The Obvious Yet Simple QQQ Clue

Sometimes, investing can be so simple … if we don’t complicate things.

Here is the most basic of ‘indicators’. It has a 100% accuracy rate since the start of the 2009 bull market. In fact, it’s so basic, calling it an indicator is probably overkill.

Open chart gaps. The gaps we’re talking about are price gaps caused by overnight losses.

Our March 7, 2013 article “QQQ – Open Chart Gap Magnets” noted that: “Open chart gaps have acted as a magnet for the S&P 500 and Nasdaq, 100% of the time since 2010. The 2010, 2011, and 2012 declines all left open chart gaps … and all of them got filled.“

Over three years later, the accuracy rate is still 100%.

Various market indexes – including the S&P 500, Nasdaq-100 and Nasdaq Composite – left a massive open chart gap on January 4, the first trading day of the year (see chart).

This open chart gap (at S&P 2,043.62) was one of six reasons why the Profit Radar Report issued a buy signal on February 11 at S&P 1,828. This chart gap also served as our up side target.

The S&P closed the open chart gap on March 17.

The Cohort Went Short

According to an April 5 Bloomberg article, investors were short $1 trillion worth of stocks (the highest short interest since 2008).

Looks like bears got trapped again. One reason the Profit Radar Report didn’t recommend shorting stocks is the open PowerShares QQQ ETF (Nasdaq: QQQ) chart gap; in fact, there are two chart gaps.

One at 111.84, another at 113.25. The gap at 111.84 is massive. History has taught us that shorting against chart gaps tends to be a losing proposition.

QQQ has now come within striking distance of the lower gap. There are some bearish breadth divergences already, but once the gaps are closed, the magnetic force pulling stocks higher diminishes, and the odds for a pullback increase.

A temporary pullback after (even before) closing the first gap followed by another bull leg to close the second gap is possible.

Continuous S&P 500 analysis/forecasts are available via the Profit Radar Report, which was just profiled by Barron’s.

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.

 

Nasdaq Suffers Most ‘Fake out Breakouts’ Ever

Since September 2014, the Nasdaq Composite suffered seven false. This is the most ever.

A false breakout, or fake out breakout, is a break above prior highs followed by drop back below (red ovals).

Obviously, if you are an investor who buys the breakout, the Nasdaq’s recent habit is quite annoying.

The Nasdaq Composite consists of all stocks traded on the Nasdaq (about 3,000), but there is no Nasdaq Composite ETF.

The PowerShares QQQ ETF (Nasdaq: QQQ) is based on the Nasdaq-100 (100 of the largest domestic and international nonfinancial companies listed on the Nasdaq).

The July 19 Profit Radar Report warned against a false breakout, when it cautioned that: “Despite Friday’s strong QQQ performance, the majority of QQQ component stocks closed the day in the red. QQQ sports two big up side gaps, is overbought based on 2-day RSI, and is near a cluster of trend line resistance levels.”

Subsequently, the QQQ ETF dropped below support, and is now trying to get back above prior support (now resistance).

Historically, clusters of fake out breakouts are not necessarily bearish.

A bigger and better reason for caution is lagging breadth.

There are open chart gaps at 114.20 and 108.50.

Odds are that both gaps will get filled, the question is in which order. More chopping action may be ahead.

The S&P 500 chart offers a bit more clarity than the QQQ chart right now. Here’s the S&P 500 forecast.

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.

 

Nasdaq and S&P 500 at All-time Highs – Surprisingly, This is Not Bullish

15 years after the tech bubble, the Nasdaq Composite finally closed at a new all-time high. On the same day, the S&P 500 (NYSEArca: SPY) briefly spiked to a new intraday high.

This is not surprising, since we just discussed that ‘Under the Hood is More Strength than the S&P 500 Chart Shows‘ (for how long remains to be seen).

 

Let’s pretend for a moment the S&P also closed at an all-time high, and look at historic precedents when both indexes clocked in at new all-time highs on the same day.

Since the infamous ‘sell in May, and go away’ period is almost upon us, let’s further narrow down our search to matching all-time highs scored in the month of April.

The chart below does just that. The dashed green lines mark matching April highs.

Things always get a bit tight when cramming 41 years of data into one chart; nevertheless, both indexes visibly struggled the months following matching April highs. The only exception was April 1995.

