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.

Should We be Worried about ‘Smart Money’ Leaving Stocks?

Uh-oh. The ‘smart money’ is selling stocks. It rarely pays to bet against the smart money, which includes insiders and hedgers with deep pockets and big research budgets. Should we be worried about their stock market exodus?

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness.”

Charles Dickens classic novel “A Tale of Two Cities” describes London and Paris during the French Revolution, but it could also be applied to Wall Street post 2009.

It is the ‘best of times’ as the S&P 500 (NYSEArca: SPY), Dow Jones (NYSEArca: DIA) and Russell 2000 (NYSEArca: IWM) move from one all-time high to the next. Even the Nasdaaq (Nasdaq: QQQ) is within striking distance of its all-time high.

It is also the ‘worst of times’ for many permabears, who continue to trash talk every rally … and get crushed.

Some of you may remember my inflammatory message for stock market bears published in the July 13, 2014 Profit Radar Report:

Here’s a message for everyone vying to be the next Roubini: A watched pot doesn’t boil and a watched bubble doesn’t burst. The stock market is not yet displaying the classic warning signs of a major top. There will be a correction, but the bull market won’t be over until most bears turn into bulls or the media stops listening to crash prophets.”

My bullish conviction was rooted primarily in extreme investor pessimism (reflected by the following July 2013 headlines) and the absence of the one ingredient that foreshadowed the 1987, 2000 and 2007 crashes (more details here).

  • MarketWatch: “If ever there were a time for a stock sell signal, it’s now”
  • CNBC: “Market will crash, just don’t know catalyst: Faber”
  • Reuters: “Billionaire activist Carl Icahn says ‘time to be cautious’ on U.S. stocks?”
  • CNBC: “I’m selling 6 times more than buying: Wilbur Ross”

Today, we are back at (or near) all-time highs and read headlines such as: “Why the smart money is bailing out of the bull market.”

Indeed, the ‘smart money’ is selling stocks as the ‘dumb money’ is rushing in.

Is this bearish? If so, how bearish is it?

Here is a look at six different sentiment gauges consistently tracked by the Profit Radar Report.

Of the six Profit Radar Report staples only four show extreme optimism:

Newsletter writers polled by Investors Intelligence (II) are the most bullish since June 2014 and active investment managers (polled by NAAIM) haven’t been as bullish since November 2013.

The VIX is low, but needs to shed another 20% before reaching last year’s extreme.

The CBOE equity put/call ratio and CBOE SKEW are only in midly bearish territory.

The media seems somewhat suspicious of new highs, but not nearly as bearish as in June/July 2014.

To be fair, a number of ancillary sentiment gauges match the kind of sentiment extremes seen in December 2010 and 2013.

My interpretation is that current gains will soon be given back, but any correction now or in the near future is likely to be followed by new recovery highs later on.

What’s the benefit of following the above six sentiment gauges?

Here is a more detailed track record published in the the December 2014 Sentiment Picture (the biggest reason to worry about stocks right now is listed at the bottom of this article):

Throughout 2014 many analysts, market timers, the media and ‘experts’ opined that the bull market is on borrowed time, largely because investor sentiment has been extremely bullish. Here are two examples:

  • Title: The boys who cried wolf: Crash prophets on the rise – Yahoo on May 2:

    Article excerpt: “The Dow Jones closed at an all-time high, which doesn’t change the views of the collection of Cassandras calling for a stock market crash. This group, including esteemed figures like Jeremy Grantham and Marc Faber have been emerging from their bomb shelters with relative frequency over the last month to reiterate their bearish views and insist they weren’t wrong with earlier calls, just early.”

  • Title: If ever the stock market flashed a ‘sell’ signal, it’s now – MarketWatch on July 9

    Article excerpt: “Sentiment indicators such as Investors Intelligence are at historic highs (that is bearish), and the RSI Wilder indicator is telling us the market is seriously overbought. Yes, the market can still go higher, but it’s on borrowed time. Don’t believe me? When you are standing 17,000 points in the air at the top of Dow Mountain, and the market is priced for perfection, there is nowhere to go but down.”

This widespread display of pessimism has been baffling and unfounded based on our set of sentiment gauges. At no point in 2014 did optimism reach levels suggestive of a major top. As the small selection of recent Sentiment Picture observations shows, an objective and in depth analysis of investor sentiment has persistently pointed to higher prices.

