Nasdaq-100 is Approaching Massive Resistance

The Nasdaq-100 has been a stock market trailblazer ever since the 2009 low. Despite its 210% gain, the Nasdaq is lagging well behind many other major indexes. This makes it an ideal target for technical analysis and long-term resistance studies.

Right now the Nasdaq-100 (QQQ) is better suited for technical analysis than almost any other broad market index.

That’s a bold statement, but there’s a good reason. Unlike the S&P 500, Dow Jones and many other indexes, the Nasdaq-100 is well below its all-time high.

Any index, stock or ETF at or near an all-time high has little up side resistance. Theoretically, the sky is the limit. Not so for the Nasdaq-100.

The chart below shows just two trend lines that have capped all of the Nasdaq’s recent advances and offered the same great trade setups (more below).

Right now the Nasdaq is butting up against red trend line resistance. The up side is obviously limited as long as prices stay below the red trend line.

Going short against the red trend line would be a low-risk trade setup simply because the risk is limited and well defined. However, I’m not inclined to short this market (yet).
Even if the Nasdaq-100 (Nasdaq: QQQ) moves above the red trend line, it is very close to massive resistance going back to its all-time high in 2000. The resistance is massive, because it’s made up of two separate Fibonacci levels converging in close proximity of each other (more below).
Support is provided by the green trend line. As long as prices remain above the green trend line, the trend is up.
The Profit Radar Report has been taking advantage of those two trend lines for months. When the Nasdaq double backed the red trend line on May 28, the Profit Radar Report recommended to go short.
A re-test of previously broken resistance is a bearish opportunity 8 out of 10 times.
The open chart gap left on June 20 was a clear signal that the index will come back up to fill this gap. Chart gaps act like magnets for price.
There’s an open chart gap just above 3,000. It too will be closed.
From Small to Big Picture
The red and green trend lines are ‘small fish’ compared to the truly massive resistance not far above current trade.
How the Nasdaq reacts at this key inflection point may well set the stage for the next year of trading. We’ll have to see what happens, but I believe the odds of a major top occurring against this massive resistance are greater than 50%.
The Profit Radar Report has revealed the key resistance level and how to trade the coming weeks.

Apple (AAPL) Seasonality Chart

Most investors are aware of the seasonal ebb and flows that influence the stock market, but iSPYETF is the first to make a seasonal chart for Apple readily available. 14-years of rich price history are packed into this one chart (which by the way predicted the AAPL September all-time high).

 

AAPL has had a wild ride. In a matter of months the stock lost 45% after a 15-year Apple specific bull market.

Apple shares recorded their all-time top tick on Friday, September 21, 2012 at 705.07.

Friday, September 21 may seem like an arbitrary day for an all-time high, especially since September/October usually marks the onset of a seasonally strong period of the year.
However, September 21 makes a lot of sense if you are familiar with AAPL seasonality. Why?
The seasonal chart for AAPL reveals that – on average – AAPL suffers its biggest losses of the year starting on September 16.
AAPL seasonality is based on price action since 1998, when Steve Jobs U-turned Apple from near bankruptcy to profitability.
AAPL seasonality was one of the reasons the Profit Radar Report turned bearish on Apple and issued this, at the time, shocking recommendation:
Aggressive investors may short Apple (or buy puts or sell calls) above 700 or with a close below 660.” The move above 700 occurred first and turned this into one of the sweetest short trades in history.
It’s always handy to be aware of AAPL seasonality. Despite its historic meltdown, Apple remains the ‘alpha male’ among stocks.
Depending on its share price, it accounts for more than 10% (at one time over 20%) of the Nasdaq-100 (Nasdaq: ^IXIC) and Technology Select Sector SPDR ETF (NYSEArca: XLK). It continues to be the top holding of the S&P 500 Index (SNP: ^GSPC) and SPDR S&P 500 ETF (NYSEArca: SPY).
How about seasonality for the broader stock market?
The Profit Radar Report has charted seasonal forces for the S&P 500 going all the way back to 1950 and condensed them into one telling chart.
This chart alerted us of the April 2010 and May 2011 highs, which were followed by 10 – 20% declines and the October 2011 and June 2012 lows, which were followed by a relentless rally (up 58% so far).
The Profit Radar Report not only charts basic seasonality, it also looks at (and illustrates) post election year seasonality and post-election year seasonality when a democratic president is at the helm.
To gain instant access to various seasonality charts, sign up for the Profit Radar Report.

