S&P 500 Update – Decision Time

The February 8, 2018 Profit Radar Report published the following chart and commentary:

The S&P 500 moved from the yellow zone into the green buy. Does that mean it’s time to buy? It depends on the time frame. Short-term, potentially yes. The hourly chart shows a 5-wave decline into today’s low. A completed 5-wave move, according to Elliott Wave Theory, generally projects a bounce followed by another leg lower. There were many extended fifth waves on the way up, so there is a distinct possibility that there will be extended fifth waves on the way down.”

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As it turns out, wave 5 did extend lower and hit the wave 5 target projected on the chart the next day.

As mentioned in the February 8 commentary, a 5-wave decline is generally followed by another leg lower. However, the rally from the February 9 low at 2,532.69 is not clearly corrective.

New Highs or Relapse

The chart below identifies the next key levels to watch. Corrective rallies tend to retrace no more than 61.8% of the prior decline. The 61.8% resistance level for the S&P 500 is at 2,743. Red trend line resistance (going back to April 2016)  is at 2,723.

Thus far, the rally from the February 9 low has been strong in terms of price (170+ points in 4 days), but not necessarily breadth. As the lower graph shows, the percentage of advancing NYSE stocks barely exceeded 70 the last week.

That’s not weak per say, but also not unequivocally strong. A day or two of 80%+ readings would have been more indicative of a sustainable rally.

In short, how the S&P reacts to the 2,723 – 2,743 resistance cluster should provided clues about whether stocks will relapse to test their panic lows or move toward new all-time highs.

Continued updates are provided via the Profit Radar Report.

 

 

Bearish Bets Should Wait Until S&P 500 Hits This Level

The Greek odyssey, the Chinese market meltdown (Shanghai Composite down more than 30% in one month), NYSE trading suspension, etc.

There are plenty of reasons to worry. In case that wasn’t enough, S&P 500 seasonality is turning bearish, and VIX seasonality already turned bullish (more details here: Strongest VIX Signal of the Year)

Seems like it’s time to hide under a rock, or if you are more of a risk-taker, short stocks.

Sometimes, when it’s too obvious, it’s obviously wrong.

In this case, it may not be wrong to short stocks, but the timing doesn’t look quite right yet.

Here are three lower-risk opportunities to short the S&P 500, if you are so inclined.

  1. Around 2,081. There’s an open chart (first dashed pink line). Open chart gaps tend to get filled sooner or later.
  2. Around 2,101. There’s another open chart gap (second dashed pink line).
  3. After a breakdown below 2,040.

Why 2,040?

2,040 is just below the 200-day SMA, but it’s not a key level because of the 200-day SMA, rather despite the 200-day SMA.

The 200-day SMA is so popular; it tends to give many false signals (S&P seesawed across it already once this week).

The July 5 Profit Radar Report stated that: “The S&P 500 will likely open below its 200-day SMA, but above support at 2,040. The chart below shows why the area surrounding 2,040 seems important.

2,040 is a combination of long-term Fibonacci level trend channel.

Keep in mind that the market is still in a greater chopping zone, but any breakdown has to go through 2,040.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

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Bullish or Bearish? S&P 500 Lagging, Nasdaq at New High Near Double Fibonacci Resistance

Investors are starting to back away from large cap S&P 500 stocks in favor of the tech-heavy Nasdaq. In fact, the Nasdaq is at a 13-year high despite a lagging S&P 500 and the economic drag of a government shutdown. Is this bullish or bearish?

Camouflage is defined as disguising the presence of a person, animal or object. Here’s a slightly different kind of camouflage:

The S&P 500 and Dow Jones are currently ‘camouflaging’ this week’s new all-time highs of the Russell 2000 (NYSEArca: IWM) and S&P MidCap 400 (NYSEArca: MDY). Also, despite weakness in the large cap sector, the Nasdaq-100 (Nasdaq: QQQ) just recorded a new 13-year high.

The Nasdaq (Nasdaq: ^GSPC) offers unique insight for market forecasters like myself. Why? Because it remains below its all-time high and therefore still has to deal with overhead resistance.

In fact, the Nasdaq is within striking distance of my double long-term Fibonacci target.

This target was identified via the July 10, 2013 edition of the Profit Radar Report, which stated:

“The most likely target for the Nasdaq-100 is 3,265 – 3,280, which is about 8.5% away. The up side potential for the Nasdaq-100 is larger than for the S&P 500 (NYSEArca: SPY). Apple may step up to the plate and help the Nasdaq-100 get there.”

Since this July 10 Profit Radar update the Nasdaq climbed 8.2%, driven by Apple, which soared 16%.

What Now?

Our forecast is on track, but we must be aware of these two issues:

1) The Nasdaq-100 is less than 1% away from our double Fibonacci target. This convergence of reliable long-term Fibonacci levels also serves as resistance.

2) The S&P 500 (and S&P 500 ETF) is significantly underperforming compared to the Nasdaq-100 and is still far away from its respective target.

The S&P 500 target was outlined via the above chart (also featured in the July 10 Profit Radar Report). I was a bit off with the timing on the above July 10 projection, but the S&P followed the basic path and got very close to my target (it reached 1,730 on September 19).

The target was based on an ascending multi-year trend channel. I have a feeling the S&P will make another attempt to hit this channel later on this year.

The Challenge

We are basically dealing with two indexes at different ‘life’ stages. You could also call it a divergence or contradiction.

Nobody knows what trick the market has up its sleeve, but we know that Mr. market usually does exactly what fools the greater number of investors.

I am currently tracking two possible resolutions that will do exactly that. One involves are near-term break down, the other a near-term buying opportunity. As always, I’ll share my findings via the Profit Radar Report first.

Simon Maierhofer is the publisher of the Profit Radar Report.

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