November 30 Sentiment Picture: “Investor sentiment is not at the kind of extremes usually associated with major market tops. Seasonality may draw prices lower temporarily, but the majority of sentiment gauges point towards higher prices later this year and/or early next year.”

October 31 Sentiment Picture: “In short, investor sentiment allows for further up side.”

September 25 Sentiment Picture: “Few sentiment gauges were at extremes on September 19, when the Dow Jones, S&P 500 and Nasdaq reached their new highs. If this selloff is commensurate to the lack of sentiment extremes at the actual high, it should be on the shallow side.”

August 29 Sentiment Picture: “The overall sentiment picture is fractured, and void of the ‘all in’ mentality seen near major market tops. Isolated extremes cause only small pullbacks here or there.”

The December Sentiment Picture shows a small up tick in ‘dumb money confidence’ (AAII, NAAIM) and complacency by option traders (CBOE Equity Put/Call Ratio). The CBOE SKEW is elevated.

Those readings could contribute to a pullback, but optimism is not pronounced enough to be indicative of a major top.”

The Biggest Reason to Worry about Stocks Right Now

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.

Simon Says: This May Be The Only Bearish Looking Broad Market Index Chart

Aside from the autumn colors, everything is green on Wall Street. Stocks are up almost everywhere you look. There is only one broad market index that could reasonably be interpreted as being bearish.

The Dow Jones, S&P 500 and Nasdaq are at new (all-time) highs, and it takes a permabear or nit-picky glass half empty kind of a person to find anything alarming in those charts.

Perhaps the most bearish looking chart is that of the NYSE Composite Index (NYA). The NYA measures the performance of all common stocks listed on the New York Stock Exchange (NYSE). There are currently 1867. The iShares NYC Composite ETF (NYSEArca: NYC) replicates the performance of the NYA.

Unlike the Dow Jones and S&P 500, the NYA also includes small cap stocks, which explains why the NYA is lagging.

In fact, the NYA chart gives hope to all those who missed the latest rally. Why?

The NYA is bumping up against a serious resistance cluster made up of:

  1. 78.6% Fibonacci resistance
  2. Trend line resistance
  3. Prior support shelf

In addition, (bearish) Elliott Wave aficionados may be quick to point out that the NYA’s decline from the September high to the October low could be counted as five waves.  Such a 5-wave move would suggest at least one more leg lower.

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The overall strength of the “October blast” rally suggests that NYA will eventually surpass this resistance cluster. But if NYA is going to pull back and fill some of the open chart gaps, right about now (or at 10,850 – 10,900) seems like an appropriate time to do so.

The Dow Jones is also about to run into the same resistance level that caused the September correction.

Solid resistance levels, like the ones shown above, increase the risk of a pullback, but obviously don’t guarantee said pullback. Higher targets are unlocked if the NYA and Dow Jones sustain trade above resistance.

A detailed forecast for the remainder of the year – based on an analysis of seasonality, sentiment, technical indicators and historical patterns – is available in the November 2 Profit Radar Report.

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.

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.

Stocks in Freefall! Is this the Beginning of the End?

An avalanche of analysts and market ‘pros’ predicted a stock market crash in May and June. Here we are, almost half a year later. Is this the crash predicted by so many, or is it just another temporary correction?

Pardon the sensationalistic touch of this headline, but ‘is this the beginning of the end?’ is a perfectly legitimate question. Not because I’m a fear monger, but because others are.

Several months ago – in May, June and July – many analysts predicted a market crash. Here are a few headlines from that time:

  • CNBC: “I’m worried about a crisis bigger than 2008: Dr Doom” – May 8
  • Yahoo: “Beware: 2014 looking a lot like 2007” – May 23
  • CNBC: “This chart shows the market is a ticking time bomb” – June 12
  • Yahoo: “Common Sense says look out for a market top” – June 30
  • Forbes: “These 23 charts prove that stocks are heading for a devastating crash” – July 1

Although the S&P 500 gained as much as 200 points since those crash prophecies first surfaced, investors now wonder if this is the ‘big one.’ Is this the time when crash prophesies turn into reality?

A Market Top or THE Market Top?

Obviously, the September 19 highs carry some importance, after all the S&P 500 and Dow Jones lost about 8% since.

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Perhaps looking at what caused this spirited selloff may help determine if September 19 is ‘A’ market top or ‘THE’ market top.