 

ETF SPY: Will XLK Ride Apple’s Coattail?

Apple has broken above resistance courtesy of a post-earnings gap up open. This is a bullish development, but caution is warranted as there’ve been at least 7 dead cat bounces in recent months.

The after hours reaction to Apple’s earnings announcement was positive. Shares were up nearly 5% as AAPL beat earnings and sold more iPhones than expected. The biggest fly in the ointment was that margins are shrinking, a problem all companies face when they ‘grow up.’

Apple accounts for 11.67% of the Nasdaq-100 (Nasdaq: QQQ) and 13.15% of the Technology Select Sector SPDR (NYSEArca: XLK).
Although Apple’s effect on the technology sector is not as suffocating as it was at $700 a share, AAPL is still the single biggest component of QQQ and XLK.
Interestingly, XLK has thus far been unable to beat its May high, but QQQ did. This lag is not due to Apple, as Apple rallied 11.8% from June 24 – July 17, XLK only 7.51%.
XLK Technical Picture
The stock market in general is kind of stuck between a rock and a hard place. A correction is due, but any dip is likely to be bought again. This means the up side is limited, but so is the down side.
The XLK chart below shows basic support and resistance (solid red and green line).
A close below the July 19 low at 31.37 would be a failed percentR low-risk entry, essentially a sell signal.
As long as prices stay above 31.37, the open chart gap (purple bar) should be filled. Even a move to the red trend line is possible.
AAPL Technical Analysis
If you want a shot of nostalgia, you’ll enjoy this article from August 22, 2012:
This article was written at a time when analysts were ‘bidding’ for the highest Apple price targets. Above 1,000 was pretty much the minimum bet.
Apple then dropped from 705 to 385 and has been bouncing aimlessly ever since.
Today AAPL was able to clear short-term resistance at 437. Next trend line resistance is at 448.
There have been many false fits and starts for Apple since the April low at 385 and there’s no telling if this bounce will stick. Similar breakaway gaps (gray circles) were retraced shortly thereafter, so it’s prudent to wait for more confirmation.
Simon Maierhofer is the publisher of the Profit Radar Report.
You can follow him on Twitter @ iSPYETF.

String of Indecisive Dojis Foreshadows Trouble for SPDR S&P 500 ETF

Increasing demand following a lasting bottom generally leads to higher prices. The SPDR S&P 500 ETF has seen higher prices (since the June 24 low), but the candle formation since then reflect uncertainty, not increasing demand.

The SPDR S&P 500 ETF (SPY) has rallied as much as 4.3% from last week’s low and some analysts feel that the market has been cleared for takeoff again.

That may be the case, but the string of dojis of the recent low doesn’t inspire confidence in the longevity of this bounce.

A doji candlestick is formed when the open and close are the same or very close to equal, despite a wide trading range. They are generally an indication of equality between buyers and sellers.

The SPY chart below highlights the seven consecutive dojis since the June 24 low. The doji’s suggest that this rally is lacking the kind of buying pressure associated with lasting lows.

In fact, a closer look at the hourly chart (see gray chart insert) shows that SPY gapped higher in the first hour of trading five of the last six trading days. In other words, most of the gains occurred in the overnight futures session.

The big players may be running up the futures at night to sell their long position during the day.

While the string of dojis looks bearish for stocks, technicals are currently neutral.

I believe the overall odds favor lower prices. A well-defined resistance level for SPY, the S&P 500 and Nasdaq-100 provides a promising low-risk opportunity to go short. A break below support (also less preferred) would open a similar opportunity.

