Are Emerging Market Stocks Ready to Rally?

From January 26 – August 15, the iShares MSCI Emerging Markets ETF (EEM) lost 20.3%. A bear market is commonly defined as a decline of 20% or more. Based on this definition, EEM entered a bear on August 15.

Will the emerging markets bear market continue, or is it a false signal?

Emerging Markets Bear Market? The ‘Two Week Rule’

To assess emerging markets future prospects, we will look at other times EEM lost 20%.

As the chart below shows, since its inception in 2004, EEM fell 20% five other times. How it performed two weeks later, tended to be an indication of its longer-term prospects.

Two weeks after its initial 20% drop, EEM was higher 3 times, and lower 2 times. 4 out of 5 times, the subsequent gain or loss was significant (>7%).

The 3 times EEM was higher two weeks later, it was also higher three months later (on average 5.7%). The 2 times EEM was lower two weeks later, it was also lower three months later (average of 3%).

The chart below shows EEM since its January high. Since ‘entering bear market territory,’ EEM already rallied more than 5%, and it looks like it will be up two weeks after triggering a 20% decline.

Trade is just below its 50-day SMA and trend line resistance around 43.80. There was a bullish RSI divergence at the low.

It seems like EEM has a good shot at moving higher, but a move above 43.80 is need to start confirming a perhaps more lasting bounce.

Other popular emerging markets ETFs include:

  • Vanguard FTSE Emerging Markets ETF (VWO)
  • iShares Core MSCI Emerging Markets ETF (IEMG)
  • Schwab Fundamental Emerging Markets Large Company Index ETF (FNDE)

Above analysis was initially published in the August 26 Profit Radar Report. Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Business Daily says: “When Simon says, the market listens.” Find out why Barron’s and IBD endorse Simon Maierhofer’s Profit Radar Report.

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, 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 Newsletter to get actionable ETF trade ideas delivered for free.

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As mentioned in part I of “How to Outsmart a Choppy, Range-bound Market” (published on March 27), we anticipated a rollercoaster-like stock market.

Our strategy was to look for low-risk opportunities in certain industry sectors.

The April 24 Profit Radar Report stated the following:

The S&P 500 has reached a point where a bounce is likely. It’s possible that the bounce may morph into the next bigger rally. We would prefer to see even lower prices (the lower, the better the risk/reward), but we’re not certain if our wish will become reality.

We’ve been here before (February 8, April 2). Both times the S&P rallied … and eventually pulled back again. In February we bought XLU as a lower-risk bet on equities. Now XLP sports an interesting setup.”

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.

Low-Risk Sector Trades

The Utility Select Sector SPDR ETF (XLU) and Consumer Staples Select Sector SPDR ETF (XLP) were over-sold and over-hated at the time. In addition they were trading against support with bullish divergences. And, paying some of the best dividends in the business didn’t hurt.

We bought XLU on February 12, and sold XLU on April 6 for a 6.16% gain.

We bought XLP on April 25, and sold XLP on May 1 at breakeven.

We again bought XLP on May 31, and sold XLP on July 10 for a 5.50% gain (yes, sometimes it may take two attempts to get it right).

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At no time did XLU or XLP fall below our purchase price, and both trades offered a 11.66% (including dividends) absolutely no risk, no stress return.

The Profit Radar Report continuously looks for low-risk trade opportunities, which includes stocks, gold, silver, oil, currencies. Continued updates and 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 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, 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 Newsletter to get actionable ETF trade ideas delivered for free.

S&P 500 Update – Curveball

On June 6, I published a bigger picture S&P 500 outlook. Since this update builds on the June 6 outlook, you may find it helpful to first read the June 6 bigger picture S&P 500 outlook.

For the past few months we’ve been looking to buy the S&P 500 on dips. We bought the SPDR S&P 500 ETF (SPY) on April 3 and May 31.

As mentioned in the June 6 outlook, the May 29 shakeout and May 30 recovery (see chart below) increased the odds that either a low is in place or that a more significant rally is developing. Our upside target mentioned in the June 13 PRR was 2,800 – 2,830.

There was one caveat mentioned in the June 6 outlook (and May 30 Profit Radar Report): “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.”

This week support at 2,740 failed, and the S&P swiftly dropped to 2,700.

Not profitable, but Successful

Our SPY sell limit was waiting at 280.50 (S&P 2,810), but SPY reversed before, and Profit Radar Report subscribers got stopped out of SPY at breakeven (271.25, which correlates to 2,710 for the S&P 500). Although the SPY trade was not profitable, it was a success! Why?

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Business Daily says: “When Simon says, the market listens.”

When the S&P 500 rallied more than 100 points from the May 31 low, we did not feel the need to chase price, because we bought near the low, and had skin in the game. Based on various sentiment readings, many investors suffered from FOMO (= fear of missing out) and bought near the high.

