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.

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Finding an Edge in a Dull Stock Market

How to gain an edge:

A bear jumps out of a bush and starts chasing two hikers. They both start running for their lives, but then one of them stops to put on his running shoes. “What are you doing? You can’t outrun a bear!” says one hiker, the other one replies: “True, but I don’t have to outrun the bear; I only have to outrun you!”

What’s the point? The market is the composite opinion of all other investors. In essence, you beat ‘the market’ (aka the ‘bear’) by knowing more than your fellow investors (aka the other ‘hiker’). Knowledge is the edge.

I consistently follow dozes of different indicators, which fall into one of these four categories:

  • Supply & demand (liquidity)
  • Technical analysis
  • Investor sentiment
  • Seasonalities & cycles

When all or most indicators point in the same direction, there’s a good chance stocks will move in that very direction. I call this a high probability trade.

The last such signal occurred in December, when liquidity, sentiment, technicals and seasonality pointed higher. The bullish weight of evidence, at that time, was discussed in this article: Is the Bear Market Over?

Since then, the S&P 500 has gained more than 20%. How much further can stocks rally?

Investor Sentiment

Some sentiment gauges show elevated optimism, but considering the strong Q1 2019 performance, overall sentiment is surprisingly subdued. Shown below is a selection of six different sentiment indicators. None of them shows an extreme reading. Without extremes, sentiment doesn’t provide an edge. It is possible for stocks to move higher.

Technical analysis

Short-term: The S&P 500 is nearing over-bought and is facing mild resistance. The chart below highlights trend line resistance and horizontal volume resitance (volume by price not date) for the S&P 500 futures. Now doesn’t appear to be the time to chase price.

Longer-term: The trend is your friend, but the risk of being ‘un-friended’ exists, and it’s difficult to find low-risk entries in an market that’s driven by momentum, but on the edge of being over-extended.

Elliott Wave Theory, the most exotic tool in the technical analysis tool box, is up to interpretation and of little help (more details here).

Supply & demand

Liquidity continues to flow into US stocks. Uncertainty in the European Union and money on the sidelines in the US are a likely cause for the continued inflows. My favorite liquidity indicator suggested throughout 2016, 2017, and 2018 that new all-time highs will be reached, and that message continues to be the same.

Seasonality & cycles

Bullish mid-term election year seasonal forces, discussed here, appeared late, but they did show up.

Based on mid-term seasonality, more gains are likely, but general S&P 500 seasonality is entering a higher risk window.

Cycles are conflicting.

Summary

There are times when most indicators point in the same direction (as in December), making a directional forecast easy.

And there are also times when indicators are in conflict, such as now.

That doesn’t mean we are left entirely clueless. Based on the market’s pattern in early March, we expected the S&P 500 to see-saw across obvious resistance at 2,815 and secondary resistance at 2,830. The S&P spent two weeks doing just that. But in order to unlock lower targets, it would have had to break below 2,785, which it didn’t.

Periods of relative uncertainty are always frustrating, but two things should be kept in mind:

  1. It’s good to know when visibility is limited and act accordingly. Would you trust on Uber driver who’s speeding in the fog? Can you trust an analysts who’s ignorant of ,or over confident in periods of uncertainty? Knowing there is no edge, is an edge in itself.
  2. Periods of uncertainty always end!

And when certainty returns, the Profit Radar Report will be there.

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.

S&P 500 Update – Let’s Call it What it Really Is?

Last week’s S&P 500 update highlighted a triangle and complete 5-wave pattern likely to be followed by a ‘pop and drop’ with a minimum down side target around 2,720.

Price popped to 2,817, and subsequent dropped to 2,722, confirming (and possibly completing) this pattern.

As mentioned in the March 10 Profit Radar Report, to see more down side, the S&P would have had to stay below 2,764, otherwise odds would favor a new high.

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, the S&P moved above 2,764, and subsequently a new high.

How does that new high fit into the bigger picture?

Time to be honest

My analysis includes many different indicators, but the only one that’s really mattered is the December/January breadth thrust discussed here.

Elliott Wave Theory (EWT) on the other hand has been of little help. In fact, I have rarely seen more conflict among EWT analysts with many either adjusting their labels to match stubbornly held interpretations, or changing on a whim.

This can be (and usually is) costly for readers and investors. The honest approach is to just admit when the EWT structure is foggy.

The chart below shows the EWT conundrom: The wave structure going into, and coming out of, the December low is messy, and up to interpretation.

If you are not familiar with EWT, in order to pinpoint the main trend, it’s important to discern a clear 5-wave (or at least 3-wave) pattern. A 5-wave pattern usually marks the dominant trend, and is followed by a pullback, and trend continuation.

The blue stretch above labeled “5 waves” is the only clear pattern I’ve been able to discern (published real time in the March 3 Profit Radar Report, see chart below).

The completed pattern suggested a 100-point drop (or more). In reality it led to a 95-point drop. Since the drop reached my minimum target (2,720, green trend line, first chart) and stopped after only 3 waves (3 waves are counter trend), it may have completed the entire pullback.