It will take sustained trade above resistance to unlock higher price targets.

The Profit Radar Report highlights the resistance level that serves as a low-risk entry for short sellers.

Weekly ETF SPY: Nasdaq-100 Fulfills Down Side Target and Bounces

The Nasdaq-100 almost had its first 5%+ correction in over six months. Although the decline has been on the shallow side, it has already fulfilled the initial down side target issued by the Profit Radar Report.

This ETF SPY follows up on the May 23, ETF SPY, which focused on the Nasdaq-100.

The May 23, ETF SPY was special, because it essentially provided a sneak peek of the kind of analysis provided by the Profit Radar Report.

To quickly review, the May 23, ETF SPY noted the May 22 reversal day (see chart above) and strongly suggested that lower prices are ahead along with this low-risk entry:

Prices often retest a previously broken support level, so a move up to the red trend line (@ 3,033) would be a low-risk opportunity to go short.”

That retest of the trend line occurred on May 28 and once more on May 30. In fact, I tweeted the following message and chart real time on May 30 at 11:18 am PST:

Hourly resistance line is at 3,023 for Nasdaq-100 – 74.22 for QQQ. This is a low-risk short entry with tight stop-loss.” >> follow iSPYETF on Twitter.

How low should the Nasdaq go? The June 2, Profit Radar Report stated that: “Important support and initial down side target is 2,905.”

Although the Nasdaq missed its down side target by a few points yesterday, it briefly dipped below the trend channel, but staged a reversal and finished with a green candle low and a close above support.

As you can tell by the first chart, I wrote this article on Thursday afternoon. At the time I didn’t know we’d see such a strong up day today, but yesterday’s article on the deeply oversold NYSE advance/decline ratio highlighted the “potential for a rally that lasts more than a couple of days.”

Yesterday’s Profit Radar Report stated the following: “The Nasdaq-100 dipped below channel support and ended the day with a green reversal candle, a close above support and a small bullish RSI divergence. Today’s decline may have exhausted short-term selling pressure.

It’s too early to tell how far this rally will run. We’ll use our comprehesive analysis radar to spot the next low-risk entry point – long or short.

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Stock Market Breadth So Bad, It Might Actually Be Good

On the surface the decline from the May 22 high has been tame and orderly. However, the NYSE advance/decline ratio suggests otherwise. The ratio has dropped to a level usually seen at or near market bottoms. Here’s how we treat this somewhat odd reading:

One indicator suggests that stocks are about to bottom, but please don’t take this as a buy signal.

Starting with the May 22 reversal day – which painted a huge red reversal candle for the S&P 500, Nasdaq-100, Dow Jones, Russell 2000 etc. – the Profit Radar Report turned bearish.

We sold all our Nasdaq-100 long positions at 3,030 and also issued a signal to go short (for aggressive investors) at 3,030.

Why? The Nasdaq-100 reached the Profit Radar Report’s target of 3,050 and S&P 500 seasonality, sentiment and technicals all suggested lower prices and lower prices is what we got.

In fact, the decline has been so pervasive that declining stocks outnumber advancing stocks by a near-record margin.

Wednesday’s NYSE decliners outnumbered advancers by a ratio of 4.3:1. Monday’s NYSE decliners outnumbered advancers by a ratio of 5.7:1.

The 10-day moving average advance/decline ratio (advancing issues divided by declining issues) has dropped to 0.79.

The chart below plots the S&P 500 against the NYSE advance/decline ratio. Readings around 0.80 have often resulted in a bottom of some sort as the dashed red lines illustrate. Plotting the S&P against the McClellan Oscillator paints a similar picture.

Quite frankly, this indicator is at odds with many others I follow, but it shouldn’t be ignored. This doesn’t mean that stocks will jump here. It merely shows that there’s potential for a rally that lasts more than a couple days.

This is the kind of data I keep in mind when setting a stop-loss level, in this case for our short positions. The first priority is to keep profits and protect capital. A runaway rally – which according to the advance/decline ratio is possible – would be an unwelcome surprise by shorts and needs to be hedged.

