S&P 500 Forecast for Remainder of 2016

The full year S&P 500 forecast is my biggest project of the year, and quite frankly it’s kind of a thankless job. Why? It gives every critic a documented, black and white foundation for criticism.

It is impossible to predict a full year of stock market future, that’s why market forecasts are loaded with ‘ifs,’ “buts,’ and other ambiguities. Anyone attempting to predict the unpredictable is doomed to miss the mark.

That’s why no other newsletter (at least not that I’m aware of) publishes an actual full year S&P 500 chart projection. Accountability is an underrated (if not entirely ignored) concept on Wall Street. But, what’s the purpose of following many time-tested indicators if we don’t put them to work?

The 2016 S&P 500 Forecast was published on January 31, 2016 and is available to subscribers of the Profit Radar Report. Below is an excerpt of the 2016 S&P 500 Forecast (with some minor edits in consideration of paying subscribers).

Barron’s rates the iSPYETF as a “trader with a good track record.” Click here for Barron’s assessment of the Profit Radar Report.

At the time of publication, the S&P 500 traded in the mid 1,800s. One of the key questions addressed by the forecast was whether the May 2015 all-time high at S&P 2,134 marked the end of the bull market.

The S&P 500 Forecast is based on the four most powerful market-moving forces:

  • Supply & Demand
  • Technical Analysis
  • Investor Sentiment
  • Seasonality & Cycles

Supply & Demand

Technical Analysis – Support/Resistance Levels

There is Fibonacci support at 1,855 (Fibonacci projection level going back to 2002).

There is an open chart gap at 2,043.62 (just above Fibonacci resistance at 2,041). This is the bare minimum target for a Q1/Q2 rally.

Technical Analysis – Elliott Wave Theory

Investor Sentiment

Bull markets die of starvation. Just as a fire needs wood to burn, the stock market needs fresh buyers to move higher. Fully invested investors can only do one of two things: hold or sell. Neither action buoys price any higher.

Excessive optimism is an indication that buyers have become rare (because everyone who wants to buy has already bought). That’s why excessive optimism usually precedes a new bear market or sizeable correction. However, investor sentiment near the May 2015 all-time highs was not as euphoric as at prior tops.

Historically, sentiment around May 2015 was not bullish enough for a major market top.

What about current sentiment? Sentiment dropped towards extreme pessimism in January (some indicators triggered panic readings), which should provide a bullish tailwind for the weeks/months ahead.

Summary

The 2016 S&P 500 Forecast did not expect much down side following the January meltdown, but anticipated a market comeback with a ‘bare minimum up side target of 2,043.’

This target was already captured. What’s next? A short-term outlook is available here.

Continued updates are available via the Profit Radar Report. Barron’s graded iSPYETF (and the Profit Radar Report) a “trader with a good track record.”

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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S&P 500: When Will the Trading Range Break?

There’s a time to buy, a time to sell and a time to be patient. Most of 2014 falls into the ‘be patient’ category. What’s causing this extended trading range and how much longer can it go on?

Since the beginning of the year, the S&P 500 hasn’t gone anywhere. Here’s why:

Limited Up Side

The S&P 500 has been struggling to break through technical resistance. The dashed red trend channel and solid red Fibonacci resistance have clipped the wings of the S&P 500 every time it staged an attempt to fly above resistance.

The first chart shows that aside from the January/February dip, the S&P 500 has been restricted to a range defined by predetermined support/resistance levels.

The second chart provides the long-term context needed to make sense of the highlighted support/resistance levels.

Limited Down Side

Obviously, the S&P 500 (NYSEArca: SPY) has bounced from technical support several times, but there’s been another reason why the S&P 500 hasn’t broken down.

It’s the ‘media put.’ Unlike the ‘Bernanke put’ (now Yellen put), which is cash driven, the ‘media put’ is information driven.

The media is the last entity qualified to dispense financial advice, but that’s exactly what they do. Unfortunately, enough investors are listening making the media a contrarian indicator.

