S&P 500 ETF (SPY) Research

The SPDR S&P 500 ETF (SPY) is the world’s largest ETF. It is also one of the most cost and tax effective ways to gain broad exposure to stocks. But that alone doesn’t guarantee profits (nothing does). Here’s one way to increase your winning odds.

The SPDR S&P 500 ETF (NYSEArca: SPY) is the world’s largest ETF ($145 billion in assets). It is also one of the most cost and tax effective ways to gain exposure to a broad basket of stocks.

Unlike mutual funds, ETFs trade like stocks and can be bought/sold anytime the stock market is open (mutual funds have to be redeemed, sometimes at the next day’s closing prices).

But – and that’s a big but – regardless of how great an ETF SPY is, if you buy and sell at the wrong time, you can still lose money.

iSPYETF (as in “I spy with my little eye”) and the iSPYETF Profit Radar Report are dedicated to delivering the best ETF research and identifying the best buy and sell opportunities for the S&P 500 and S&P 500 SPY ETF.

Spotting the best ETF opportunities isn’t easy, but the Profit Radar Report follows dozens of indicators, gauges, cycles and patterns to find the best high probability and low-risk setups.

Can you trust iSPYETF and the Profit Radar Report?

Well, we don’t have a crystal ball, but Investor’s Business Daily had this to say about Simon Maierhofer (Founder of iSPYETF and publisher of the Profit Radar Report):

“Simon says and the market is playing along” – Investors Business Daily

Below is a brief history of Simon’s market calls.

 

Weekly ETF SPY: Dow Jones Transportation Average & Dow Theory

Dow Theory has been around for many decades and just triggered a confirmed buy signal. However, Dow Theory has had its struggle in the Fed manipulated market and the buy signal may not be as strong as it appears.

On Thursday the Dow Jones Industrial Average (DJI) and the Dow Jones Transportation Average (DJT) reached an all-time high. According to Dow Theory, that’s a bullish confirmation.

Dow Theory has been around so long that it’s considered antiquated and outdated by many. Its roots go back as far as 1889 and start with a man named Charles Dow.

Dow started his career as an investigative reporter focused on business and finance. In 1885 Dow became a member of the New York Stock Exchange. In 1889 Dow began publishing a newspaper called the Wall Street Journal.

From 1899 to 1902 Dow published a series of editorials in his Wall Street Journal. Many asked him to compose a book made up of his editorials, but he didn’t. It was left up to others to continue Dow’s Theory and legacy.

Dow Theory students such as William Hamilton, Robert Rhea, George Schaefer, and Richard Russell kept the Dow Theory alive after Dow’s death. They were able to call the Great Depression market bottom in 1932, the turn to the downside in 1937, the 1949 market bottom and the 1966 top.

There are six basic tenets to the Dow Theory. One of which is that the averages must confirm each other. A bull market in the Dow Jones Industrial Average (NYSEArca: DIA) for example, could not occur unless the Dow Jones Transportation Average (NYSEArca: IYT) rallies as well.

Why? Only produced goods that are shipped to and paid for by the consumer confirm a strong economy (production without delivery would only inflate inventory).

Dow Theory was born in a free market and proved its worth many times in decades past. However, the Dow Theory track record in a Fed manipulated market is less than stellar.

For most of 2012 the Dow Jones was ‘doomed’ by a bearish non-confirmation as the Transports failed to confirm the Dow’s new high (dashed red box).

It wasn’t until March 2013 when both averages (industrials and transport) rallied to all-time highs, confirming the rally.

There have been some ups and downs since March, but the DJI and DJT both recorded all-time highs yesterday (July 18, 2013). This means that goods are manufactured and shipped.

Well, that’s what it used to mean anyway. Today it merely means that there’s enough liquidity to buoy different industry sectors.

This is a bullish development, although I’m not buying into the rationale that the stock market is up because the economy is healthy and that the economy is healthy because the transportation sector is confirming the industrial sector.

As the chart above shows, both averages are currently above their respective longer-term parallel channel. A move below the channel wouldn’t suffocate the bullish undertones, but as long as prices remain above, both indexes are ‘safe.’