The stop-loss level for current short Nasdaq-100 and S&P 500 positions is available via the Profit Radar Report.

Weekly ETF SPY: Nasdaq-100 and QQQ Reversal Candles

The stock market sold off sharply right as Mr. Bernanke spoke before Congress, but there were other – more predictable reasons – for stocks to fall: Sentiment, seasonality and technicals. Here’s the technical analysis that kept investors ahead of the trend.

On April 24, the S&P 500 broke above its all-time high at 1,576. Since then the Profit Radar Report analysis has been focused on the Nasdaq-100. Why?

Unlike the S&P, the Nasdaq-100 (and its corresponding ETF, the PowerShares QQQ) trades well below its 2000 high. There are fewer resistance levels for the S&P 500 – an index trading at all-time highs – compared to the Nasdaq-100.

Support and resistance levels are effective tools to manage risk, so it made sense to switch ‘vehicles.’

The weekly chart below shows the two trend lines we’ve been focusing on. The green trend line goes back to 2008 and is key support. The red trend line served as initial target and now early warning indicator.

Wednesday’s giant red candle high (daily chart) looks significant for a number of reasons:

1) It’s a reversal candle that engulfs the four prior candles and occurred right against the long-term trend line as well as short-term resistance at 3,050.

2) Sentiment was getting too bullish: The May 19, Profit Radar Report warned that: “The increasing number of bullish polls and money flow indicators shows that risk is rising and we will be alert for a change of trend.”

3) Seasonality is about to turn sour as pointed out by the May 19, Profit Radar Report: “Based on post election seasonality stocks are due for a pullback in a week. VIX seasonality projects weakness for late May/early June.”

Reversal candles are not foolproof. For example, a reversal candle for the Dow on February 25 did no lasting damage.

But unlike the Dow’s February 25 candle, yesterday’s reversal was the common denominator of all major markets.

What’s Next?

We looked at the Nasdaq-100 because it gives us the support/resistance levels needed for risk management and low-risk buy/sell triggers. Let’s take advantage of them.

Prices often retest a previously broken support level, so a move up to the red trend line would be a low-risk opportunity to go short. A stop-loss should be used as a move above the red trend line would point to a continuation of the rally.

Selling tends to accelerate when support is broken (this was true with the red trend line). Therefore, a move below the green trend line would unlock lower targets.

Based on past experience, stocks should bounce to digest yesterday’s decline. There’s an open chart gap for QQQ at higher prices. At least that chart gap should be closed.

This week’s ETF SPY is more ‘special’ because it includes information generally reserved for subscribers to the Profit Radar Report. >> Sign up for the Profit Radar Report if you’d like to enjoy this kind of analysis.

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S&P 500 – Technical Analysis Shows the Trend

Markets are inherently unpredictable, but technical analysis is the most accurate forecasting tool available to investors. Since technical analysis is based on past price action, it is quite simple to confirm (or expose) when and where technical analysis has been right or wrong.

Some define technical analysis as mumbo jumbo, others (and that’s the official definition) see it as a method of forecasting prices based on past market activity.

Isn’t using past market activity (or prices) to forecast future prices like driving by looking in the rearview mirror? That’s a great question.

The Past Matters

Why does the past matter? Allow me to use a tennis analogy. Roger Federer (possibly the best ever all-around tennis player) has never won a clay court match against Rafael Nadal (possibly the best ever clay court tennis player) at the French Open Tournament (one of the big four Grand Slam tournaments).

Who do you think has a mental advantage the next time Federer and Nadal meet at the French Open? Federer knows he’s never beaten Nadal at the French Open, Nadal knows he’s never lost to Federer at the French Open.

Federer has to overcome a mental ‘resistance’ to beat Nadal at the French Open. I use the term mental ‘resistance’ because it relates to resistance (and/or support) seen in the securities market.

