S&P 500 – Are New Highs Sustainable?

The June 2 Profit Radar Report featured the chart below and stated that: “S&P 500 Futures are down some 15 points in Sunday night’s session and already reached their first target. Aggressive investors afraid of missing out on a bounce (which could turn into something more) may put some money to work.”

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.

Well, the bounce turning into a full fledged rally and it did so quickly. In the process the S&P 500 delivered some impressive price and breadth patterns along the way. For example:

Bullish Developments

  • Yesterday’s (Tuesday, June 4) rally was supported by exceptional breadth, with 81.48% of NYSE stocks advancing. In addition to Tuesday’s strength, Monday saw more stocks advancing (65.03%) despite a 6-point loss. This is generally a positive for stocks.” – June 5, Profit Radar Report
  • Sunday’s PRR showed the spike in new 52-week highs (116 for the S&P 500). Defensive sectors (like staples, utilities, and health care) saw about twice as many new highs as non defensive sectors. Some may interpret this as a bearish ‘risk off’ rally, but historically that’s not been the case.” – June 12, Profit Radar Report
  • Retail investors polled by the American Association of Individual Investors (AAII) are unusually bearish (below 30% bulls for 5 consecutive weeks). When this crowd has been this bearish during a bull market, the S&P 500 was higher 3 months later every time.” – June 16, Profit Radar Report
  • By one measure, hedge funds have the smallest exposure to equities since 2013. This is highly unusual considering that the S&P 500 is only 2% from its all-time high. Since 2009, when hedge funds were this bearish, the S&P 500 was higher 3 months later 90% of the time.” – June 16, Profit Radar Report
  • My favorite liquidity indicator reached new all-time highs this week. Since the beginning of this bull market in 2009, the NYC a/d line reached new all-time highs before the S&P 500 eight other times. On average, it took the S&P 45 days to reach a new high or all-time high (the 2007 all-time high was not exceeded until April 10, 2013). 1 year later, the S&P 500 was higher every time. 2, 3, 6 months later, the S&P was higher 7 out of 8 times.” – June 16, Profit Radar Report

Bearish Factors

The Elliott Wave Theory pattern is still not distinctly bullish. I published four different scenarios in the June 2 Profit Radar Report. The most bearish one was eliminated on June 5. Two of the three remaining ones projected new all-time highs, and the third allowed for new all-time highs.

Shown below is one of the 3 possible scenarios (published in the June 2 Profit Radar Report). The second one has a trajectory similar to this one, and the third one is much more bullish.

Short-term Factors

As the first chart shows, RSI-2 is over-bought and RSI-35 is lagging, so technical indicators allow for some short-term risk. The May all-time high should provide some resistance, but a rally towards and into 3,000 is possible.

I’ll be watching the next inflection zone to see if the bullish developments outlined above will overpower the lack of a clearly bullish Elliott Wave Theory pattern.

Continued updates and projections 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 evaluation 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 e-Newsletter to get actionable ETF trade ideas delivered for free.

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S&P 500 Update: Bullish Triangle vs Bearish Divergences

The S&P 500 is in the midst of a tug of war between a bullish triangle break out and bearish divergences. Who will win, bulls or bears?

Bullish Triangle

The weekly S&P 500 chart below illustrates the bullish triangle potential. Triangle resistance (now support) is around 2,800. The measured target is calculated by projecting the maximum depth to the up side (dashed green arrows).

Thus far the S&P has held above 2,800, which is the first step towards confirming the triangle. Yet, there is risk of a fake out break out. How so?

Bearish Divergences 

The S&P 500 closed at the highest level since January 29, but underlying breadth has been weaker than price leads us to believe.

The red bar shows that my favorite liquidity indicators (dubbed ‘secret sauce’, more details available here) failed to confirm the new recovery highs.

Admittedly, the bearish divergences could be erased by one strong day, but while alive, risk is elevated.