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Weekly ETF SPY: XLF – Ticks Away from New 48-Months High

The Financial Select Sector SPDR ETF (SPY) and entire financial sector are quietly closing in on a 48-month high. Buoyed by Bernanke, rising interest rate margins, and technicals, how high can financials fly?

It’s been a little while since we looked at the Financial Select Sector SPDR (XLF). The March 15, Weekly ETF SPY featured a long-term chart of XLF that showed a broad support/resistance range.

The daily XLF chart below includes the same support/resistance range (red bar). This range halted the XLF rally in March and April 2013 and proved support for the recent correction.

The fact that XLF didn’t drop below the ‘red box’ was one of the reasons I didn’t trust the latest correction. XLF found support where it should have.

As of today, XLF is just ticks away from eclipsing its May 22 high. A spike above would result in the highest reading since September 2008, 48 months ago.

Once the May 22 hurdle is cleared, there is no real resistance until the 50% Fibonacci retracement of the points lost from May 2007 to March 2009 at 22.

What is worrisome and can be indicative of a ‘last hurrah rally’ is the significant lag of RSI since its high watermark in September 2012 (red dot).

The last leg of the big XLF rally started when sentiment surrounding the financial sector reached a significant low (green dot). At that time, on August 5, 2013, the Profit Radar Report wrote:

“Financials account for 14.21% of the S&P 500, which makes them the second biggest sector of the S&P 500 (behind technology) and worth a closer look. The SPDR Financial Sector ETF (XLF) is butting up against minor trend line resistance at 14.90 and the previous June/July highs at 14.85.

Financials are currently under loved (who can blame investors). Of the $900 million invested in Rydex sector funds, only $18 million (2%) are allocated to financials.

With such negative sentiment a technical breakout (close above 14.90) could cause a quick spike in prices.”

A similar bullish sentiment extreme would be a welcome tell tale for a future selling opportunity. Perhaps we’ll see that closer to 22.

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Weekly ETF SPY: Lumber Prices and Lumber Related ETFs

At first glance you probably won’t be interested in lumber and lumber prices. But, you should know that lumber prices have a good track record of foretelling what’s next for the real estate market. According to lumber prices, the real estate market is in for a roller coaster ride.

Back in October 2012, March 2013, and May 2013 we used lumber prices as a leading indicator for real estate prices (article listed below):

How to Turn the S&P/Case-Shiller Home Price Index into a Forward-Looking Indicator

Leading Indicator Projects Still Higher Real Estate Prices

Is the Housing and Real Estate Recovery Here to Stay?

Using lumber as a forward-looking indicator for the real estate sector has proven quite accurate, so it makes sense to look at what lumber prices are up to now.

Earlier this year lumber futures soared to $411.50 for on-track mill delivery of 110,000 board feet of random length 8-foot to 20-foot 2×4 inch pieces.

March 14, 2013 marked a significant peak and prices have fallen as much as 32.8%.

As outlined by the above-mentioned articles, lumber prices precede real estate prices by 12 – 15 months. In other words, forwarding lumber prices by 12 – 15 months allows us to roughly gauge what’s next for real estate.

Based on this observation (click here for a side-by-side comparison of lumber and real estate prices), real estate prices have a rocky road ahead (see chart below).

What’s next for lumber prices?

The chart below shows that there was no bullish RSI divergence at the most recent low. This suggests that the current rally is a counter trend.

Resistance is provided by the red lines. Prices are already above the two lower lines so a deeper retracement of the recent decline is possible.

It appears that ultimately lower prices are ahead for lumber, which will eventually (with a 12 – 15 month lag) be bad news for real estate.

There are two lumber-related ETFs:

iShares S&P Global Timber & Forestry Index Fund (WOOD)
Guggenheim Timber Index ETF (CUT)

Neither CUT nor WOOD track the actual price of lumber, but follow indexes composed of timber companies or firms that are in the timber trade.

ETF SPY: iShares Silver Trust (SLV) – Where is Support?

From peak to trough and in a little more than two years, silver has lost 63% of its value. The iShares Silver ETF (SLV) would be an easy avenue for investors to capitalize on a possible powerful counter trend bounce. But where is the kind of support that will serve as a springboard?