Short-term, the S&P 500 broke above resistance (discussed here). Based on technical analysis, this is bullish. But other indicators suggest that up side could be limited. Why? More details here.

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.

 

Nasdaq Back Above 50-day SMA – Bull Trap or Buy Signal?

It’s been rare for the Nasdaq to spend an extended period below the 50-day SMA. On Thursday the Nasdaq Composite closed back above the 50-day SMA for the first time since April 4. Is this bullish or a bull trap?

On Thursday the Nasdaq Composite (Nasdaq: ^IXIC) closed back above the 50-day SMA for the first time since April 4. Is this bullish or a bull trap?

Since the 2009 low the Nasdaq hasn’t spent much time below the 50-day SMA. In fact, there were only four instances where it traded below its 50-day SMA for more than 30 days.

The prior three occurrences are highlighted in the Nasdaq chart below. To be specific, the blue boxes show the time spent below the 50-day SMA including the first day back above.

All three times saw an almost immediate pullback followed by higher prices. Twice the Nasdaq tested the prior low.

A move above 4,180 for the Nasdaq Composite or 3,665 for the Nasdaq-100 (Nasdaq: QQQ) would invalidate a bearish technical formation and allow for higher prices.

Perhaps more important than the 50-day SMA is an indicator that correctly signaled the 2000 and 2007 market tops. This trusty indicator is on the verge of boasting another sell signal. Are the implications the same as in 2000 and 2007?

More details here: A Look at the Risk Off Gauge That Correctly Signaled the 2000 and 2007 Tops

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.

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

Did the Nasdaq Just Start a Prolonged Head-and Shoulder Decline?

If it looks like a duck, quacks like a duck, and walks like a duck, it’s probably a duck. This could be trouble, because the Nasdaq looks like it’s at the beginning stages of a bearish head-and shoulders pattern.

If it looks like a duck, quacks like a duck, and walks like a duck, it’s probably a duck.

If it looks like a head-and shoulders pattern …

Unlike a duck, a head-and shoulders pattern is never fully confirmed until it’s completed. Nevertheless, the  Nadsaq-100 and Nasdaq Composite (Nasdaq: ^IXIC) charts show a near perfect setup for a head-and shoulders top.

The April 20 Profit Radar Report, which featured a forecast for the week ahead, saw the potential for a head-and shoulders pattern when it wrote that: “Up side looks to be limited. The Nasdaq might be carving out a bearish head-and shoulders pattern.”

As the blue oval highlights, yesterday’s (Thursday) pop carried the Nasdaq right against double resistance, forming a potential right shoulder.

According to technical analysis rules it will take a drop below the neckline at 3,415 to trigger the actual pattern and down side target, but Thursday’s Profit Radar Report published the chart above and noted that: “This is a low-risk setup to go short the Nasdaq-100.”

Continued market forecasts are available via the Profit Radar Report.

Bearish seasonality compounds the potential danger for the Nasdaq and S&P 500. Here’s another revealing chart:

Historic S&P 500 Seasonality is About to Turn Ugly

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.

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

Is Nasdaq Underperformance Bearish for the Whole Stock Market?

Friday was a bad day for stocks, particularly the Nasdaq. The Nasdaq’s underperformance reflects a shift of investor sentiment, but not all is bad. In fact, there’s one short-term silver lining for the Nasdaq.

Today the Nasdaq Composite (Nasdaq: ^IXIC) lost 2.6% and closed below the 100-day moving average for the first time since December 31, 2012.

Is that bearish for the overall market?

The Nasdaq Indexes (Composite and Nasdaq-100) have been lagging the S&P quite significantly for a few weeks.

Purely statistical, the recent spread between the S&P and Nasdaq is quite rare and does not consistently foreshadow trouble ahead.

However, it does reveak that investors are developing a degree of risk aversion not seen in all of 2013.

The April 2 Profit Radar Report featured this chart of the Nasdaq-100 and cautioned that a move above resistance was needed, otherwise this week’s S&P 500 break out would turn into a fake out.

By today’s close the Nasdaq arrived at the bottom of the short-term trend channel and at the top of a long-term trend channel (I’ll write about this long-term channel in detail next week).

If the Nasdaq is going to bounce (at least short-term), it should do so around the current convergence of trend channels. Further weakness will caution of more down side.