Bearish Divergences in Context with Technical Analysis

The July 15 Profit Radar Report stated that: “The S&P 500 is at the bottom end of the 2,800 – 2,850 zone, which is filled with resistance levels and open chart gaps. Resistance is at 2,808 (January 16 high), 2,830 (combination of two long-term Fibonacci projection levels), 2,839 (January 31 high), and 2,873 (January 26 high). Chart gaps (which act as magnets) are at 2,812.70 and 2,851.48.”

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 gap at 2,812.70 was closed on July 17. On July 25 the S&P overcome resistance at 2,830 and almost closed the open gap at 2,851.48.

Short-term Outlook

Further gains are possible while above 2,830 (and 2,800), but bearish divergences (while they exist) suggest the risk is elevated.

Long-term Outlook

The longer-term S&P 500 outlook is discussed here

Continued updates are available via the Profit Radar Report.

BONUS CHART

The chart below shows the bearish divergences leading up to the Nasdaq-100 QQQ top. The left portion shows the projection featured in the July 15 Profit Radar Report, the right portion includes updated price (as of yesterday’s close, before Facebook hit the fan). Bottom line, risk is elevated while trade is below resistance (red line @ 181.80 is Fibonacci projection resistance going back to 2002 low)

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: 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.

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S&P 500 Update: End of Growth Spurt?

Since the presidential election (November, 2016), the S&P 500 enjoyed three distinctive ‘growth spurts’ (chart below, green arrows).

The first one ended on December 12, 2016, the second one ended on March 1. What about the third one?

End of Growth Spurt?

The December 14, 2016 PRR and the March 5, 2017 Profit Radar Reports stated that: “Stocks rarely ever top at peak momentum. Any pullback should be temporary in nature. The question is how temporary.”

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

The December 14 and March 5 peak momentum highs were followed by sideways corrections and eventually new highs.

The latest all-time high (July 27), however, did not occur on peak momentum. RSI-35 (momentum indicator) is now obviously lagging. The reverse conclusion is that risk of a top is higher today than it was in December and March.

However, our ‘secret sauce’ liquidity indicator (more details about ‘secret sauce’ is available here) is at new all-time highs.

Several times since the 2016 low, the Profit Radar Report stated that: “Our liquidity indicator is already at new all-time highs, it’s just a matter of time until the S&P 500 will follow.”

Short-term vs Long-term

In general, RSI divergences tend to be more short-term (weeks) in nature, while ‘secret sauce’ is longer-term (months). This would translate into shorter-term risk, but longer-term gains.

Up Side Target

For the past year, the Profit Radar Report’s S&P 500 up side target has been around 2,500 (more details here), and a ‘melt up alert’ was issued in 2016.

Now that the S&P 500 as good as reached our up side target, we are using (ascending) short-term trend lines/channels to help narrow down the final squiggles.

So far, the low end of our target was missed by one point. This may have been enough, but for now we are allowing for another stab higher.

Continued analysis along with up-and down side targets and trading 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, 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.

 

Comprehensive S&P 500 Update

The latest S&P 500 all-time high clocked in at 2,440 as the S&P 500 continues to plow over bearish forecasts

Will the S&P 500 in particular, and stocks in general, continue to slog higher?

Here is our comprehensive forecast based on the “four stock market engines:”

  • Supply & demand (liquidity)
  • Technical analysis
  • Investor sentiment
  • Seasonalities and cycles

Supply & Demand

We first unveiled our favorite liquidity indicator in 2014. This indicator correctly foreshadowed the 1987, 2000 and 2007 market top and – aside from a timely caution signal in 2015 – persistently pointed towards continued bull market gains.

For readers of our free website, we’ve dubbed this indicator ‘secret sauce.’ Why, and how this indicator is used is explained here.

In short, major market tops have been preceded by bearish divergences (S&P 500 rallies to new all-time highs, secret sauce does not).

