S&P 500 Outlook – The Bigger Picture

From the very beginning, we considered the pullback from the January 26 high to be a temporary correction (wave 4 according to Elliott Wave Theory), not the beginning of a new bear market.

The chart below describes the concept of Elliott Wave Theory in simple terms. Here is how the Profit Radar Report describes wave 4 corrections in general:

Wave 4 is the most boring and frustrating of all Elliott Waves. It tends to move sideways with a corrective bias. The market appears to be churning aimlessly, investors lose interest, and trading volume declines. Wave 4 tends to retrace around 38.2% of wave 3.”

The S&P 500 retraced 38.2% of its preceding wave 3 at 2,536 on February 9. Detailed analysis provided by the Profit Radar Report at the time is available here.

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Wave 4 corrections come in many shapes and patterns, that’s why they are so difficult to predict.

‘Buy the dip’ is the most effective approach during a wave 4 correction. The April 2 Profit Radar Report stated that: “The S&P 500 has met the minimum criteria to consider this correction complete,” and offered specific buy recommendations (free reprint of the Profit Radar Reports surrounding the April 2 low is available here).

One of the patterns the Profit Radar Report has been tracking since April is the triangle. The chart below, published in the April 15 Profit Radar Report, showed potential paths inside a triangle. The common denominator among all three options was an eventual rally.

It looks like the S&P 500 chose the blue path.

On May 9, the S&P 500 broke above purple triangle resistance, and successfully back-tested the triangle line (now support) on May 29 (green circles).

The May 30 Profit Radar Report stated that: “Today’s bounce erased all of yesterday’s losses and then some. Although today didn’t qualify as a 90% up day (where 90%+ of NYC stocks advance – a breadth thrust), it displayed the strongest up side breadth we’ve seen in a while. The S&P 500 performance of the last two days increases the odds that a low is in, or at least a more significant rally is developing. Why? Yesterday’s drop may have shaken out ‘weak hands,’ and today’s rally showed internal strength. We will leg into the S&P 500 on a drop to 2,710. Buy SPY if it drops below 271.25.”

It looks like the S&P 500 completed its wave 4 correction, and is now in the early stages of wave 5 to new all-time highs.

At Wednesday’s close, the S&P 500 was near overbought, with the CBOE equity put/call ratio unusually low. This generally translates into a pullback (which may be shallow this time around).

Since the S&P still remains in its larger trading range, it is impossible to confirm for certain that wave 4 is indeed complete. Nevertheless, unless the S&P drops back below 2,700 (and the May 29 low), we will assume that a low is in. Additional support worth watching is around 2,740.

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 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.

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What’s Next: New Highs or Lows?

Even just a quick glance at the S&P 500 chart reveals a tug-of-war between bulls and bears, buyers and sellers. Although there’ve been many – at time violent – swings, there’s been no net progress.

What will we see first, new highs or new lows? Here’s a look at various pieces of market research:

Long-term:

Hypervolatility – April 11, 2018 Profit Radar Report:

What a contrast: In 2017, the S&P 500 swung more than 1% on only 10 days. That’s measured from daily high to low, not open to close. In 2018, the S&P 500 had already 41 daily swings of more than 1%.

Below is a closer look at actual volatility, not the VIX. The first chart plots the S&P 500 against the daily percentage change measured from high to low (gray graph) along with a 20-day SMA of the daily percentage change (blue graph).

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.

In February, the daily swing range was nearly as big as in September 2015 and January 2016, which is when stocks bottomed. Back then, volatility came and went quickly (like the shape of a ‘V’). This time around, volatility is lingering longer.

The second chart provides a long-term perspective, which includes the 1974, 1987, 2002, 2007, and 2011 market lows. Back then, daily swings (20-day SMA) peaked around 4%, twice the current average of around 2%.

Based on positive liquidity (NYC a/d line) and the parallels to 2011, it’s unlikely that the daily swing range will double from 2% to 4% as stocks melt lower.

The main takeaway is that volatility extremes are usually seen towards market lows.”