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.

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

Technical Support Buoys Nasdaq … For Now

Friday’s market action was unusual as stocks didn’t rally into the close to cap the week with a happy end. Despite a rough week for stocks though, the Nasdaq Indexes and Nasdaq ETF stayed above important short-term technical support.

On Friday I tweeted a picture of an important technical support shelf for the Nasdaq-100.

Here’s a closer look at important near-term support for the Nasdaq Composite, Nasdaq-100, and Nasdaq QQQ ETF (Nasdaq: QQQ).

Nasdaq-100 Support

The chart shows support around the January 22 high (which is also the March 3 low) and the October 2000 monthly candle high (lower green line).

Nasdaq QQQ ETF

Technical support for the Nasdaq QQQ ETF is around 88.90.

Nasdaq Composite

The Nasdaq Composite found support exactly at the January 22 high (which is also the March 3 low).

The 78.6% Fibonacci retracement of all points lost from 2000 to 2002 is at 4,271.

Rising trend channel support is at 4,222 and the 50-day SMA at 4,207.

We don’t draw those support levels, the market does (we just connect the dots).

In addition to the subtle Nasdaq clues, there’s been one ‘tip off indicator’ that’s kept investors on the right side of the trade, and it’s not one often talked about:

Leading Indicator: What the Yen Carry Trade Predicts for Stocks

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.

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

Nasdaq Rally Broader than Many Believe

Is the Nasdaq driven higher by a few high-flying stocks, or is the rally supported by a broad base of solid performers? The composition of a rally makes a difference, but some narrow-minded analysts ignore some of the facts.

I’ve read a couple of articles recently commenting on the stock market’s ‘bad breadth.’ In particular referring to the S&P 500 (NYSEArca: SPY) and Nasdaq.

One stock market forecasting service claimed on Friday that only 5.27% of Nasdaq Composite (Nasdaq: ^IXIC) stocks trade at 52-week highs and that the Nasdaq is poised to roll over.

Contrary to this claim, the chart below – which plots the Nasdaq Composite against the number of individual Nasdaq Composite component highs – shows that the number of stocks at new 52-week highs is at a one-year high.

Another market forecasting service referenced ‘bad S&P 500 and Nasdaq breadth’ on February 11 and cautioned that: “A majority of stocks are nearing downtrends and a larger selloff.”

The Nasdaq (Nasdaq: QQQ) has tagged on another 5% since than, and you may not be surprised to hear that the above observations come from ‘perma-bear’ forecasting services.

Nevertheless, it is true that the percentage of Nasdaq and S&P 500 (even NYSE) constituents above their 20, 50 or 200-day SMA’s is lagging.

But such kinds of breadth divergences are a blunt timing tool. In fact, the percentage of S&P 500 and Nasdaq stocks above their 50-day SMA peaked in January 2013 (at 93.4% for the S&P 500 and 80.29% for the Nasdaq).

The February 2 Profit Radar Report addressed such divergences and highlighted the three stages of a ‘dying’ bull market:

Dead man walking” is an expression used by prison guards as the condemned were led to their execution.

Are we looking at a ‘dead bull walking?’ The post-2009 QE bull market is nearly five years old. The average bull market lasts about 3 ½ years. In terms of longevity, this bull market is on borrowed time. What about other factors?

Bearish Divergences: The 3 Stages of A ‘Dying’ Bull Market

  1. Psychological process: Finding value becomes a challenge and investors become pickier. Technical manifestation: The number of stocks hitting new 52-week highs or the percentage of stocks above the 50-day SMA slides lower, while prices climb higher.
  2. Stages 2 and 3 are available to subscribers of the Profit Radar Report.

Based particularly on sentiment and technical divergences, the December 20 Profit Radar Report warned that: “Bullish sentiment will catch up with stocks in January,” but because there weren’t enough bearish divergences indicative of a major top the update continued: “This should cause a deeper, but only temporary correction.”

No doubt the bull market is aging, but ordering the coffin right now appears premature.

This doesn’t mean that stocks won’t pull back. An upcoming pullback is quite likely.

More importantly, the interpretation of the above data shows that objectivity is a key ingredient to a market forecaster’s success. Investing with blinders and looking for data that supports any particular bias tends to end in tears.