Here’s some of the ‘advice’ (headlines) the media has been giving:

Yahoo Talking Numbers: “Why sell in May adage makes sense this year” – April 28
CNBC: “This chart says we’re in for a 20% correction” – May 1
CNBC: “Bubble talk catches fire among big-money pros” – May 5

The S&P 500 rarely dances to the tune of the media’s whistle, that’s why the Profit Radar Report expected a pop and drop combo to fool the ‘here comes the crash’ crowd.

The May 7 Profit Radar Report stated that: “A false pop to 1,900 – 1,915 would shake out the weak bears and set up a better opportunity to go short.”

When Will the Range Break?

The pop to S&P 1,902 on May 13 certainly rattled the cage of premature bears. A break below key support (key levels outlined in the most recent Profit Radar Report) may usher in the long-awaited 10%+ correction.

Could the correction morph into something bigger?

One indicator with the distinct reputation of signaling the 2000 and 2007 meltdowns is at the verge of triggering another ‘crash signal.’ But there’s one caveat.

Here’s the full intriguing story:

A Look at the Risk Gauge that Correctly Signaled the 2000 and 2007 Tops

Simon Maierhofer is the publisher of the Profit Radar ReportThe 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.

How S&P 500 ‘Puppet Master’ Covertly Pulls Strings

Many believe the market is rigged as high frequency trading (HFT) and the Federal Reserve have become major driving forces. However, there is another age old ‘force’ that often pulls the strings in plain sight, yet undetected by many.

A puppet master is a person, group or force that covertly controls a matter. Wielding this kind of covert power is also known as pulling the strings behind the scenes.

We know that the Federal Reserve is openly pulling strings, but that’s not what this article about.

It’s about a different kind of ‘force’ that drives the S&P 500. It doesn’t drive the S&P 500 every single day, but often enough to be considered a valid force.

To recognize, oust, and ultimately profit from this force, please join me in a little experiment.

Experiment: Stage 1 (do not peek)

Below is a chart of the S&P 500. Please take a moment to look at the chart and see if you can observe certain patterns (do not peek ahead to the second chart).

Experiment: Stage 2

Below is the same chart with three very simple annotations.

  1. A blue trend channel going back to the March 2009 low.
  2. A black trend channel going back to the October 2011 low.
  3. Fibonacci projection (red line) going back to the March 2009 low.

Please keep in mind that I didn’t create those lines. The market did. I only connected the dots.

Experiment: Stage 3

The third chart shows the same two channels and Fibonacci resistance, but shows daily bars to allow for a closer examination of the more recent price action.

Here is what we see:

  1. The S&P 500 was repelled by the black channel in January, March and April (red dots).
    On April 2 (green arrow), the S&P 500 staged a technical breakout to new all-time highs, but the Profit Radar Report pointed out resistance at 1,898 (created by a short-term channel) and 1,900 and warned that this looked like a false breakout.
  2. The S&P 500 found support around the blue channel three times in March and April (green dots).
  3. The S&P 500 (NYSEArca: SPY) essentially treaded water in an expanding range wedge created by two powerful long-term trend channels.
  4. Yesterday, the S&P 500 sliced below the blue channel. Support is like thin ice, if broken it gets investors wet. Trend lines like that make great guidelines for stop-loss levels.

Please Mock Me

Usually when I write articles about trend lines, readers post comments like this one:

“More BS from the techies. I can take any chart and draw these lines and call it a trend.”

Ironically, those kinds of comments are a good sign. A puppet master ousted as puppet master is no longer able to covertly influence others.

In order for trend lines to continue working, there need to be enough doubters, mockers, hecklers, and investors simply unaware of the power of this simple tool.

So please, go ahead and disregard trend channels and allow the rest of us to enjoy their full benefit.

Even before the channel was broken, a number of indicators suggested lower prices. The April 7 Profit Radar Report reported an MACD sell signal and bearish seasonality and concluded that:

“Today’s decline looks like an important building block for a multi-week bearish structure.”

We’ve all heard about MACD, but this particular MACD signal is especially unique and potent. The reason why it’s discussed here:

MACD Triggers the Year’s Most Infamous Sell Signal

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.