The iShares Silver Trust (SLV) is trading lower today than 5 ½ years ago and has lost 63% since its 2011 bubble high. How low can it go?

Some may still be licking their wounds from trying to catch the latest ‘falling knife,’ but it’s always an interesting challenge to see how much farther prices may go.

The chart below shows that silver prices stopped at an interesting trend line intersection today.

Double trend line support like this is known to temporarily halt declines, buoy prices and even lead to sizeable rallies.

More serious support however lies beneath Thursday’s low. The 78.6% Fibonacci retracement of the points gained from the October 2008 low to the April 2011 high is at 16.99.

General support created by a sideways basing pattern (green stripe) in 2010 is also right around 17. Normally the 17 range should be considered strong support and possible spring board for a spirited rally.

However, keep in mind we are talking about the silver ETF, not silver prices. SLV, the silver ETF, is within striking distance of its 78.6% Fibonacci Retracement support. Actual silver prices are still about 8% above its respective 78.6% Fibonacci retracement.

Which one – silver ETF or actual silver prices – will be right? Only time will tell. I base my technical analysis on actual silver prices, because it’s a truer representation of the broad market.

Regardless of your preference, one of the outlined support levels is likely to serve as a springboard for a powerful relief rally.

Weekly ETF SPY: SPY ETF vs S&P 500 – Technical Analysis Variations

The S&P 500 Index triggered a beautiful ‘kiss good bye’ signal on Tuesday, before Bernanke spoke and sunk stocks. Interestingly, the sell signal for the S&P 500 could not be seen in the chart of the SPDR S&P 500 ETF (SPY).

SPY S&P 500 ETF or S&P 500 Index. What’s the difference? It’s like tomato or tomato (imagine the second ‘tomato’ spoken with a British accent).

I always try to base my analysis on the purest representation of any given index or asset class. When it comes to the S&P 500, the purest representation is the actual S&P 500 Index you always see quoted.

The SPDR S&P 500 ETF (SPY) tracks the S&P 500 very closely, but even minor variations can make a major difference.

For example: The June 18 Profit Radar Report (released the night before Bernanke opened his mouth and buried the market) noted that the S&P 500 is at an important inflection point and warned:

There is a parallel channel going back to the October 2011 low. Indexes often touch a previously broken support (in this case the black October 2011 parallel channel at 1,655) before dropping to a new low. The S&P touched this channel today and failure to move above could spell trouble.

The first chart below shows the S&P 500 parallel channel referred to in the Profit Radar Report (if you aren’t a subscriber, I tweeted a close up picture of this channel on Tuesday).

I have often observed the S&P 500 (and other indexes) double back a broken support before letting go and peeling away for good. This upper line of the parallel channel was a key ingredient to the bearish forecast (the recommendation of the Profit Radar Report was to go short at S&P 1,635 and Nasdaq-100 2,970). I call it the ‘kiss good bye.’

Drawn in the second chart is the exact same parallel channel for the SPDR S&P 500 ETF (SPY). However, unlike the S&P 500 Index, SPY’s channel is placed differently. There was no kiss good bye for the SPY ETF.

Key support (red line) was broken for both, when prices dropped below the June 6 low (160.25 for SPY and 1,598.23 for the S&P 500).

The SPY chart allows us to draw a support trend line (green line) that’s unique to SPY. I wouldn’t say there is a clear winner in the SPY vs S&P 500 debate, but I prefer to base my S&P 500 technical analysis on the S&P 500 chart. It’s as pure as it gets.

Why further down side is still ahead, what the down side is, and why stocks will rally again when this is all over is discussed in Thursday’s special Profit Radar Report.

Weekly ETF SPY: Currency Shares Australian Dollar (FXA) – Up Side from Down Under?

The Australian dollar’s ‘down under’ freefall is worth a look for contrarian investors. The ‘dumb money’ is record short and the ‘smart money’ is record long the Aussie dollar, which has already completed the first steps necessary for a technical breakout.

ABC News Australia reports that the Australian dollar has dipped below 94 U.S. cents for the first time in 20 months and that “some investors are anticipating the fall to continue.”

In fact, the article points out that “the number of investors making bets that the Australian dollar will fall further is at its highest since the start of 2009.”

