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.

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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.

Is the S&P 500 Carving Out a Major Market Top?

This indicator is so valuable, I don’t want to keep it to myself. Unfortunately, I’m a bit in a pickle though.

I want to be fair to my subscribers. It just wouldn’t be right to share research reserved for paying subscribers for free, so I came up with this compromise:

You will see the indicator in its full power and glory, but I won’t disclose its name. It will simply be dubbed ‘secret sauce.’

As the charts below will show, ‘secret sauce’ correctly telegraphed the 1987, 2000 and 2007 market crashes.

Perhaps even more importantly, ‘secret sauce’ told investors to stay invested throughout this 6-year old bull market. Although there’ve been corrections along the way, ‘secret sauce’ has consistently pointed to new (all-time) highs.

What is Secret Sauce?

‘Secret sauce’ is basically a market breadth and liquidity indicator. Here’s how it works:

You know something’s wrong if the S&P 500 is at new highs, but ‘secret sauce’ isn’t.

Looking for more stock market analysis? >> Sign up for the FREE iSPYETF e-Newsletter

That’s what happened prior to the 1987, 2000 and 2007 crashes. ‘Secret sauce’ failed to confirm the new S&P 500 highs, which was an early indication of internal deterioration.

Like a ceiling fan that keeps going after it’s switched off, the market tends to keep going for a little while after liquidity and breadth peaks. ‘Secret sauce’ is a good reflection of when liquidity peaks and momentum slows before stocks roll over.

The first chart plots the 1987 and 2000 top against the S&P 500 (NYSEArca: SPY). The vertical red lines show the ‘incubation period’ between peak liquidity/breadth and peak price.

The second chart highlights the 2007 bearish divergence, which essentially marked the beginning of the end for stocks. It also captures the bullish green confirmations that kept pointing to continual new highs following the 2009 low.

I stumbled upon ‘secret sauce’ in 2013, and first introduced it to subscribers in the December 1, 2013 Profit Radar Report. Ever since then we’ve known to expect higher prices.

Obviously ‘secret sauce’ isn’t a short-term timing tool, but knowing whether a correction will morph into a full-fledged bear market or not has been incredibly helpful.

Especially since the media and self-proclaimed market pros have been calling for a market crash for years.

  • December 30, 2013: Why the market could see a 17% drop in 2014 – CNBC
  • May 15, 2014: Stocks are telling you a bear market is coming – MarketWatch

Imagine knowing when to simply ignore headlines as baseless fear-mongering. Is the recent pullback the beginning of the end?

All the details about ‘secret sauce’ are available via the Profit Radar Report.

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.