The blue “a-b-c” labels show another valid path, which suggest the S&P 500 will soon relapse and re-visit the 2,700 range.

Technical Analysis

Basic chart analysis shows the S&P 500 bumping against a cluster of resistance (first chart). Risk is elevated while below resistance, but the more obvious a resistance level becomes (such as this one), the more likely it is for price to surpass or see-saw that level.

An immediate U-turn, or a quickly reversed spike above resistance, would be the first indication that the blue path illustrated above is playing out.

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 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.

S&P 500 – Change of Trend?

This is a shorter-term Elliott Wave Theory-based forecast. A longer-term forecast based on a different set of reliable indicators is available here.

Most of February’s market action was outright boring!

Starting in late February, however, boring morphed into revealind. The range bound trading actually provided clarity.

Via the February 27 Profit Radar Report, I pointed out a possible S&P 500 triangle formation. The chart below (published in the March 3 Profit Radar Report) illustrated the triangle formation as it corresponds to Elliott Wave Theory.

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.

Pop and Drop

In short, the triangle was to be followed by a pop and drop.

As the updated price chart shows, this is what happened.

The green line highlights important support provided by the February 21 low (2,664,55).

I don’t think it will, but as long as this support holds, a different kind of Elliott Wave Theory formation – a more complex ‘flat triangle’ – is possible (see blue lines in chart below).

Regardless, the post triangle pop should be wave 5, which marks the completion of this particular rally leg. The wave 5 high likely occurred already on Monday (2,816.88).

Regardless, a pullback is here or near. How much of a pullback?

How Big of a Drop?

It’s been difficult to count the rally from the December low in terms of Elliott Wave Theory, but the rally from the February 21 low has taken the shape of 5 waves (see above charts).

A completed 5-wave rally is always followed by a pullback. The question is this: Does the 5-wave rally complete only a small rally leg (going back to early February) or the entire rally from the December 24 low?

The blue box highlights the discussed 5-wave sequence (chart published in the March 3 Profit Radar Report). We know that this portion of the rally should be retraced for sure (solid blue arrow). However, it’s possible that the latest 5-wave sequence ends a larger A-B-C or 5-wave advance, which would suggest a much deeper drop (dashed blue line).

The S&P 500 futures chart, published in the March 3 Profit Radar Report, shows an ominous wedge formation with decreasing volume, which could translate into significant down side risk.

It looks like the minimum down side target is around 2,720, but a drop to 2,600 (and lower) seems quite likely.

We will asses down side risk as the decline progresses.

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 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.

How to Predict a Market Crash

Although I warned of an environment where the risk of a meltdown is high (wave 3 down, based on Elliott Wave Theory), I can’t claim credit for predicting the December crash.

Because of my multi-indicator approach to market forecasting, and profound concern for my subscriber’s portfolio’s, I rarely ever make absolute one-directional predictions based on only one indicator.

Absolute Predictions

There are plenty of absolute and unequivocal predictions out there. Such ‘hit or miss’ or ‘all or nothing’ bets are great when they work out (and like gambling, sometimes they do), but cause excruciating pain when they don’t.

Below are a few examples of recent all or nothing predictions:

December 6: “The last great buying opportunity of the decade is here!”

December 10: “Keep cool! S&P 500 & Nasdaq holding above lows. Signal is bullish!”

December 19: “ All structural criteria is in place to create a POWERFUL 1-2 week rally”

My favorite: May 14, 2018 (and virtually every day since 2011): “I think it likely that the rally is ending today” (red arrows added to show implications of wave 2 top, and subsequent wave 3 decline)

I found in my research that the only folks who ‘predicted’ the December meltdown, are those we’ve been spewing doom and gloom for years (even a broken clock is right twice a day).

My Promise

My intent is not to discredit the above services, but to highlight the flaws of tunnel vision research. That is, research based on only one indicator or one methodology.

Before publishing the Profit Radar Report (many, many years ago), I lost a lot of money by trusting one single indicator (which at the time had a good track record). Back then, I took off my ‘research blinders,’ and vowed to expand my research horizon.

Better Diversification

Diversification is a popular term in the investment world, and it’s almost exclusively linked to asset allocation. But what about research diversification?

Just as a diversified portfolio smoothes out individual boom and bust cycles, research diversifcation eliminates the ‘hit or miss’ performance tied to any one single indicator.

Multi-indicator Approach

My goal is to distill and compress the message of various indicators (such as: investor sentiment, money flow, breadth, technical analysis, price patterns, seasonality, etc.) into the most likely path going forward, the direction suggested by the weight of evidence.

For example, on October 28, when the S&P 500 first fell into the 2,600s, I published the weight-of-evidence-based projection (yellow lines) along with the below commentary via the Profit Radar Report:

The biggest potential ‘fat pitch’ trades are to go short above 2,830 (red box) or buy at the second low (green box).”

The yellow lines projected a move from 2,600 to ~2,850, followed by a drop to ~2,400.

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.