A look at the Commitment of Traders (COT) report further enhances the ABC News report and shows that commercial traders are net long more than ever before and small speculators are net short more than ever before.

Considering that commercial traders are considered the ‘smart money’ and small speculators the ‘dumb money’ (no offense), it’s reasonable to assume that the Aussie dollar is due for a potentially significant snap back rally.

The macro analysis shows that the Aussie dollar has been behaving quite odd. Why? The first chart below, which plots the S&P 500 against the CurrencyShares Australian Dollar Trust (FXA), shows that the S&P 500 and Aussie dollar sport a high directional correlation.

Since mid-2012 however, FXA (and the Aussie dollar) has been heading south while the S&P 500 is traveling north.

While this is noteworthy, the most important feature of this chart is the green support line. It was tested in November 2007, November 2009, April 2010, October 2011 and once again now.

The second chart zooms in on the micro picture of the Australian dollar futures. The futures are a more pure foundation for technical analysis compared to FXA, the ETF that aims to replicate the Australian dollar. Here’s what we see:

  • The Aussie $ successfully tested the long-term support zone highlighted in the first chart.
  • The Aussie $ closed above the parallel trend channel that contained the recent decline.
  • The Aussie $ sports a bullish RSI divergence at the June 11 low.
  • The Aussie $ is just one more up day away from a failed bearish percentR low-risk entry. PercentR, as used in this scenario, attempts to highlight the most likely moment for the down trend to resume. A close above Thursday’s high suggests that the favorable window for the resumption of the down trend has passed.

It should be noted that the Aussie $ is trading heavy and that cycles currently do not support higher prices.

Summary: Sentiment towards the Aussie $ is favorable for a rise in prices. Based on technicals, the Aussie $ is one strong up day away from a sustainable breakout. A close above 96 (96.50 for FXA) will hoist it above its 20-day SMA and cause a failed bearish percentR low-risk entry. Keep a tight stop loss as cycles do not support this bounce and don’t be too afraid to take profits when you get them.

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Weekly ETF SPY: Nasdaq-100 Fulfills Down Side Target and Bounces

The Nasdaq-100 almost had its first 5%+ correction in over six months. Although the decline has been on the shallow side, it has already fulfilled the initial down side target issued by the Profit Radar Report.

This ETF SPY follows up on the May 23, ETF SPY, which focused on the Nasdaq-100.

The May 23, ETF SPY was special, because it essentially provided a sneak peek of the kind of analysis provided by the Profit Radar Report.

To quickly review, the May 23, ETF SPY noted the May 22 reversal day (see chart above) and strongly suggested that lower prices are ahead along with this low-risk entry:

Prices often retest a previously broken support level, so a move up to the red trend line (@ 3,033) would be a low-risk opportunity to go short.”

That retest of the trend line occurred on May 28 and once more on May 30. In fact, I tweeted the following message and chart real time on May 30 at 11:18 am PST:

Hourly resistance line is at 3,023 for Nasdaq-100 – 74.22 for QQQ. This is a low-risk short entry with tight stop-loss.” >> follow iSPYETF on Twitter.

How low should the Nasdaq go? The June 2, Profit Radar Report stated that: “Important support and initial down side target is 2,905.”

Although the Nasdaq missed its down side target by a few points yesterday, it briefly dipped below the trend channel, but staged a reversal and finished with a green candle low and a close above support.

As you can tell by the first chart, I wrote this article on Thursday afternoon. At the time I didn’t know we’d see such a strong up day today, but yesterday’s article on the deeply oversold NYSE advance/decline ratio highlighted the “potential for a rally that lasts more than a couple of days.”

Yesterday’s Profit Radar Report stated the following: “The Nasdaq-100 dipped below channel support and ended the day with a green reversal candle, a close above support and a small bullish RSI divergence. Today’s decline may have exhausted short-term selling pressure.

It’s too early to tell how far this rally will run. We’ll use our comprehesive analysis radar to spot the next low-risk entry point – long or short.

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Weekly ETF SPY: Semiconductor Index – Best Reflection of US Economy?

Since the 2008 low, the semiconductor sector outperformed the S&P by a sizeable margin. Despite a 5-year winning streak, semiconductors trade a 190% gain away from the 2000 high and might be the most accurate reflection of the U.S. economy.