Elliott Wave Theory (EWT) – February 11, 2018 Profit Radar Report:

For well over a year stocks have almost exclusively gone up, slow but steady. For the past two weeks, stocks have gone down quickly.

What’s next? The temptation (and trap) is to think two dimensional – up or down – since that’s most of what we’ve experienced lately. However, stocks could also go sideways for a period of time.

The weekly S&P 500 chart provides some long-term perspective. 1 – 2 – 3 is how we label the rally from the February 2016 low. Wave 3 (wave 5 of wave 3 to be exact) extended much higher than normal.

Based on EWT, wave 3 is followed by wave 4, which is where we are currently at. Waves 4 are generally choppy, range-bound, long-winded, unpredictable corrections that retrace ideally 38.2% of the preceding wave 3. The 38.2% Fibonacci retracement level is at 2,536 (reached on Friday).

In terms of price, wave 4 has already reached its down side target. In terms of time, wave 4 would be unusually short.”

Liquidity – April 18, 2018 Profit Radar Report:

On the bullish side of the ledger, we find that the NY Composite advance/decline line (and NYC OCO a/d line) made new all time highs. This follows the bullish divergence noted in the April 4 PRR.

Long-term summary:The weight of evidence suggests that this correction will be temporary and followed by new all-time highs. But how much longer will this correction last and how low can it go?

Short/Mid-term:

Breadth – May 2, 2018 Profit Radar Report:

As early as February 11, the Profit Radar Report expected a frustrating, drawn out correction like in 2011. There are many parallels between the 2011 and 2018 correction, but here is one difference:

In 2011, there were multiple strong up days (where more than 80% or 90% of stocks advanced – green lines), and strong down days (where more than 90% of stocks declined – red lines).

The strong down days exhausted sellers, and the strong up days indicated internal strength not yet reflected in price.

The 2018 correction is much different. There’ve been only two days that come close to be considered a 90% down day, and only one 80% up day.

To end this sideways range, it appears that either more 90% down days or 80%-90% up days (like in October 2011, see green arrow) are needed. Ideally we’d like to see both, first a bout of strong down days followed by strong up days.”

Seasonality, cycles, pattern – May 6, 9, 2018 Profit Radar Report:

Based on mid-term seasonality (blue graph, chart below), the S&P has a tendency to bottom between late June and late September. Cycles are fairly similar to seasonality at this time.

Year-to-date the S&P is down 0.38%. Since 1950, the S&P 500 showed at loss of 1% (but no more than 5% below 200-day SMA) after the first 4 months 17 other times.. 6 of those 17 instances occurred in mid-term election years (like 2018). The average full-year performance is shown below (average bottom: trading day #193).”

Summary:

The April 2 Profit Radar Report (when the S&P 500 closed at 2,582) stated that: “The S&P 500 has met the minimum criteria to consider this correction complete. There is, however, a difference between minimum and ideal.”

The S&P continues to be stuck in the ‘twilight zone between minimum and ideal.’

Short-term, the May 13 Profit Radar Report probably defined it best: “The S&P 500 broke above triangle resistance. Although we view this breakout with a fair amount of skepticism, we need to allow for higher prices while trade remains above 2,700. Due to the overbought condition, it is unlikely for the S&P to move above 2,750 early this week.”

Continued updates will be 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 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.

S&P 500 Short-Term Analysis: The Bears’ Last Chance is Now

Stock market bears had a ‘do or die’ chance to take the market lower, possibly much lower, … but they fumbled it. Now bears are back in a dark corner and need to take a stand almost immediately to avoid new all-time highs.

When the going gets tough, the tough get going.

This can’t be said for stock market bears right now. When presented with a chance to push stocks lower, bears cave under pressure and fail to ‘grab the bull by its horns’.

Earlier this week bears had such a chance to knock the bulls off their throne (at least temporarily) and unlock significantly lower price targets, but they didn’t.

Like in a competitive sports game (imagine football, soccer, tennis, etc.) there’s often one pivotal moment – one missed chance – that turns the game.