On August 24, the Profit Radar Report published this chart and stated that: “The Dow Jones sports a possible wedge formation with resistance starting at 17,250 next week (17,400 by the end of September).”

On September 19, the wedge resistance line was at 17,350, which marked the exact top of the Dow Jones.

Consequently, the September 21 Profit Radar Report warned that: “The Dow Jones reached our up side target. This means risk is rising. The probabilities of a short-term pullback are elevated.”

Dow Jones Down Side Target

Based on the Dow’s performance, the wedge pattern is valid. The textbook down side target for a bearish wedge is its origin, which is around 15,000. One near-term down side target, identified by the October 10 Profit Radar Report, is 1,850. The S&P hit 1,850 this morning, and every time a target is met a bounce becomes likely. Nevertheless, today’s low doesn’t display the marks of a sustainable low yet.

Here is a look at a few other indicators:

Sentiment

Stocks are oversold, but sentiment is not extremely bearish. Throughout 2013 and 2014 the S&P 500 rallied as soon as it hit an oversold condition.

The October 1 Profit Radar Report warned that this time might be different, as some of the biggest declines happen when stocks don’t bounce from oversold conditions.

Seasonality

VIX seasonality is approaching a significant seasonal high. S&P 500 seasonality is turning positive in the near future (detailed VIX and S&P 500 seasonality charts are available to subscribers of the Profit Radar Report).

Seasonality doesn’t preclude further losses, but appears strong enough to eventually erase all or most of the losses accrued recently.

Conclusion

Based on the Dow’s wedge formation/target, a 13% decline is possible. However, seasonality may cushion the down side risk.

This decline appears similar to the 2010 and 2011 corrections. I personally will be looking for a specific bottoming pattern (displayed at the 2010 and 2011 lows). The actual down side price target is somewhat fluid (the specific bottoming pattern is discussed in the Profit Radar Report). Once the bottoming pattern starts developing, we should be able to identify a key support level.

No doubt, the above-mentioned crash prophets are getting to enjoy their 15 minutes of fame, but the only indicator that actually predicted the 1987, 2000 and 2007 crash suggests that bulls will stage a comeback once this selloff is exhausted. Here is a close look at this impressive indicator.

The Missing Ingredient for a Major Bull Market Top

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.

Number of Stocks Trading Below 50-day SMA drops to 2-year Low

The track record of the 50-day SMA as buy/sell trigger is questionable, but the track record of the % of stocks above the 50-day SMA is stellar. The featured chart shows the distinct character of the latest bull market leg, and what this week’s 2-year low means.

In terms of QE bull market corrections, there are two categories:

  • Pre 2013
  • Post 2013

Every correction since 2013 has been shallow, usually shedding no more than 5%.

Corrections in 2010, 2011 and 2012 were more complex, losing as much as 20%.

The chart below, which plots the S&P 500 against the percentage of NYSE stocks above the 50-day SMA, illustrates the difference between pre and post 2013 nicely.

Post 2013 corrections were swift, V-shaped affairs. Every time the % of NYSE stocks dropped to 25-30, the market bottomed. Easy. There was little else to it (see green circles).

The biggest 2010, 2011 and 2012 corrections were more complicated than just simple V-shapes.

One common pre 2013 feature was some sort of a double bottom. As the dashed green boxes highlight, each pre 2013 bottom occurred against a bullish 50-SMA divergence, where the S&P 500 (NYSEArca: SPY) made a new low, but the % of stocks below the 50-day SMA did not.

The Big Question

The big question is if the current correction will follow the pre or post 2013 pattern.

If it follows the pre 2013 pattern, there will be another leg down accompanied by a bullish 50-day SMA divergence.

If it follows the post 2013 pattern, the correction may already be over.

Even the pre 2013 patterns saw a bounce after the initial 50-day SMA low, so a bounce from current levels is likely.

The chart above doesn’t answer if this correction is already over, but two other indicators provide some clues.

Based on the VIX, this may turn into a more complex correction. More details here: Calm VIX Suggests Elevated Downside Risk for Stocks.

However, to trigger more downside, the Dow Jones needs to drop below this key support. More details here: Dow Jones Pulls Back after Completing Bearish Wedge.

A detailed forecast for October – based on investor sentiment, seasonality and technical analysis – is available to subscribers of 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.

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.