In the spirit of ‘looking at both sides of the story,’ here are two thought-provoking articles:

New Spin on an Old Indicator Gives Big Fat Buy Signal

Indicator: Risk of ‘Black Swan’ Event is Elevated

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.

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

What’s the Nasdaq’s Upside Target?

Despite a dismal start into 2014, the Nasdaq-100 has taken out its January high and is trading at the highest level in 14 years. Is the sky the limit? Here are two price targets that may act as resistance and keep a lid on the advance.

The Nasdaq-100 just rallied to a new 14-year high and the sky seems the limit. But what’s a more realistic limit or target?

Here are some developments worth considering:

The first chart shows the Nasadaq-100 Index, better known by its ETF reflection, the Nasdaq QQQ ETF (Nasdaq: QQQ).

The Nasdaq-100 initially stalled at the first red line, which corresponds to the October 2000 monthly high (3,614).

The Nasdaq-100 closed above 3,614 this week. Technically, the sky is clear to the next important resistance level, which is the 78.6% Fibonacci retracement of the points lost from 2000 – 2000, located at 3,956.

The Nasdaq Composite (Nasdaq: ^IXIC) is already within striking distance of its 78.6% Fibonacci retracement at 4,246.55.

As the two charts illustrate, only the Nasdaq-100 rallied to new highs this week. The broader Nasdaq Composite has not yet taken out its January high watermark.

This minor bearish divergence could weigh down the near-term performance. Even if the Nasdaq Composite continues higher, it will still have to deal with Fibonacci resistance at 4,246.55.

The U.S. stock market universe extends beyond the two Nasdaq indexes.

Although the Nasdaq charts suggest at least marginal gains, there’s still reason to be suspicious of this powerful bounce.

The February 5 Profit Radar Report featured this projection (yellow lines) for the S&P 500 (SNP: ^GSPC).

The S&P 500 chart projection provided a visual of the February 3 forecast: “Even though today was a rare 90% down day (90% of all stocks traded closed lower) there was a bullish RSI divergence. This suggests that selling pressure is subsiding. Ideally, the market will deliver another minor up/down wiggle before staging a larger bounce.”

The proposed S&P 500 bounce has nearly reached the projected target, so risk is increasing.

For what to expect next (short-term and long-term) and the key line in the sand between bearish risk and bullish opportunity refer to the Profit Radar Report. A detailed 2013 performance report of the Profit Radar Report and a 2014 forecast preview are available here:

Not Your Average 2013 Performance 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.

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

Nasdaq Recovers Technical Fumble … For Now

Yesterday’s performance was a shot across the bow for bulls, especially because the Nasdaq Composite closed below strong triple support. However, the Nasdaq recovered and seems intent on moving to new highs.

Yesterday the Nasdaq Composite fell below three long-term support levels.

This was a shot across the bow for bulls, but as yesterday’s Profit Radar Report put it:

“If this decline is corrective, it’s likely within the confines of a wave 4 Elliott Wave (EWT) correction. Waves 4 are unpredictable and often slice briefly below support before moving to new highs.”

Unlike the Nasdaq, the S&P 500 stayed above important support.

The Nasdaq Composite chart shows an obvious support/resistance cluster right around 4,000. The Nasdaq is back above 4,000, but the problem is there there’s no real obvious target.

How high can the Nasdaq and the Nasdaq QQQ ETF (Nasdaq: QQQ) fly?

I always monitor the three main U.S. indexes, S&P 500, Dow Jones and Nasdaq (Nasdaq Composite and Nasdaq-100).

Every Index provides a different ‘piece of the puzzle’ in terms of the market’s whereabouts.

Right now, the S&P 500 offers short-term must hold support, and the Dow Jones pinpoints an obvious and solid target based on long-term chart analysis.

Stocks will probably run into some trouble once the S&P 500 support breaks or the Dow Jones target is reached. My guess is that it will be the Dow Jones target/resistance level that will break this ‘camel’s back’ … temporarily.

The exact Dow Jones target is revealed here:

Forget Dow 16,000 – Here’s the Real ‘Bubble Popper’

Regular market forecast updates (at least twice a week) and corresponding trade recommendations are provided via the Profit Radar Report.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report uses technical analysis, dozens of investor sentiment gauges, seasonal patterns and a healthy portion of common sense to spot low-risk, high probability trades (see track record below).

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