Throughout 2016 and 2017 however, there’ve only been bullish divergences (secret sauce rallies to new all-time highs, but the S&P 500 lags behind). The last four times this happened was on April 30, and April 9, 2017, September 22, and April 16, 2016 (see green arrows).

Each time the Profit Radar Report stated that: “[Secret sauce] is already at new highs. The S&P 500 will soon follow.”

Secret sauce just confirmed the latest S&P 500 high, which means a major market top is still many months away (this doesn’t mean we can’t see a correction though).

Technical Analysis

The most exotic ‘tool in the technical analysis box’ has also been the most accurate: Elliott Wave Theory. Therefore we will focus on Elliott Wave Theory for this update.

The charts below were initially published in the August 28, 2016, Profit Radar Report, and have been our roadmap ever since as the S&P moves toward 2,500.

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Bussines Daily says “When Simon says, the market listens.” Find out why Barron’s and IBD endorse Simon Maierhofer’s Profit Radar Report.

We have made some minor adjustments recently, which place the S&P near the beginning of a more pronounced, choppy correction (see ‘we are here’ on top graph). This correction would be labeled as wave 4 (likely intermediate degree).

Despite rising prices, there has been a measure of internal weakness (see chart below). There have been no strong up days (90% days, where 90% or more of volume flows into advancing stocks). The percentage of stocks above their 50-day SMA is also lagging.

This is compatible with a rally that’s nearing a (temporary) point of exhaustion.

Investor Sentiment

The chart below provides a long-term comparison between investor sentiment near the 2007 high and today.

In short, investors are not as euphoric about stocks today as they were in late 2007. Based on investor sentiment, stocks are not at a major market top.

In fact, stocks may still benefit from the pessimistic extremes seen in January/February 2016 (when the S&P traded below 1,900).

The January 29, 2016 Profit Radar Report stated that: “Sentiment turned pessimistic enough to become a bullish tailwind for the coming months.”

Seasonality & Cycles

Cycles project weakness later on in 2017 and seasonality is hitting a soft spot until September/October.

Conclusion

Once the S&P 500 reaches our up side target we will be looking for a more pronounced correction, but not the end of this bull market.

Continuous updates and actual buy sell recommendations (we haven’t had a losing trade since June 2015) 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.

 

Stock Market Liquidity is Drying Up

Money makes the world go round and vice versa.

We’ve all had a front seat watching the Federal Reserve pump up stocks with QE cash.

Money is like a lubricant. Lack of money, is like ‘sand in the works.’

For the first time since 2007, we are actually seeing signs of liquidity shrinkage.

A while ago I was wondering if there is enough strength behind the latest rally leg to drive stocks to new all-time highs. And if so, could stocks sustain trade above all-time highs?

To get the answer, I turned to the same indicator that foreshadowed the 1987, 2000 and 2007 market tops, and virtually ‘guaranteed’ new bull market highs after the 2010, 2011, 2012 and 2014 correction. I call this powerful gauge ‘secret sauce’ (more later).

New All-time Highs?

Since the beginning of the 2009 bull market, the S&P 500 suffered five corrections of 9% or more (based on closing prices). The summer 2015 meltdown was the most recent one (-12.35% from high to low).

To gauge the longevity of the rally from the August 2015 panic low (S&P 1,867), we will be comparing the current rally with the rallies from the 2010, 2011, 2012 and 2014 bottoms.

With four weeks of gains in the rear-view mirror, we can do just that. As of Friday, October 23, 2015, the S&P 500 recovered slightly more than a Fibonacci 78.6% (78.85%) of the prior losses. This will be our benchmark.

To gauge the strength of the various rallies from their original low, we need more than just a price chart. We need a pulse on internal strength, buying power and liquidity.

Price and internal strength go together like horsepower (or kilowatts) and battery life. You can only judge an electric cars capability once you know horsepower and battery life. The same is true for stocks. To make a decent assessment we need to get a good feel for price and internal strength.

