S&P 500 Update: Risk vs Reward Reversal

Back in February, the Profit Radar Report published the two most likely S&P 500 forward projections (one of them shown below, the other one was very similar), and stated that: “Both scenarios will eventually lead to new all-time highs.”

My ideal up side target has been 3,000+/-, but risk increased once the minimum up side target (new highs) was reached.

Based on a number of bearish developments and divergences, the September 19 Profit Radar Report stated that: “Chasing price here comes with more risk than reward.”

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.

The September 30 Profit Radar Report tried to quantify the down side risk – based on the trend channel shown below – and stated: “A test of the lower trend channel (around 2,850) could be wave 4, followed by wave 5 towards or above 3,000.”

Obviously the S&P has already reached 2,850, and is now over-sold, and just above Fibonacci support around 2,830. Another area of support (based on Elliott Wave Theory for a diagonal) is the June 13 high at 2,791.

While in that range (2,850 – 2,780), the S&P can (and I think will) still find support for a year-end rally to 3,000+/-.

Of course there is a chance that the September high marks a more significant top with down side targets at 2,600 – 2,200.

We will likely reach those down side targets eventually, but a prior attempt to take out 3,000 would conform to seasonality, take out premature bears, and allow some of those bearish divergences to mature even further and set the stage for a bear market.

The months ahead should certainly be exciting!

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.

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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.

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 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.

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

The February 11 Profit Radar Report featured the chart below and stated that: “Based on Elliott Wave Theory, 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.”

After hitting 2,536 on February 9, the S&P 500 rallied as projected by this chart shown in the February 8 Profit Radar Report (Tuesday’s high at 2,789 was a bit higher than outlined in the last S&P 500 update).

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.

It is possible to count 5 waves up from the February 9 low to the February 27 high.

A 5-wave rally is always followed by a pullback, that’s why the February 25 Profit Radar Report mentioned the possibility of a ‘false breakout.’ The chart below shows the wave labels and common Fibonacci retracement support levels (particularly applicable for scenario #1).

Bigger Picture

The two charts below outline how the rally from the February 9 low and the decline from the February 27 high may fit into the bigger picture.

Scenario #1 assumes that wave 4 completed on February 9. The rally from February 9 – 27 is wave 1 of wave 5. Wave 2 of wave 5 is now underway (see hourly chart for common retracement levels for waves 2).

Scenario #2 projects an ongoing, choppy wave 4 correction and eventual retest of the February panic low.

Both scenarios have a common denominator: New highs once the correction is complete. The shape of the decline should tell us which scenario we’re dealing with.

Summary

Barring a low-odd waterfall decline, the weight of evidence suggests a buy the dip approach.

Continued updates with down side targets 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.

 

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.”

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.

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.

 

 

February Mini Meltdown: Warning Signal or Buying Opportunity

What caused the February meltdown? If you are looking for another strong opinion, sorry, you won’t find it here.

Before we address the more important issue – whether now is the time to buy or sell – here is one tell-tale sign (of what contributed to the ‘meltdown’) brought out by the January 29 Profit Radar Report.

On Friday, the S&P 500 jumped more than 1% to a new all-time high with less than 55% of stocks advancing, another one of those unusual events. The only other times this happened was once in 1987 and thrice in 1999. All four events were followed by minor 2-8% immediate corrections, and eventually big corrections and bear markets.”

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.

The correction sure was immediate, and it didn’t stop at 2-8%.

Buy or Sell?

Since much of the recent market action happened overnight, we’ll first be looking at the S&P 500 futures chart, which includes overnight trading activity.

The February 5 and 6 Profit Radar Reports published the chart below and stated: “Based on the extremely oversold readings, a bounce is becoming highly likely. S&P 500 futures tested the 200-day SMA and 38.2% Fibonacci. From high to low, the S&P 500 futures lost 12.14%. This is already more than the 5-10% correction we anticipated and close to the 14.38% loss (on average based on the last 4 cycles) leading into the mid-term low (see 2018 S&P 500 Forecast).”

The S&P 500 cash index looks a little different, as the pullback was ‘only’ 9.74%.

Here is one reason why we expect eventual all-time highs: RSI-2 was overbought, which suggested risk, but RSI-35 confirmed the January 26 all-time high.

RSI-35 also confirmed the December 2016 and March 2017 highs. As we mentioned many times in recent years, stocks rarely ever carve out a major top at peek momentum.

Conclusion

This clearly is a market that plays by its own rules (the rules are: there are no rules). Nevertheless, nearly all our studies and indicators suggest a resumption of the bull market once this correction is over.

S&P 500 futures already met our down side target, the S&P 500 cash index not yet. Ideally we’ll see a test of the panic low with a bullish divergence for a higher probability buy signal.

Either way, we consider this a buy the dip market. Continued updates and trade recommendation 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.

Party Over for Nasdaq QQQ, AAPL, AMZN?

Tech stocks have been on fire before hitting an ‘air pocket’ last week. Is the current dip the end of the tech party or a buying opportunity?

After pointing out Fibonacci resistance (for QQQ) at 143.75, the May 31 Profit Radar Report noted that: “The Nasdaq-100 painted a bearish reversal candle today. Every red candle high (since October 2013) saw lower prices at some point over the next 1-2 weeks.”

Seven days after the May 31 bearish reversal candle, the Nasdaq suffered a monster reversal candle. Volume (for QQQ) soared to a 2017 record. The June 9 ‘red stick’ erased 10 days of gains.

On that day, more than one third of the 100 QQQ ETF components suffered a buying climax (where a stock rallies to a new 52-week high, but ends down for the week). Buying climaxes are generally a sign of distribution and indicate that stocks are moving from strong to weak hands.

Similar buying climaxes in 2010, 2014, and 2015 led to noteworthy pullbacks.

The problem with extreme ‘air pocket’ days (like June 9) is that they almost instantly create an oversold condition, and the propensity for a bounce.

Next support for QQQ is at 137.20 – 135.70. Resistance is around 141. Support may cause another bounce, but risk of further losses remains elevated as long as QQQ is below 141.

AAPL

Due to its humungous market cap, AAPL is Wall Streets’ VIP and MVP stock. More often than not, if AAPL sneezes, the S&P 500, Nasdaq and at times DJIA will catch a cold.

Based on the long-term black trend channel(s), we determined that up side for AAPL (and indexes like the S&P 500 and Nasdaq) was limited after hitting 155 in May.

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Support worth watching is around 140 and 135.

AMZN

The May 29 Profit Radar Report stated: “AMZN almost cracked the 1,000 mark, which more than anything is a psychological ‘resistance’ level. Cycles project a severe drop for AMZN. Last time this happened (late 2015), AMZN reacted late, but ultimately dropped around 30%. Although more gains are possible, late buyers will probably end up regretting their decision.”

Since May 29, AMZN gained as much as 2%, but subsequently dropped as much as 8.8%, before finding support around 925 (green line). 925 and support near the black trend channel deserve to be watched. It would take a move above 991 to unlock the potential for new highs.

Summary

Based on our research, we don’t expect to see a major market top at this time, but QQQ, AAPL and AMZN are likely to enter a period of consolidation and quite possible some ‘shake out’ moves designed to shake out weak hands.

The Profit Radar Report’s goal is to simplify investing decisions, avoid big losses and spot high probability, low-risk trades. The Profit Radar Report hasn’t suffered a losing trade since June 2015.

A comprehensive analysis for the S&P 500 is available here: Comprehensive S&P 500 Update

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