There are always three sides to an argument: your side, my side and the truth.

There are also three sides to market analysis: A bullish spin, a bearish spin and the objective take.

The bullish spin on the semiconductor index emphasizes the 180%+ rally from the November 2008 low. The bears will argue that the semiconductor sector is still a 190% gain away from its 2000 high and would have to double twice to reach new all-time highs.

What’s the objective take?

Fact is, the PHLX Semiconductor Index (SOX) barely retraced more than a Fibonacci 23.6% of the points lost from 2000 – 2008. Compared to other indexes, even technology indexes, that’s quite pathetic.

The PHLX Semiconductor Index still trades below its 2007 and 2011 high. In fact, last week prices were rebuffed by the 2011 high.

Furthermore, last week’s high came with a bearish RSI divergence on the daily chart and two bearish RSI divergences on the weekly chart

Bearish RSI divergences alone do not consistently foreshadow price highs, but meaningful price highs are generally accompanied by bearish RSI divergences.

Semiconductors’ trouble to surpass the 2011 high and a daily and weekly red reversal candle emphasize the bearish undertone of the RSI divergence.

The path of least resistance for the coming weeks is down. Support is at 449 and resistance at 475.

The SPDR S&P Semiconductor ETF (XSD) tracks an index similar to the PHLX Semiconductor Index.

The UltraShort Semiconductors ProShares (SSG) aims to deliver 2x daily inverse performance of the semiconductor sector, but trades on very low volume.

The Direxion Daily Semiconductor Bear 3x ETF (SOXS) trades on more volume, but is 3x short.

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Weekly ETF SPY: Nasdaq-100 and QQQ Reversal Candles

The stock market sold off sharply right as Mr. Bernanke spoke before Congress, but there were other – more predictable reasons – for stocks to fall: Sentiment, seasonality and technicals. Here’s the technical analysis that kept investors ahead of the trend.

On April 24, the S&P 500 broke above its all-time high at 1,576. Since then the Profit Radar Report analysis has been focused on the Nasdaq-100. Why?

Unlike the S&P, the Nasdaq-100 (and its corresponding ETF, the PowerShares QQQ) trades well below its 2000 high. There are fewer resistance levels for the S&P 500 – an index trading at all-time highs – compared to the Nasdaq-100.

Support and resistance levels are effective tools to manage risk, so it made sense to switch ‘vehicles.’

The weekly chart below shows the two trend lines we’ve been focusing on. The green trend line goes back to 2008 and is key support. The red trend line served as initial target and now early warning indicator.

Wednesday’s giant red candle high (daily chart) looks significant for a number of reasons:

1) It’s a reversal candle that engulfs the four prior candles and occurred right against the long-term trend line as well as short-term resistance at 3,050.

2) Sentiment was getting too bullish: The May 19, Profit Radar Report warned that: “The increasing number of bullish polls and money flow indicators shows that risk is rising and we will be alert for a change of trend.”

3) Seasonality is about to turn sour as pointed out by the May 19, Profit Radar Report: “Based on post election seasonality stocks are due for a pullback in a week. VIX seasonality projects weakness for late May/early June.”

Reversal candles are not foolproof. For example, a reversal candle for the Dow on February 25 did no lasting damage.

But unlike the Dow’s February 25 candle, yesterday’s reversal was the common denominator of all major markets.

What’s Next?

We looked at the Nasdaq-100 because it gives us the support/resistance levels needed for risk management and low-risk buy/sell triggers. Let’s take advantage of them.

Prices often retest a previously broken support level, so a move up to the red trend line would be a low-risk opportunity to go short. A stop-loss should be used as a move above the red trend line would point to a continuation of the rally.

Selling tends to accelerate when support is broken (this was true with the red trend line). Therefore, a move below the green trend line would unlock lower targets.

Based on past experience, stocks should bounce to digest yesterday’s decline. There’s an open chart gap for QQQ at higher prices. At least that chart gap should be closed.

This week’s ETF SPY is more ‘special’ because it includes information generally reserved for subscribers to the Profit Radar Report. >> Sign up for the Profit Radar Report if you’d like to enjoy this kind of analysis.

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