Charts of specific securities, such as the S&P 500, reflect the mental state of the composite of all investors. Charts reveal past price areas where either sellers or buyers prevailed, creating areas of support or resistance.

Being unaware of previously established support/resistance levels is like climbing a ladder without knowing which steps are broken.

Past Significance of Support/Resistance Levels

The proof is in the pudding, so let’s take a look at a 14-year chart of the S&P 500 Index (corresponding ETF: SPDR S&P 500 ETF – SPY).

The chart includes four long-term support/resistance levels made up of two trend lines (red lines) and two parallel channels (black and dashed lines).

The trend channels are created by connecting the 2002 and 2009 lows with the 2000 high (dashed black line) and 2007 high (solid black line). Since the last touch point of this channel is the 2009 low, it could be used as a guide only thereafter.

2000 High Parallel Channel

In May 2011, the S&P approached the upper dashed parallel channel resistance (gray circle). I remember that time vividly as my wife and I were vacationing on a little island in the Bahamas (for some reason the market usually sells off when I’m on vacation).

My May 1, 2011 update for subscribers featured the chart below and stated: “The chart below updates the S&P’s position relative to various resistance levels and the ideal target range for a potentially historic market top. The ideal target range is between 1,369 and 1,382.

The next day (May 2, 2011) the S&P briefly spiked as high as 1,370.58  (right into the 1,369 – 1,382 target range) on news that Osama Bin Laden had been killed. The stock market euphoria was short-lived, as the S&P sold off, fell below trend line support (pink line) and ultimately plunged as much as 20%.

The S&P 500 paid attention to this parallel channel once more in November 2011, when it was used as a springboard for the most powerful leg of the post-2009 QE bull market.

2007 High Parallel Channel

In January 2013 the S&P 500 approached the ‘big brother version’ of the same parallel channel (this time the upper line was created by the 2007 not the 2000 high – gray circle).

The parallel channel resistance coincided with trend line resistance (red line). This was powerful resistance and I thought stocks would pause and temporarily reverse there … but they didn’t.

With that resistance out of the way, it was clear that the S&P wanted to test its all-time high and the next trend line resistance (red line) around 1,593.

It barely shows on the weekly bar chart, but the S&P was actually repelled by trend line resistance at 1,593 in April (subscribers of the Profit Radar Report went short at 1,593 and closed out short positions at 1,540).

This (temporary) decline from 1,593 to 1,536 left several open chart gaps (one at 1,588), that’s why we expected a deep retracement. That deep retracement however, turned into a rally to even higher highs.

With the S&P above the last trend line resistance and with no other overhead resistance levels caused by prior support/resistance levels left (the S&P carries no more ‘inherited technical burdens’), there is nothing holding stocks back.

That doesn’t mean stocks can’t and won’t decline, but as long as prices remain above trend line support, the larger trend is simply up.

Unlike the S&P 500 and Dow Jones (which are trading at all-time highs), the Nasdaq-100 still trades well below its heyday highs of the year 2000. This means there are more well-defined support and resistance levels available.

Those support/resistance levels are powerful risk management tools and can be used to find low-risk entries and high probability trade set ups.

At the time of this article’s publication, the Profit Radar Report is long the Nasdaq-100 with a stop-loss just beneath an important long-term support.

The Profit Radar Report reveals key support/resistance levels along with low-risk and/or high probability trade set ups.

Central Banks Are Now Buying Stocks and ETFs

We know that central banks are supposed to own government bonds. We also know that the Federal Reserve has and continues to ‘detoxify’ previously toxic assets like mortgage-backed securities. What we didn’t know is that central banks are now buying stocks and ETFs.

Last year I came up with a theory, might as well call it a conspiracy theory.

I was wondering, if the Federal Reserve wanted to drive up equity prices, what would be the most effective way to do so?

At the time, Apple was trading north of $600 and accounted for 20% of the Nasdaq-100 and 5% for the S&P 500 Index. Buying Apple shares would deliver the most bang for their buck (buying IBM may have a similar effect).