 

An Updated Look at The Full 2014 S&P 500 Forecast

Publishing any type of actionable market forecast always provides easy ammunition for criticism. Nevertheless, what use is there for all kinds of indicators if they aren’t used to formulate a forecast? Here’s an update to the normally exclusive 2014 S&P 500 forecast.

On January 15, I published my full and complete 2014 S&P 500 forecast for subscribers of the Profit Radar Report.

It is impossible to get a full-year forecast correct, so publishing a detailed forecast with an actual projection of the ideal S&P 500path really provides easy ammunition for ‘you were so wrong’ criticism.

But, if you can’t take criticism as a market forecaster, you are in the wrong business.

Since I follow so many indicators (technical analysis, chart patterns, Elliott Wave Theory, support/resistance levels, investor sentiment, money flows, seasonalities, cycles, etc.) it would be a cowardly waste of research not to ‘puzzle’ them together for a full-year big picture forecast.

Obviously, it wouldn’t be fair to paying subscribers to publish the entire forecast for free, but below is an interesting tidbit of the 2014 forecast.

The S&P 500 chart shows important support (green) and resistance levels (red).

The key resistance level for the first quarter of 2014 was S&P 1,855.

The January 5 Profit Radar Report stated: “Sentiment and midterm election year seasonality suggest stocks are ripe for a multi-week correction, but technicals have yet to turn bearish. Elliott Wave Theory would easily allow for another small down – up sequence and larger scale high, later on in January. Fibonacci projection resistance going back to 2002 is at S&P 1,855.”

The S&P 500 topped at 1,851 on January 15 and fell below 1,740, exactly as outlined by the yellow projection, published in the 2014 forecast. Thereafter the S&P 500 rallied to new all-time highs, also as outlined by the yellow projection.

For the past week again the S&P 500 has struggled to overcome 1,855 and now has to prove it can stay above. This particular Fibonacci resistance is a Fibonacci projection level that goes all the way back to the 2002 lows.

As you can see, the form (and corresponding price levels) of the V-shaped correction/recovery pattern has been spot on, but the timing was off.

I didn’t expect the low until around mid-March.

The eventual high could mark a major top. Why? Two monster long-term stock market cycles actually cross paths this year and suggest a strong double-whammy market top (all details and charts discussed in the 2014 forecast).

Once we get to new all-time highs, we’ll have to see if any such high sports the tell-tale signs of a major top (I’ll be looking at certain bearish divergences that have helped identify similar tops in the past).

What about the short-term?

Up until last week the S&P and Dow Jones adhered to my short-term outlook, which proposed a strong rally from S&P 1,740 to 1,830, quite well.

However, the new all-time highs required an adjustment. The original short-term projection along with the adjusted short-term outlook for the S&P 500 (NYSEArca: SPY) and Dow Jones is available here, for free.

A Revised Short-term S&P 500 Outlook

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 S&P 500 is Revealing Must Hold Support

Investing is about buying low and selling high, but it’s also about knowing when to simply wait. Don’t let a month of sideways trading lure you into making short-sighted decisions. Take a look at key technical support and wait for the trade to come to you.

The S&P is trading today where it was on May 22. In other words, no net progress in 2 ½ months.

For the last 30 days the S&P 500 has been stuck in a 37-point trading range.

Investing and trading is about knowing when to buy, sell and simply do nothing. Previously back on July 17, the Profit Radar Report said that: “the immediate down side is limited, the up side is limited as well.”

Sitting on the sideline doesn’t make you money, but it doesn’t lose you money either. Furthermore, not expecting any big moves allows you to wait without being on the edge about missing the next big move.

Like a fisherman waiting for the next big catch, investors and traders are waiting for the next big move. It may take patience, but the next big move always comes and nobody wants to miss it.

Key support helps identify the next big move, because once support is broken, prices generally move to the down side.

The 1-hour S&P 500 (SNP: ^GSPC) chart below reveals important support created by all the seemingly aimless churning of 20+ long trading days.

There is a trend line convergence in the low 1,680s along with the neckline of a possible head-and shoulders pattern.

There is also an open chart gap at 1,706. Chart gaps have been acting like a magnet for the S&P 500 (NYSEArca: SPY) and Nasdaq-100 (NYSEArca: QQQ). Fibonacci resistance is at 1,700 and 1,704 (could ultimately be trumped by the open chart gap).

