The Dow and Now: Will Blue Chips Rule?

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on November 3, 2022. If you’d like to sign up for the free e-newsletter, you may do so here (we will never share your e-mail with anyone, just as we don’t accept advertising).

The Dow Jones Industrial Average (DJIA) has been on a tear, gaining 15.38% from October low to high, outperforming all major indexes.

This DJIA pop came seemingly out of nowhere, and yet it didn’t. Via the October 12 Profit Radar Report (one day before DJIA started taking off), I shared a bullish divergence and stated that: “For the first time since the January highs, DJIA is diverging from the S&P 500 at the low.”

The chart below, published on October 12, shows the divergence.

This spirited DJIA rally carried price towards major resistance outlined below.

I published a chart very similar to the above in the October 30 Profit Radar Report along with the following commentary:

“RSI-2 is over-bought and the trajectory of the advance is obviously not sustainable. Major resistance is coming into play around 33,200. Now is not the time to chase DJIA.”

The pullback from resistance was pretty obvious, the big question is what happens next.

Since 1970, DJIA rallied more than 12% in a span of 13 trading days only 32 other times. Looking at those times, which of course I did (see November 2, Profit Radar Report), provides some helpful clues.

There is also a huge mega trend affecting blue chip stocks in play. I plan to share this trend even via the free newsletter soon.

While the benefits of the above DJIA study are long-term in nature, below is the expected short-term S&P 500 trajectory (published in the October 30, Profit Radar Report).

The S&P 500 appears to have completed an up side pattern in the 3,900 zone, which should cause a corrective pullback (now underway).

Based on seasonality and some other factors, the pullback should be corrective, but the S&P pattern (and major DJIA resistance) allows for a more bearish turning point as well.

Although I’m leaning towards more gains once the pullback is over, I’m watching this decline very carefully for red flags that’d suggest otherwise.

Continuous updates are available via the Profit Radar Report. If you want to be the best-informed investor you know, and have access to always relevant and purely fact-based research, sign up for the Profit Radar Report. 

The Profit Radar Report comes with a 30-day money back guarantee, but fair warning: 90% of users stay on beyond 30 days.

Barron’s rates iSPYETF a “trader with a good track record,” and Investor’s Business Daily writes “Simon says and the market is playing along.”

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on January 28. If you’d like to sign up for the free e-newsletter, you may do so here (we will never share your e-mail with anyone, just as we don’t accept advertising).

Continued updates and factual out-of-the box analysis are available via the Profit Radar Report. 

The Profit Radar Report comes with a 30-day money back guarantee, but fair warning: 90% of users stay on beyond 30 days.

Barron’s rates iSPYETF a “trader with a good track record,” and Investor’s Business Daily writes “Simon says and the market is playing along.”

Is it Time to Buy?

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on May 26, 2022. If you’d like to sign up for the free e-newsletter, you may do so here (we will never share your e-mail with anyone, just as we don’t accept advertising).

Is it time to buy? Considering the financial/economical/political backdrop, that’s a bold question. The headlines below probably reflect investors angst:

– WSJ: Stock market bottom remains elusive despite deepening decline

– Fortune: It’s looking a lot like the dot-com crash again

– IBD: Market correction worsens as ‘hard’ reality sets in

– WSJ: Conditions are ripe for a deep bear market

Sometimes things are soo bad, it’s worth taking a stab at buying some deeply over-sold stocks/indexes.

Recent Profit Radar Reports featured a number of deeply over-sold and over-hated companies worth a flyer. One of them is one of the largest company in the world, down over 45% from its all-time high, trading below it’s pre-pandemic price tag, and resting at major support.

No, stocks are not out of the woods, but many are at an inflection zone. The odds of a bounce here are better than they’ve been in months.

Yesterday’s Profit Radar Report stated that: “The S&P 500’s close back within the trend channel and above the descending trend line is a short-term positive.”

The DJIA chart sports one reason to be bullish that no one is talking about, but has been infallible over the past 13 years. Can you see it?

It’s said that fortune favors the brave, and perhaps now is the time to be brave. Fortune, or better success, for certain does not favor the ignorant, and now is not the time to be ignorant (not being ignorant also means to see the potential down side risk despite the up side potential and protect against it).

The Profit Radar Report looks at all the facts without bias and says it how it is. This includes the reason to be bullish (or at least postpone turning bearish) on DJIA and the over-sold and over-hated mega cap stock at massive support. Find out now and sign up for the Profit Radar Report. 

The Profit Radar Report comes with a 30-day money back guarantee, but fair warning: 90% of users stay on beyond 30 days.

Barron’s rates iSPYETF a “trader with a good track record,” and Investor’s Business Daily writes “Simon says and the market is playing along.”

Is Boring Grind Higher the Calm Before Storm?

S&P 500 and Dow Jones price action has been remarkable in many ways. I wanted to find out just how remarkable when viewed in the context of history. Here is how the recent price action stacks up (information below was published in Tuesday’s Profit Radar Report):

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

Last Friday, the S&P 500: closed at an all-time high, which was 13.4% above its 200-day SMA, which was confirmed by the cumulative NY Composite advance/decline lines (a measure of liquidity). The same may happen again today. The yellow lines in the first chart below show other times that’s happened. Never (aside from the most recent cluster).

We can’t learn much from a sample size of 1, so let’s loosen our filter to see how big of a sample size we get. 

The next chart highlights periods when the S&P 500 closed more than 13% above its 200-day SMA.