The bears had such a chance at S&P 1,814 on April 14.

The April 13 Profit Radar Report published this chart (see above) and commented:

“The hourly chart reveals a new short-term parallel channel with support at 1,814 and resistance around 1,850. Going short right now comes with a fair shot of whipsaw risk. A lower risk set up will be to go short if the S&P 500 bounces to 1,850.”

Why was 1,814 so pivotal?

1) It was a confluence of technical support levels (trend channel support, Fibonacci support, and supply/demand support created by November/December highs and lows).

2) Based on Elliott Wave Theory (EWT), the S&P declined in only 3 waves (from April 4 high to April 11 low).

Admittedly, EWT is one of the more exotic tools in our technical analysis toolbox, but it can be helpful. A 3-wave move suggests that the larger trend (which is up) is still in tact.

That’s why the April 15 Profit Radar Report (when this special intraday report was published, at 9:30 am PST, the S&P traded at 1,820) wrote that: “As long as trade remains above 1,814.36, bulls could still make a stick save.”

Quite frankly, I thought that bears would take care of business this time. But what the charts say is so much more important than what I think.

What about the April 13 suggestion to go short at 1,850? A special April 15 evening  Profit Radar Report warned of a gap up open and stated:

“If the S&P 500 (NYSEArca: SPY) gaps higher in the morning, we will wait for trade to drop below 1,840 to go short.”

As the updated S&P 500 chart shows, the S&P gapped above the channel and never triggered a short signal.

As the headline brings out, bears need to make a stand almost immediately; otherwise new all-time highs are possible, even likely.

The key resistance level, that once broken, should lead to new all-time highs and a more detailed short-term forecast is 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.

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

S&P 500 – Stuck Between Triple Top and Triple Bottom – What’s Next?

Since the middle of February the S&P 500 has been stuck between two long-term trend channels, one acting as resistance, one as support. The chart now shows a possible triple bottom or triple top. Which one is it?

Was today’s new S&P 500 all-time high another fake out breakout?

I don’t have a crystal ball, but I can lend you my flashlight for a moment.

A flashlight doesn’t tell anyone what’s happening next, but it sheds light on issues invisible without a light. That’s exactly what the two charts below will do.

Long-Term ‘Flashlight’

The weekly S&P 500 bar chart goes back to March 2009, the beginning of this QE bull market, and shows two long-term trend channels. The black channel started in March 2009, the blue channel in October 2011.

Since the middle of February, the S&P 500 has been wedged between both channels.

The March 5 Profit Radar Report highlighted the blue channel and noted that: “In times past, this channel has caused at least a short pullback.”

On March 6 and 7 the S&P 500 hit the blue channel, but couldn’t break above it, which indicated (along with a weekly MACD failure) that the S&P didn’t have the escape velocity needed to break out.

While the blue channel acted as resistance, the black channel acted as support. In fact, there were many other support levels that confirmed the black channel support, that’s why the March 23 Profit Radar Report referred to: “a cluster of support levels around 1,840 – 1,830.”

Short-Term ‘Flashlight’

The second S&P 500 (NYSEArca: SPY) chart zooms in on the daily action and shows two additional support (green line) and resistance (red line) levels.

There’s a good chance that we’ll see another fake breakout, such as on March 21 (red arrow), when the S&P 500 rallied to a new all-time high (keep in mind that the red line wasn’t available on March 21 yet).

A special early morning March 21 Profit Radar Report warned that: “There is at least one Elliott Wave count allowing for a fake out break out and the week after Triple Witching ended with a loss 14 out of 21 years.”

This market is very tricky and more than ever is intent on separating as many investors as possible from their hard earned dollars. Discipline and risk management are a must.

The latest Profit Radar Report features a full April forecast and identified the buy trigger, that – once broken – will lead to higher prices (although any long position will be kept on a short leash).

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.