As mentioned earlier, my preferred strength and liquidity indicator is ‘secret sauce.’ Why ‘secret sauce’ is so potent, and why it’s called secret sauce is discussed here.

Again, we will use ‘secret sauce’ to measure and compare the strength of the S&P 500 after having retraced about 78.8% of the losses that led to major lows in 2010, 2011, 2012 and 2014.

The chart below plots the S&P 500 against ‘secret sauce.’ The blue boxes start at the pre-correction high, and end at the 78.8% S&P retracement level.

As the ascending green lines indicate, there was a ton of liquidity behind the 2010, 2011 and 2012 rallies. “Secret sauce’ retraced 119.75 – 193.47% by the time the S&P retraced 78.8% of its losses. Not surprisingly, the bull market continued plowing higher thereafter.

The rally from the 2014 low was not quite as dynamic. Although it led to new all-time highs, this particular rally turned very choppy and eventually gave back all gains.

The table lists the exact details of each rally.

In one way, the rally from the August 2015 panic low is similar to the 2014 rally (‘secret sauce’ retraced barely 70% in 2014 and 2015).

However, unlike in 2014, secret sauce is flashing the same signals now as it did before the 1987, 2000 and 2007 market tops. More details here. S&P 500 Threatening to Follow 2007 Topping Pattern

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 and 17.59% in 2014.

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

S&P 500 – New Highs or New Lows?

On September 29, the S&P 500 fell as low as 1,872. The following headlines popped up on the same day:

  • “We are in a bear market: Carter Worth” – CNBC
  • “Credit Suisse: There’s a growing treat of a major top in the S&P 500” – Bloomberg
  • “Despite rally, stocks won’t end higher in 2015: Blitzer” – CNBC
  • “Carl Icahn says would ‘keep cash’ given market risks” – CNBC

The S&P 500 soared 150 points since the September 29 low.

Based on our dashboard of indicators, we’ve been waiting for a buying opportunity.

The September 30 Profit Radar Report reconfirmed this outlook, and expressed our biggest concern:

The market has been tracking our projections very well, too well. I get suspicious when this happens. Since we are waiting for an eventual buying opportunity, our biggest concern is the market moving higher without us ‘on board.’ Key short-term resistance is 1,953.”

The October 4 Profit Radar Report pointed out: “If the S&P doesn’t turn around at 1,953, the odds increase for a push to 2,040+/-.”

2,040+/- is our bull/bear line in the sand. Trade above 2,040 could lead to new highs, while trade below 2,040 preserves the ideal scenario of new lows.

Why 2,040+/-?

2,040 was support for a 6-month trading range. This support is now resistance.

2,040 is the bottom of an important long-term trend line

There’s an open chart gap at 2,035. The September 13 Profit Radar Report wrote that: “There is an open chart gap at 2,035.73. I am almost certain this gap will be filled (either during a wave 4 bounce or the subsequent rally). Depending on when we get there, 2,040 is an obvious candidate for a setup. It may be too obvious and subject to some sort of whipsaw, but 2,040 is the resistance level to watch.”

Sustained trade above 2,030 could validate a W-bottom formation

As mentioned on September 13, 2,040 is a pretty obvious resistance level on the S&P chart, and therefore may be subject to whipsaw market action (if it’s too obvious, it’s obviously …?).

Because of the above-mentioned reason, the whole 2,040 region will be important, not just 2,040.

Furthermore, not just the price shown on the chart will matter, but also the market’s underlying condition. Is there hidden strength, or not? Is buying pressure overpowering selling, or is the advance anemic and susceptible to a relapse?

In other words, breath, strength and liquidity matter, and may give us clues that plain chart analysis won’t provide.

The Profit Radar Report monitors various breadth, strength and liquidity indicators to get a detailed look at what’s going on ‘under the hood.’

Buckle up. It’s gonna be a rocky ride.

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.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.