Well, there is no evidence that the Federal Reserve actually bought Apple (or IBM), but a recent Bloomberg article revealed that central banks are actively buying stocks and exchange traded funds (ETFs) in record amounts.

A survey of 60 central banks by Central Banking Publications and the Royal Bank of Scotland showed that 23% of the polled central banks own stocks/ETFs or intend to buy stocks/ETFs.

The Bank of Japan said that it will more than double its investment in ETFs to $35 billion by 2014. The Czech National Bank, Swiss National Bank and Bank of Israel all boosted their stock holdings to 10% or more.

Why?

In terms of risk tolerance, central banks fall into the ‘conservative investor’ category. Why? Central banks need to be able to act quickly to counter a move in their currency. Only the safest assets can be liquidated at any given time without (sizeable) losses.

However, their own low interest policies are catching up with them. Central banks are being haunted by the monster they created and have to take the medicine they’ve prescribed to many retirees – take more risk to get more income.

Consumer prices are rising somewhere around 1.5%. The average yield to maturity of the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index is at 1.34% (an all-time low). Central banks too are ‘losing’ money on their balance sheet.

How Much?

Central banks’ currently hold $10.9 trillion of currency reserves, that’s about 20% of the $55 trillion market value of global stocks.

Although buying stocks or ETFs is gaining popularity with central banks, about 70% of the surveyed central banks still consider buying equities tabu.

What Does it Mean?

Central banks fell in love with other asset classes before. Starting in 2010 until this day it was gold. Gold prices continued to rise for well over a year after central banks started buying.

Today gold is trading 25% below its 2011 peak. This shows that even asset classes favored by central banks don’t have to rise forever.

AAPL, GOOG, AMZN and MSFT – Tech Sector Giants Turn Laggards

It’s said that a fractured market is an unhealthy market. The reverse is true and based on the recent string of index highs the market appears healthy. However, some former tech giant leaders are starting to wane. What does this mean?

The S&P 500 and Dow Jones eeked out a new all-time high this morning, the S&P MidCap 400 recorded a new all-time high last Thursday. The Russell 2000 came within 0.08% of a new all-time high. The Nasdaq Composite recorded a new recovery high on Thursday while the Nasdaq-100 remains below last years recovery high.

On the surface the string of new highs/recovery highs is bullish and shows that the major indexes are firing on all cylinders. A humming engine is less likely to stall. However, there are some early issues that may soon illuminate the “check (stock market) engine light”.

While broad indexes remain strong (with the exception of the Nasdaq-100), individual stocks are showing signs of fatigue. In fact, prior tech giant leaders are turning into laggards.

Google (GOOG)

The February 12 article “Will Google Continue to Climb?” highlighted the dashed green support line and support at 760 and stated that the rally will continue as long as prices remain above 760 or dashed green trend line support.

Google broke below support in mid-March and now trades nearly 5% below its all-time high. The 50-day SMA is at 788 and should offer some support.

Apple (AAPL)

We all know about AAPL’s historic ascent and decline, but last week it appeared as if AAPL could stage a small comeback. The log chart shows a brief break out above the down hill parallel channel followed by a bearish relapse. A close below the 20-day SMA at 442 could unlock much lower prices (a shockingly low possible target was just revealed in last night’s Profit Radar Report).

Amazon (AMZN)

Amazon’s chart doesn’t offer any particular insight from a technical analysis perspective, but we take note that AMZN is more than 6% below its all-time high already.

Microsoft (MSFT)

Microsoft has been stuck in a 13-year trading range. MSFT just hit a year-to-date high, but is well below its 2012 high, which incidentally occurred in April.

Summary

It’s said that a fractured market is an unhealthy market. Aside from the lagging Nasdaq (primarily caused by Apple), there are no obvious fractures on the broad market index level.

The waning leadership within the large cap sector though is an early warning sign. The S&P 500 is not far away from key resistance (price target) and key support. A move to hit resistance or below support will be a sell (as in go short) signal.

Last night’s Profit Radar Report featured a specific rally target and the must hold support.