Short-term S&P 500 Outlook

Up then down and making everybody frown. That’s been the stock market’s pattern since the beginning of the year. As the worst week of the first quarter is coming to an end, we’ll venture a short-term S&P 500 outlook.

This is probably the messiest S&P 500 chart I’ve ever published, but it conveys two very important points:

The stock market’s action has been messy. The S&P 500 (SNP: ^GSPC) chart shows a lot of overlap along with false breakouts and false breakdowns. This has created a lot of technical support (and resistance) levels.
There are two support clusters. The first support cluster is around 1,825 – 1,840. The second support cluster is around 1,790 – 1,810.

The March 21 rally was the most recent fake breakout (red arrow). Morning trade pushed the S&P 500 to a new all-time high, followed by persistent selling.

SPX32814

A special March 21 morning Profit Radar Report update warned that: “One Elliott Wave count allows for a fake out breakout, followed by a drop lower. Today is Triple Witching. The S&P 500 (NYSEArca: SPY) closed lower on Triple Witching day 71% and the week after Triple Witching 66% of the time.”

This particular ‘Elliott Wave count’ mentioned in the March 21 Profit Radar Report projects lower prices, but the S&P 500 will have to move below the 1,840 support cluster to unlock lower targets.

For the last few days, the Russell 2000 has been our ‘canary in the mine.’ The Russell 2000 captured our first down side target yesterday (view article here: Russell 2000 Captures First Down side Target). As always, when a target is reached, there’s an above average chance of a reversal.

S&P 500 resistance is at 1,866 – 1,870.

For now the S&P 500 is stuck in ‘technical purgatory.’

Various indicators suggest new all-time highs eventually. The question is whether we’ll see a deeper correction before that.

Continuous updates are 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.

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

 

The Most Basic S&P 500 Indicator Turns ‘Red’

The market is been downright gnarly. Today’s performance shows once again the stock market’s #1 goal: Separate as many investors as possible from their money. Here’s how the market did it and how it could have been avoided.

Driven by financials, the S&P 500 was the only major U.S. index to see a new high today. The Dow Jones, Nasdaq and Russell 2000 were unable to overcome their previous high watermarks.

Today’s lonesome S&P 500 all-time high (ATH) was a bull trap (at least for the short-term).

Reason enough to take a closer look at the S&P 500, in particular the SPDR S&P 500 ETF (NYSEArca: SPY).

The stock market has crushed some of the most commonly referred to tall tale signs.

How did gnarly Mr. Market fool much of Wall Street? (see chart for corresponding numbers)

1) January 23, 24 saw a high volume sell off below the 20-day SMA and the prior ATH. This was bearish (as technical analysis 101 suggests) and resulted in marginally lower prices.

2) On February 11, the S&P 500 rallied back above the 20-day SMA and prior support (now resistance) on much lower volume.

Basic volume analysis would have suggested that such an anemic move will sooner peter out, but a few weeks later the S&P traded 4% higher.

3) On March 13, 14 the S&P once again sliced below the 20-day SMA and the prior ATH on elevated trading volume. Like in January, textbook analysis would point to lower prices.

Since than, the SPY ETF has rallied on low volume and declined on high volume. This is normally bearish.

4) Today’s the S&P spiked to new ATH’s, by many considered a technical breakout.

But this didn’t last long. In fact, today’s selloff created an ominous red candle high.

In a special early morning update, the Profit Radar Report warned that:

From a purely technical point of view, this morning’s intraday all-time high is bullish and suggests higher prices. However, there is at least one Elliott Wave count allowing for a fake out breakout, followed by a drop lower. Today is also Triple Witching. Stocks close lower on Triple Witching 71% of the time.”

The recommendation given by the Profit Radar Report was to go long only after a move above 1,885 for the S&P 500 (today’s high was 1,883.97).

What’s next?

The S&P 500 and SPY ETF found support at a trend line going back to February 5.

Unbeknownst to many, March Triple Witching also has a longer-term bearish seasonality. This may well draw stocks lower if support fails.

Historical Fact: March Triple Witching Sends S&P 500 Lower

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.