Beware of This S&P 500 Booby Trap Danger Zone

Snap! That’s the sound of investors stepping into the two most recent, ingeniously set S&P 500 booby traps. Buy high, sell low. Here’s a short-term outlook for the S&P 500 along with the next likely booby trap.

2015 has been exciting. Not a stale moment. 1%+ daily S&P 500 moves have become the norm. Very unlike 2014, where we had months without moves greater than 1%.

For a market forecaster and commentator like myself, this has been exciting, but it may have been a frustrating trip through seesaw booby traps for many investors.

As soon as investors feel like they may have gotten a handle on things, the S&P 500 changes direction.

The blue box highlights the next potential S&P 500 (NYSEArca: SPY) trap, conveniently located and ready to snap right around 2,065+.

The S&P 500 hit 2,065 on January 22 (blue line); the very day MACD triggered a buy signal.

We were looking to short that bounce, as mentioned in the January 21 Profit Radar Report: “Stocks are moving in the right direction for our short setup. The S&P 500 is close to the 2,040 – 2,070 zone mentioned Sunday.”

After losing 80 points, the S&P visited the lower end of the trading range, with obvious support at 1,980 (green bar).

On Sunday (February 1), the Profit Radar Report warned that: “Near-term support around 1,990 is becoming quite obvious. When support is too obvious, the market may want to fool investors with a seesaw.”

On Monday the S&P sliced below 1,990, took out tons of stops, and reversed strongly.

The push of the low showed good internal strength and is likely to lift the S&P higher. The open chart gap at 2,057 should act as initial target.

Any move to and above 2,065 increases the odds of another leg down. Perhaps the S&P will even close above 2,065 for a day or two. It would be an even better booby trap.

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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Technical Analysis – The Most Unique S&P Candle Stick Pattern Ever?

Candle formations are one of the more comical technical indicators, but comical doesn’t mean ineffective. Here are two takeaways from one of the most unique SPY candle formations ever.

Market analysts and market forecasters can’t be picky or biased. You can’t cherry pick data to support a bias. The tail doesn’t wag the dog and any forecast needs to be data driven.

A ton of data and indicators go into each Profit Radar Report update. There are different sentiment measures, various seasonalities and cycles and a wide variety of technical indicators.

Candle formations are one of the technical indicators I look at. I don’t follow them religiously, but they often add weight to the message conveyed by other indicators.

Anatomy of a Candle

Let’s review the anatomy of a candle before we look at a never before seen candle formation for the SPDR S&P 500 ETF (SPY).

The image below shows the main components of a candle: Open/close price, body, upper/lower shadow (also called wig) and the trading range (green or yellow, depending on up or down day).

The Only SPY Triple Outside Day

On Wednesday, the SPDR S&P 500 ETF or SPY opened below the low of the past three days and closed above the high of the past three days. This is called a triple outside day and has never happened before (see chart below).

That’s a curious factoid, but has it any directional implications? It just might. There have been seven double outside days. Each of them led to positive performance of the next couple of weeks.

Trading volume also picked up on Wednesday. Elevated volume increases the message of any candle formation, which suggests that this rally is not yet over.

A recent article here on iSPYETF.com (Nov. 19: Is it Time to Buy Apple Again?) referred to a reversal candle for AAPL at 506 and concluded that: “Prices are likely to move higher” (Apple traded as high as 595 since).

The November 18 Profit Radar Report spotted a similar reversal candle in combination with a bullish engulfing pattern (see image above) in the S&P 500 and stated that: “the immediate down trend is exhausted and stocks are ready to bounce.” The S&P is up as much as 80 points since. This bounce will continue and quite possible morph into a sizeable rally as long as prices remain above support.

Before we snub our noses at funny sounding candle formations, we should remember that they just called an 80-point (S&P 500) turn around.

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.