4 Iconic U.S. Stocks that Lost 49% While You Were Sleeping

Overnight, four iconic U.S. companies lost 49%. One of them, a reputable blue chip Dow component, wiped out four years worth of gains while investors were sleeping. What does this performance mean and can it be detected/avoided?

The biggest danger is one you are not aware of or can’t predict. For individual stock investors that’s gap down opens. Such overnight losses leave big chart gaps that often by-pass stop-loss orders.

October has been a particularly treacherous month as four iconic U.S. companies lost a combined 49% while shareholders were sleeping. Talk about a financial overnight coronary event.

In the night(s) from October 17 (Friday) to October 20, IBM (NYSE: IBM) lost 8.35% and wiped out four years of gains.

In the night from October 20 to 21, Coca Cola (NYSE: KO) lost 5.75%.

In the night from October 23 to 24, Amazon (Nasdaq: AMZN) lost 9.10%.

In the night from October 15 to 16, Netflix (Nasdaq: NFLX) lost 25.83%.

Is there a common trigger for all those coronary events?

Is it possible to detect and prevent owning stocks before an overnight collapse? 

The chart below shows IBM, KO, AMZN and NFLX side by side.

Trading volume spiked every time on the day of the coronary, but there was no consistent pattern the day before (which was the last day to get out in time).

A look at commonly used technical indicators – such as moving averages, MACD, RSI, percentR – also shows no consistent pattern.

Netflix and Amazon were unable to overcome their 20-day SMAs the days prior to the gap down, but Coca Cola ‘slept’ above the 20-day SMA the night before it fell out of bed.

Amazon triggered an MACD buy signal the day before it tumbled.

The only way to avoid individual meltdowns is to invest in baskets of stocks via ETFs or other index-based vehicles. The link below discusses which type of ETFs are best in this stage of a bull market.

The One Common Denominator

There is, however, one common denominator, indicated by the little telephone icon. All companies reported their earnings just before the big gap down (either after the close or before the bell).

Do Gap Downs Foreshadow a Major Market Top?

Excessive amounts of selling pressure are a reflection of investor psychology.

Gap ups on the way up are a vote of confidence; gap downs show that investors’ confidence is eroding.

Erosion of confidence is one of the tell tale signs of an aging bull market. This doesn’t mean the bull market is over, but it shows that investors are becoming more selective.

The number of outperforming stocks shrinks as more and more individual stocks fall into their very own bear market. In fact, currently 31% of all NYSE stocks are trading 20% or more below their highs.

In other words, a third of all stocks are already in their own individual bear market.

A historic analysis of major market tops puts this deterioration into perspective and shows how close (or far off) we are from a major market top. It also shows which sector is the best to invest in right now.

Here is a detailed look at the 3 stages of a dying bull market.

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.

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Short-Term S&P 500 Forecast: S&P 500 Bounces from Key Support

On Thursday, the S&P 500 saw the first loss of more than 1% since April 10, 2014. This sell-off stoked the talks about a major correction, but bottom line is that the S&P 500 remains around important short-term support.

On July 8 we used a little known indicator to spot key support for the S&P 500.

This little known indicator (which got some flak on the Yahoo comment board, but proved yet again correct) is a good tool when it comes to identifying the end of a momentum rally.

The indicator is called percentR (don’t shoot the messanger, I didn’t name it).

Never heard of it? That’s because you won’t read about this indicator on CNBC, MarketWatch or Bloomberg. That’s is a good thing. Just recall how many charts and indicators the media has used in recent months to warn of a major crash (too much media coverage spoils any good indicator).

The July 8 Profit Radar Report wrote this about percentR: “The S&P 500 fell to test support at 1,955 and triggered a bullish percentR low-risk entry. This may cause a bounce (perhaps even another stab at all-time highs), but a close below today’s low (1,959) and support at 1,955 would be a small victory for bears.”

The July 13 Profit Radar Report put it this way: “As discussed last week, important short-term support is at 1,959 – 1,955. A close below 1,955 will increase the odds for a deeper correction.”

Here is an updated look at percentR, plotted against the S&P 500, and how it works:

An initial percentR dip below 80 is called a ‘bullish low-risk entry’.