Back to square one. Pause and reset.

The break below 2,740 opens various short-term (and longer-term) possibilities, many of which point to a choppy market.

Evaluate and Cross-check

The chart below outlines 5 possible scenarios based on Elliott Wave Theory (the chart below makes more sense when read in context with the bigger picture S&P 500 outlook). They range from immediately bullish (dark green) to short- and long-term bearish (blue, orange and red).

The Profit Radar Report tends to monitor multiple scenarios and cross-checks them against other indicators (technicals, sentiment, liquidity, seasonality/cycles, etc.) to assess each scenarios viability and probability.

For example, our trusted liquidity indictor already eliminated 2 of the 5 scenarios illustrated above.

In short, we remain in “buy the dip mode,” the question is just how big of a dip we’ll get. For someone who just got stopped out at 2,710, worst case scenario would be a strong, immediate rally (dark green scenario above).

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, 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 Newsletter to get actionable ETF trade ideas delivered for free.

 

Treasury Prices and Yields Blindside the Masses – What’s Next?

Last month, 10-year yield above 3% was all the rage. Since then it has dropped more than 8%.

The April 25 Profit Radar Report commented as follows on 10-year yields:

The topic of 3%+ 10-year Treasury yields has captivated the media, and the media writes what retail investors are interested in. For example:

  • CNBC: Market is obsessed with 10-year yield
  • MarketWatch: Here’s why stock market investors are focused on a 3% 10-year yield
  • CNNMoney: Why everyone is stressing about the 10-year Treasury yield

This kind of fascination is usually reached towards the end of a trend. Commercial hedgers (smart money) are heavily betting on rising 10-year Treasury bond prices (bond prices are inversely correlated to yield, rising bond prices = falling yield).

The 10-year yield chart (TNX) doesn’t look healthy. RSI-2 is overbought, RSI-35 is diverging bearishly. This doesn’t mean TNX will have to drop tomorrow, but indicators suggest up side is very limited and down side risk elevated.”

The May 6 Profit Radar Report featured the chart below, which offers a more comprehensive look at 30-year Treasury prices (price and yield move in the opposite direction). Shown are:

  • Investor sentiment (commercial hedgers’ exposure – bottom panel)
  • Seasonality (blue chart insert at top right)
  • Elliott Wave Theory labels

The 3 most important Treasury indicators we watch (technicals, sentiment & seasonality) all suggested higher prices.

The iShares 20+ year Treasury Bond ETF (TLT) shows how this buy signal played out.

Short-term, TLT is overbought (RSI-2), and susceptible to a pullback. But, RSI-35 confirmed this rally and suggests that any pullback will be followed by more gains.

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.

US Dollar and Euro Outlook

At the beginning of the year, the US dollar was the most despised asset of the investment universe. Headlines like the ones below were common:

  • Why it may be downhill from here for the US dollar – MarketWatch
  • USD poised for a bear market – FXStreet
  • U.S. dollar bear market: 3 reasons it can continue – SeekingAlpha

Contrary to the prevailing opinion, the Profit Radar Report was looking for a major US dollar bottom and a major euro top (the US dollar and euro move in opposite directions).

The February 15 Profit Radar Report published the chart below and stated: “Regardless of the when and where exactly the EUR/USD tops, the next major move is expected to be to the down side.”

The chart highlights technical resistance for the EUR/USD and a very bearish posture by commercial hedgers (smart money).

The EUR/USD (or euro) topped the next day, but wasn’t in a hurry to move lower.

The March 24 Profit Radar Report stated that: “Back in February cycles were not yet bullish, but that’s about to change. Smart money hedgers remain near record bullish. Although it is possible for the USD to carve out one more low (blue labels), its not required. We are looking for a significant USD rally and EUR/USD decline in 2018.

The charts below (published in the March 24 Profit Radar Report) shows a detailed US dollar Elliott Wave projection and long-term EUR/USD projection.

In addition to sentiment and Elliott Wave Theory, basic technicals showed bullish divergences at the February US dollar low, and up trend confirmation throughout the rally since.

What’s Next?

Over the coming 1 – 3 months the pace of this advance is likely to slow as the dollar carves out a small wave 4 correction and wave 5 rally, which should be followed by a larger wave 2 decline.

Once this sequence is complete, the dollar will probably rally strongly for many months, causing havoc on assets (particularly foreign US dollar denominated bonds) around the globe.

This will be a major theme and trend in the months/years to come. We do not want to miss the upcoming opportunities caused by the ripple effect of a rising dollar. As always, opportunity for some will mean risk for others.

Continued updates, along with trade recommendations, will be available via the Profit Radar Report.