I’m not ashamed to admit that I don’t know where the next short-term move will take stocks. In fact, in my Profit Radar Report I’ve declared 1,684 – 1,709 a trade-neutral zone.

But, a drop below the support cluster and head-and shoulders trend line should unlock a move to about 1,650 with more bearish potential thereafter.

What about the up side? The S&P 500 (NYSEArca: IVV) hasn’t hit our up side target yet, so new highs (now or after a correction) are still possible. Regardless, the up side is limited and becoming more and more risky.

Specific trades along with entry and exit levels are available via the Profit Radar Report.

Bullish Euro Gold Breakout May Be Misleading

Gold measured in US dollars has been treading water, but gold measured in euro just staged a bullish technical breakout. While this is good news, there’s reason to be cautious of another ‘shakeout’ move for gold prices.

Investors are forgetful and the market is relentless. The Cypriot Bailout was another reminder about gold’s safe haven advantages over fiat currency.

In times past, gold would have soared on similar economic scares. But not this time. Gold today trades around the same level as two weeks ago.

While the Cypriot Bailout failed to deliver the fuel needed for higher targets, gold could be getting a positive boost from elsewhere.

Gold prices measured in euros just staged a technical breakout above resistance (red circle). Gold measured in US dollars is trading well below similar resistance.

The red lines in the chart below mark previous times where euro-Gold broke above resistance. Euro-gold proved to be the bullish canary every time.

Price divergences between euro and dollar-Gold appear frequent at different degrees. The dotted boxes highlight some of the price divergences at larger turning points. More often than not, the euro pattern (gold colored boxes) sets the stage for the next move.

Based on the correlation between euro-and dollar-gold prices, higher prices seem likely (sentiment is sending the same message).

The question is when?

The Profit Radar Report has been expecting higher prices for gold. However, another new low below 1,555 would look like a more legitimate bottom. That’s why the March 3, update stated that: “Aggressive investors afraid of losing out on a possible up move may go long.”

One reason I would like to see a new low is the lack of an obvious bullish price/RSI divergence at the February 21 low (@1,555). There was a minor divergence, but the bigger the divergence, the bigger the confidence in the longevity of the bottom.

Over the past week gold prices have struggled to move past Fibonacci resistance. The reluctance to move beyond resistance (despite the ‘fear catalyst’ from Cyprus) and the lack of an obvious RSI divergence at the recent low, conflict with the bullish breakout of euro-Gold.

Since I’m always looking for low-risk entry points, buying gold at lower prices would represent a much more attractive risk/reward ratio.

Long gold ETF options include the SPDR Gold Shares (GLD) and iShares Gold Trust (IAU).

Weekly ETF SPY: XLF – Running Into Resistance

Financials are the second most important industry sector of the S&P 500 Index. Right now the Financial Select Sector SPDR ETF (XLF) sports a curious correlation to an economic indicator, along with some directional clues.

Since 2007, the financial sector has tracked consumer sentiment closer than any other sector. The chart below plots the Financial Select Sector SPDR ETF (XLF) against the Thomson/Reuters University of Michigan Consumer Sentiment Index.

Consumers aren’t nearly as confident now as they were in 2007 and the financial sector is far away from its 2007 high.

The comparison between consumer sentiment and XLF is more of anecdotal than predictive value, but the chart of XLF does provide some technical nuggets.

XLF is now trading above Fibonacci resistance at 18.21. This Fibonacci level corresponds to a 38.2% retracement of the points lost from 2007 – 2009.

The move above Fibonacci resistance is bullish and resistance now becomes support.

However, a resistance level made up of several lows reached in 2000, 2002, and 2003 is immediately ahead at 18.52 – 19.66.

Financials, as with the rest of the market, have enjoyed an incredible run, but investors have come to love financials a bit too much.

Current sentiment towards financials is almost the polar opposite to what the Profit Radar Report noted on August 5, 2012:

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.”

The combination of sentiment extremes and upcoming resistance suggests that some type of correction is not far away. However, the correction may be more on the shallow side. Watch Fibonacci and trend line support for more clues.