The arrows mark all bullish low-risk entries since May. All seven of them were followed by bounces.

The black circles illustrat failed low-risk entries.

What is a failed low-risk entry? When the S&P 500 (NYSEArca: SPY) closes below the level (daily low) that triggered the low-risk entry (dashed red box).

Here is where it gets interesting: percentR has triggered three low-risk entries since July 8 with daily lows ranging from 1,953 – 1,959. This shows a) that the rally is getting choppy and b) that the 1950 – 1960 level seems significant.

A close below 1,953 would be a failed low-risk entry and an indication that the rally may be over.

The summary section of the July 6 Profit Radar Report still remains valid. It stated:

“Forward looking indicators, such as the SKEW and VIX seasonality, suggest that stocks should soon run into trouble. However, the charts don’t show any weakness yet. S&P 1,980 – 1,985 and psychological resistance at 2,000 should cap any up side, but it will take a move below 1,955 and 1,925 to boost the notion of a correction.”

In the spirit of disclosure, I want to mention that there is one scenario that sees a brief dip below 1,950 followed by a rally to new highs. It would be wicked and fool most of Wall Street (which is exactly how the market likes it).

VIX seasonality is fascinating right now, because the VIX seasonality chart projected a major low on July 9. So Thursday’s 32% one-day VIX spike is no real surprise.

Here’s a detailed look at the VIX seasonality chart and it’s possible implications for the S&P 500.

VIX Seasonality Triggers Major Buy Signal on July 9

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.

S&P 500 Short-Term Forecast

The S&P 500 has been without significant correction for over 1,000 days. According to many, a deep correction is ‘just around the corner’ (and has been around the corner since April). Here’s the only thing that actually may trigger a correction.

The S&P 500 is showing some weakness this week. Will this morph into a full-blown sell off?

Here’s a look at an indicator that’s been spot on – percentR. percentR is a momentum indicator that can be used to determine entry and exit points.

Never heard of it? That’s because you won’t read about this indicator on CNBC, MarketWatch or Bloomberg. That’s is a good thing. Just recall how many charts and indicators the media has used in recent months to warn of a major crash (too much media coverage spoils any good indicator).

The chart below shows the recent correlation between percentR and the S&P 500.

There are different ways to use percentR. I like to use it to help confirm a change of trend. Here’s how that works:

Allow me to ease into the explanation with a practical application, an excerpt taken from the June 18 Profit Radar Report:

“percentR doesn’t tell us how far this rally will go, but it may help us determine when it’s over. A failed low-risk entry would signal a change in character of this rally leg, as every low-risk entry since May has been bought.”

An initial percentR dip below 80 is called a ‘bullish low-risk entry’.

The arrows mark all bullish low-risk entries since February. There have been eight bullish low-risk entries.

Six of them (black arrows) marked a short-term low. One (red arrow) was a false alarm and one (dashed area) turned into a failed low-risk entry and (slightly) lower prices.

What is a failed low-risk entry? When the S&P 500 closes below the level (daily low) that triggered the low-risk entry (dashed red box).

In other words, an S&P 500 (NYSEArca: SPY) close below Tuesday’s low at 1,959.46 (bold green line) would be a failed bullish low-risk entry and the initial sign of a change of trend.

The 1,959 area seems significant, because it is compounded by the 20-day SMA (1,959) and a long-term Fibonacci support/resistance level (1,955).

Therefore, a close below 1,959 – 1,955 would be a warning signal.

There are a number of reasons why the S&P 500 should correct, but as long as it doesn’t close below 1,959 – 1955, they don’t matter.

However, one ‘wild card’ needs to be watched carefully, even if the S&P 500 closes below 1,955. This ‘wild card’ is obvious to everyone, but recognized by few. It also predicted the most recent 100+ S&P rally.

Here is more fascinating details about this must watch wild card:

Media Wild Card: The Only Indicator That Foresaw a Rally with No Correction

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.

Short-Term Technical Analysis for Gold

Gold is at one of those potential key juncture where technical analysis can really enhance the message of investor sentiment. Excessive optimism suggests some trouble ahead. Technical analysis for gold can help pinpoint when.

On February 7 gold prices exceeded trend line resistance (dashed red line) that capped every prior breakout attempt.

