the Profit Radar Report, this range comes as no big surprise. Back on March 29, the Profit Radar Report observed that: “S&P 500 today is exactly where it was November 18, and there’s no indication that the up and down zig-zagging is coming to an end.

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.

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

I Spy … An Intriguing NYSE Composite Chart

Perhaps the most fascinating chart right now is that of the NYSE Composite. It features two developments worth exploring:

  1. Island reversal
  2. Bearish wedge

The NYSE Composite includes all stocks listed on the NYSE, about 1,900. Unlike the S&P 500 (NYSEArca: SPY) or Dow Jones (NYSEArca: DIA), the NYSE Composite actually reached a new all-time high on Thursday.

The new all-time high was short-lived and followed by a massive gap down the next morning.

Island Reversal

This gap lower created an island reversal. Some analysts consider island reversals indicative of a major trend change, but the Technical Analysis book by Edwards and Magee describes it as follows:

“The island pattern is not in itself of major significance, in the sense of denoting a long-term top or bottom, but it does as a rule send prices back for a complete retracement of the minor move which preceded it.”

It’s probably up to debate where the last minor move started, but at Friday’s low the NYSE Composite already touched minor support.

In addition, as Sunday’s Profit Radar Report pointed out, there’s an open chart gap, and the post-2009 bull market has filled every chart gap.

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

Open gaps are like unfinished business, and with the gap closed this morning, the NYSE Composite doesn’t ‘have to’ move any higher.

Bearish Wedge

In fact, the NYSE Composite has formed a potentially bearish wedge formation (bold trend lines). It takes a break below the green trend line to activate lower targets, but last weeks island reversal throw-over top may be an early indication of an upcoming correction.

Trade Setup

Last week’s all-time high is important for the short term, and going short against it presents a low-risk trade setup with a favorable risk/reward ratio.

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.

 

I Spy … The Most Insightful AAPL Chart

Apple is the most important stock on planet earth.

It’s the biggest component of the S&P 500 (NYSEArca: SPY) and Nasdaq (Nasdaq: QQQ). As of March 18, it will also be part of the Dow Jones, where it will rank as #6 of 30 (at least initially). Not bad for a “newcomer.”

The ebbs and flows of AAPL will affect almost every corner of the stock market universe.

When AAPL coughs, the market will get a cold. What are the odds of AAPL catching a cough?

Historical Dow Jones Curse

Historical data shows that inclusion into the prestigious Dow 30 club is more of a blessing than a course, at least short-term. 9 of the 15 components added since 1999 lost on average 6.3% within the first month.

Technical Blessing?

I invite you to inspect the AAPL chart with me.

Support: Green lines at 120 – 122.

Resistance: The chart only shows one red line, but there are actually two red lines (one going back almost 20 years) converging around 140. Prior to that, there’s black trend channel resistance around 132.

Interpretation: Although the brief spike above the black trend channel (accompanied by a bearish RSI divergence) could be a throw over top, I personally favor higher prices as long as AAPL stays above 120.

This is in conflict with the ‘Dow curse,’ but in harmony with AAPL seasonality (view AAPL seasonality chart here).

Sentiment may also support further AAPL gains, as the iWatch failed to garner much excitement (it’s easier to beat low expectations).

  • Bloomberg: Apple watch is a really poor product
  • MarketWatch: 3 reasons to think twice before buying Apple watch

Summary: Support at 120 – 122 deserves being watched closely. I favor further up side as long as support holds. However, a close below 120 cautions of a deeper correction.

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.