Now we have too big of a sample size. If we restrict the criteria to catch only those times when the S&P 500 traded >10% above its 200-day SMA while at an all-time high (confirmed by the cum NYC a/d) we get the following hits.

In an attempt to identify breadth readings and price action comparable to current, we’ll now adjust the parameters to show times when the S&P 500 traded >13% above its 200-day SMA while the cum NYC a/d line was at an all-time high. There are only 3 other clusters in the past half century. The first of the most recent signal cluster triggered on 11/16/20.

Tuesday’s Profit Radar Report shows exactly how the S&P 500 did after the first signal date of each cluster (see above chart). This performance tracker details the S&P 500 forward performance after the signal date via graphs and tables (detailed returns for the next 1, 2, 3, 6, 9, 12 months along with odds of positive returns).

Of course there are other parameters that could be used to assess and compare the current market. Monday’s Profit Radar Report, for example, identified other times when more than 90% of stocks trade above both their 50-and 200-day SMA while more than 7% of stocks trade at a 52-week high.

Obviously history does not repeat itself, but it provides insight on how price (which is a reflection of investors, which is based on crowd behavior) reacts in certain situations. Examining historic precedents often reveals recurring patterns useful in assessing what’s next.

Continuous updates along with the performance tracker of similar precedents 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. 

Follow Simon on Twitter @iSPYETF or sign up for the FREE iSPYETF e-Newsletter to get actionable ETF trade ideas delivered for free.

S&P 500 Update

Before we get to the short-term S&P 500 update, here is a big picture look at the Dow Jones, going all the way back to 1896.

As of Friday, March 20, the Dow Jones lost an average of 9.56% every week for the past 4 weeks. The biggest 4-week loss ever. The only 2 times that come close to this losing record are 1914 (WWII) and 1929.

Shorter-term, the Dow Jones retraced 35% of the points lost since its February 12 high.

The first real bounce during the 1929 crash phase (red box) retraced 36%, but relapsed once more before delivering a 5-month, 50% bounce.

S&P 500 Update

The Sunday March 22 Profit Radar Report featured the chart below and stated that: “It is quite possible that the S&P 500 will jolt higher from the 2,190 – 2,130 range, and aggressive traders may act accordingly.”

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.

On Monday, March 23, the S&P dipped as low as 2,191.86 and soared more than 400 points.

There was a lot of oomph behind the 400+ point rally as 85.79% of NYSE-traded stocks closed higher for the past 3 days. This is a new record, as the chart below shows, and has been a solid buy signal.

Does this mean the low is in?

The March 24 Profit Radar Report featured the following chart and two Elliott Wave Theory interpretations:

“Black: A 3-wave decline (potentially even 5-wave decline) completed at yesterday’s low. A large rally, possibly even to new highs, is under way.

Yellow: A 3-wave decline completed at yesterday’s low. A wave 4 rally is underway. Waves 4 tend to be very choppy and ultimately retrace around 38.2% of the prior wave 3 (2,542, see Fibonacci ruler), but could also go as far as the 50% level (2,655).”

Short-term, another new low (yellow projection) is still possible, but has become less likely.

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.

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Legit or Counterfeit? Stock Market ‘Moment of Truth’ is Here

Is this rally legit or counterfeit? The ‘moment of truth’ is here, and we should soon find out.

How so?

I published the below S&P 500 chart in the June 2 Profit Radar Report and have been watching the purple projection ever since. The expanding purple lines outline a megaphone or expanding triangle pattern, with the upper ascending trend line marking natural resistance.

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.

Critics claim that trend lines like this are ‘technical voodoo,’ but the market provides the points, analysts like myself simply connect the dots (like painting by numbers).

Such trend lines are like traffic lights. A car can stop at any given moment, but it’s most likely to stop (and potentially U-turn) at a traffic light.

Rule of thumb

Since trend lines give the market a chance to prove itself, it’s generally best not to buy below trend line resistance (because the market has to prove itself by moving above) or to sell above resistance (because the market just proved it can move above and may continue higher).

What are the odds of a reversal?

The updated S&P 500 chart below includes the same expanding triangle (or megaphone) lines along with some other support/resistance levels and indicators.

The S&P 500 is within striking distance of trend line resistance. RSI-2 is almost over-bought, and RSI-35 is lagging.

In other words, the S&P is approaching the ‘traffic light’ with the gas tank approaching ‘E.’

The Dow Jones Industrial Average already tagged its megaphone line. If it moves above, and as long as it stays above, it’s prudent to allow for higher prices, although a number of indicators suggest an eventual relapse.

Seasonality

The beginning of July is usually bullish (with the first trading day of July having been up 84% of the time), but this bullish seasonality is now fading away. In fact, the second half of July and August tend to be tough for stocks.

Bearish VIX wedge

The VIX is carving out yet another wedge. The wedge is not necessarily an immediate sell signal for stocks, but a close above 14.50 is bullish for the VIX and likely bearish for stocks.

Summary 

The S&P 500 and Dow Jones Industrials Average are at a resistance zone that double as inflection zone (the S&P 500 resistance level is 0.5% higher than the corresponding DJIA level, so we should allow for at least a 0.5% margin).

A sustained break above resistance will likely unlock further gains, but failure to move or stay above resistance may be the beginning of another nasty 10-15% correction

Based on the weight of evidence, I believe the risk of a pullback near current levels is elevated.

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.

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

On Monday, February 27, the Dow Jones Industrial Average (DJIA) recorded its 12^th 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.

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.

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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.”

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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 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.

 

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.

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