ETFs that benefit from a rising dollar and falling euro include:

  • PowerShares DB US Dollar Bullish ETF (UUP) – Dollar ETF
  • ProShares UltraShort Euro ETF (EUO)
  • or short the PowerShares Euro ETF (FXE)

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.

Simple, Common Sense S&P 500 Update

For almost two years, investors were spoiled with low volatility and high returns, but recent market action has rattled the cage.

Will there be more ‘cage rattling!’ If so, how much?

Sometimes a simple common sense analysis is the best one. KISS.

KISS

The February 11 Profit Radar Report stated that: “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.”

On March 27, the S&P 500 was less than 7 points away from its February 9 close. Sideways indeed.

The February 11 Profit Radar Report also provided common sense long-term context via the chart and commentary below:

1 – 2 – 3 is how we label the rally from the February 2016 low (according to Elliott Wave Theory – EWT). Wave 3 (wave 5 of wave 3 to be exact) extended much higher than normal (blue box).

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.

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

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.

Wave 3 lasted almost 15 month (November 4, 2016 – January 26, 2018). The February ‘mini meltdown’ inflicted an 11.8% loss in only 10 days. Is a 10-day pullback commensurate to a 15-month rally? Not really!

The Conclusion (and Solution)

After looking at dozens of different indicators and patterns, the February 11 Profit Radar Report concluded as follows:

We’ve been looking to buy the dip. Is this the dip to buy? When boiling down all our indicators to a few sentences, we find that a bounce from Friday’s (February 9) low is probable. The bounce however may turn into a period of range-bound up-and-down market action, not an immediate directional up move. A path similar to 2011 (retest of original panic low). Hopefully volatility in coming days/weeks will provide a better (lower) entry.”

Find out which low-risk sector ETF the Profit Radar Report recommended on February 11.

The chart below compares the 2011 correction with the 2018 pullback (blue box). In 2011, it took 25 days before the S&P tested (and briefly exceeded) the initial panic low. A similar pattern is developing now.

Here are 3 factors to keep in mind:

  1. This wave 4 correction does not have to exceed the February low to be complete
  2. Due to the duration of the preceding rally, this wave 4 correction could last longer than in 2011
  3. In 2011, it took almost 5 months for the S&P to rally from the its low to a new high

The March 24 Profit Radar Report outlined the ideal path going forward along with target levels and an actual price projection.

Naturally we will be alert for curveballs (one of which is over the top bearish), but if the S&P 500 follows our ideal path reasonably close, it should set up a solid buying opportunity.

Continued updates and analysis is 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 Update: Top or Not?

The last S&P 500 update outlined why 2,500+/- has been our up side target for over a year.

Our view has been that S&P 2,500+/- is not the target for a major top, but it should lead to a 5-10% correction.

The August 7 Profit Radar Report zoomed in on 2,495 as short-term target (based on the ascending red trend line) and stated:

The S&P 500 ETF (SPY) closed at a new all-time high at the lowest volume of the year. The ideal scenario (and tempting setup to go short) would be a spike to 2,495+ followed by an intraday reversal.”

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Bussines Daily says “When Simon says, the market listens.

New Highs! Why?

On August 8, the S&P spiked to 2,490.87 and reversed lower. It initially looked like the 5-10% correction had started, but the August 13 Profit Radar Report warned that:

Odds for a bounce are high, and based on the wave structure, the likely up side target is 2,465 – 2,470. Purely based on the oversold condition however, the bounce could be stronger.”

The August 23 Profit Radar Report noted a bullish RSI divergence on the hourly chart, and stated:

Based on Elliott Wave Theory, this correction could even reach new all-time highs without violating any wave 4 guidelines. Whether this is the case remains to be seen, but it’s an option. Hourly RSI is fairly strong, therefore continued gains are easily possible.”

New Highs! Top or Not?

On Tuesday, the S&P surpassed the August 8 all-time high. In terms of Elliott Wave Theory, this high could be wave b of an ongoing wave 4 correction or wave 5 of wave 3, which would lead to the wave 4 correction (other options are possible, but those are the two most likely).

This article explains how and why Elliott Wave Theory has been such a valuable indicator.

The S&P 500 is nearing overbought, there is a bearish RSI divergence on the daily chart and seasonality is soon hitting a weak spot.

However, our reliable liquidity indicator (which has an incredible track record when it comes to sniffing out major tops) confirmed Tuesday’s new S&P highs.

Conclusion

The next inflection range spans from 2,500 – 2,540. Our working assumption is that the 5-10% correction will start then.

Our major market top indicators strongly suggests that the next correction will only be temporary and followed by new highs.

Continued analysis, with down side targets and buy/sell signals are provided 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.

If you enjoy quality, hand-crafted research, >> Sign up for the FREE iSPYETF Newsletter