Crash Environment Alert

Starting on December 9, I warned subscribers that a wave 3 crash is a possibility. For example, the December 9 Profit Radar Report stated that:

Based on Elliott Wave Theory, the S&P 500 could be 1) nearing the exhaustion point of this down leg, or 2) be in a strong and sustained wave 3 lower. Scenario #2 seems more likely.”

The December 17 Profit Radar Report reiterated the following:

Based on Elliott Wave Theory, both options discussed on December 9:

1) Washout decline with target of 2,550 – 2,500 (or 2,478 as per Sunday’s PRR)

2) Accelerating wave 3 lower (which could erase another 10% fairly quickly)
are still alive
.”

In case you are new to Ellliott Wave Theory (one of the many indicators of the multi-indicator approach), here is a description of a wave 3:

Wave 3 is the longest and most powerful of all Elliott Waves. Wave 3 continues to move higher (or lower) despite overbought (or oversold) momentum and sentiment readings. A common target for wave 3 is a Fibonacci 1.618 of wave 1 (which currently is 2,269 for the S&P 500).

Pros and Cons

One ‘drawback’ of the multi-indicator approach is that you will rarely hear a flashy ‘all or nothing’ call.

The benefit is that you will rarely be on the losing end of such a call. The multi-indicator approach does however, outline when the risk of a crash or the potential of a spike is elevated.

And perhaps most importantly, there are times when nearly all indicators point in the same direction to form a potent and very reliable buy/sell signal (such as in March 2009, October 2011, February 2016).

Based on what I’m seeing right now, it seems like we are nearing such a signal.

The latest S&P 500 forecast is available here: Short-term S&P 500 Update

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.

S&P 500 at ‘Make it or Break it’ Level

The S&P 500 has reached a seemingly important ‘make it or brake it’ zone. Here’s why:

For the last couple of weeks, I’ve been following two scenarios:

1) Washout decline with target of 2,500 – 2,500 (purple arrow, chart below)
2) Accelerating wave 3 lower (yellow arrow, chart below)

The two scenarios were first introduced via the December 9 Profit Radar Report, which stated that:

A brief drop below 2,618 (with next support at 2,607, 2,550 and perhaps as low as 2,500) followed by a quick recovery would preserve the bullish divergences and suggest sellers got ‘washed out’ and a year-end rally is underway. Persistent trade below 2,618 and 2,607 means we need to allow for more weakness.”

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.

Both scenario had the same outcome, mentioned in the December 12 Profit Radar Report: “We assume with a high degree of certainty that this rally will ultimately re-lapse to new lows. The question is not if but when.”

Although I amended the ideal down side target for scenario #1 to 2,478 (December 16 Profit Radar Report), the decline has gone a bit further than I initially thought.

Nevertheless, up until now, both scenarios pointed in the same direction. That’s no longer the case.

A (sustained) break below the blue trend channel and Fibonacci support (both around 2,478) will tilt the odds significantly towards scenario #2, which could see the S&P drop another 100 – 300 points.

Assessing the Odds

Based on Elliott Wave Theory, the odds are 50/50.

Statistically, the odds of a breakdown are less than 15%. How so?

The red graph below shows the average path of the past 10 bear markets (as defined by Ned Davis Research). On average, the S&P does not fall more than 16% during the average bear market (this average includes the 2000 and 2008 bear markets).

Today’s performance was unique and remarkable in many ways:

  • S&P 500 closed down 1.54%, but VIX was unchanged
    Since 1992, VIX was unchanged or lower when the S&P was down more than 1% only 32 other times. Over the next month, the S&P rose 81% of the time, on average 2.4%
  • S&P 500 turned a >1.5% gain into a >1.5% loss
    Since 1982, the S&P turned a >1.5% gain into a >1.5% loss 7 other times. 1 week, and 1 month later it was up 86% of the time.
  • S&P 500 lost > 1.5% on an FOMC day
    Since 1996, the S&P lost >1.5% on a FOMC day 5 other times. 1 week later, it was up 60% of the time, 1 month later it was up 80% of the time (datasource: SentimenTrader).

Summary

The S&P 500 just suffered the worst start to a December since 1931. Although statistical odds favor a bounce from here, Elliott Wave Theory cautions that a break below 2,478 can unleash another wave of selling.

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 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.

Crude Oil Could Fall Another 50%

Crude oil prices dropped 38% since October 3. The June 20, 2018 Profit Radar Report published the following analysis and projections:

The two charts below show two possible longer-term Elliott Wave Theory counts:

  • The first one implies that a major top is in.
  • The second one implies that we’ll see another high before a major top.”

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.

The November 25 Profit Radar Report stated that trade may bounce from the descending green support trend line, but warned that:

The 2008 and 2014 decline caution that failure to bounce despite being over-sold can lead to continued losses. In fact, the chart below shows that the chart pattern of 2018 looks similar (perhaps a smaller fractal) to the chart pattern of 2011 – 2015 (blue boxes).”

Oil prices did bounce from the green support line, but it failed to get above 55, which according to the December 9 Profit Radar Report was needed for a bigger snap back rally.

Price is once again nearing over-sold, and a bullish divergence exists, but betting on bounces in a bear market takes impeccable timing.

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 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.