The breakout is highlighted by the blue oval.

On February 9, the Profit Radar Report stated that: “Gold is chipping away at trend line resistance. The odds now favor a spike higher as long as there’s no close below 1,254. Key resistance and possible near-term target is at the descending trend line/trend channel resistance around 1,340.”

The February 17 Profit Radar Report refined the up side target: “Ultimately gold may move higher towards 1,360 or even 1,400.”

Gold is close to the up side target and the March 16 Profit Radar Report warned of excessive optimism, so there are a few things worth considering:

1) On March 14 gold closed at a new recovery high. This recovery high was confirmed by RSI (yellow line), which is generally considered bullish.

However, prior highs (August and October 2013) were also accompanied by a new RSI high and didn’t prevent further declines.

2) On March 17 gold touched the upper side of an ‘old’ trend channel and reversed (gray circle).

3) Tuesday’s decline triggered a ‘bullish percentR low-risk entry (pink circle). The initial drop of percentR below the 80 line (pink oval) is generally considered an opportunity to buy as long as trade doesn’t close below that day’s low (1,351). The corresponding ‘failure level’ for the SDPR Gold Shares (NYSEArca: GLD) is 130.33, for the iShares Gold Trust (NYSEArca: IAU) 13.11.

A close below 1,351 will be a failed bullish low-risk entry. Over the past year, every failed low-risk entry resulted in further losses.

It may be too early to bury this gold rally (there is still a possible higher target – see March 16 Profit Radar Report), but sentiment strongly suggests that the next bigger surprise will be to the down side.

Here is a piece of gold (and GLD, IAU) sentiment analysis that may surprise you and put a smirk on your face at the same time.

Gold Rally – New Bull Market or Bull 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.

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

Weekly ETF SPY: Currency Shares Australian Dollar (FXA) – Up Side from Down Under?

The Australian dollar’s ‘down under’ freefall is worth a look for contrarian investors. The ‘dumb money’ is record short and the ‘smart money’ is record long the Aussie dollar, which has already completed the first steps necessary for a technical breakout.

ABC News Australia reports that the Australian dollar has dipped below 94 U.S. cents for the first time in 20 months and that “some investors are anticipating the fall to continue.”

In fact, the article points out that “the number of investors making bets that the Australian dollar will fall further is at its highest since the start of 2009.”

A look at the Commitment of Traders (COT) report further enhances the ABC News report and shows that commercial traders are net long more than ever before and small speculators are net short more than ever before.

Considering that commercial traders are considered the ‘smart money’ and small speculators the ‘dumb money’ (no offense), it’s reasonable to assume that the Aussie dollar is due for a potentially significant snap back rally.

The macro analysis shows that the Aussie dollar has been behaving quite odd. Why? The first chart below, which plots the S&P 500 against the CurrencyShares Australian Dollar Trust (FXA), shows that the S&P 500 and Aussie dollar sport a high directional correlation.

Since mid-2012 however, FXA (and the Aussie dollar) has been heading south while the S&P 500 is traveling north.

While this is noteworthy, the most important feature of this chart is the green support line. It was tested in November 2007, November 2009, April 2010, October 2011 and once again now.

The second chart zooms in on the micro picture of the Australian dollar futures. The futures are a more pure foundation for technical analysis compared to FXA, the ETF that aims to replicate the Australian dollar. Here’s what we see:

  • The Aussie $ successfully tested the long-term support zone highlighted in the first chart.
  • The Aussie $ closed above the parallel trend channel that contained the recent decline.
  • The Aussie $ sports a bullish RSI divergence at the June 11 low.
  • The Aussie $ is just one more up day away from a failed bearish percentR low-risk entry. PercentR, as used in this scenario, attempts to highlight the most likely moment for the down trend to resume. A close above Thursday’s high suggests that the favorable window for the resumption of the down trend has passed.

It should be noted that the Aussie $ is trading heavy and that cycles currently do not support higher prices.

Summary: Sentiment towards the Aussie $ is favorable for a rise in prices. Based on technicals, the Aussie $ is one strong up day away from a sustainable breakout. A close above 96 (96.50 for FXA) will hoist it above its 20-day SMA and cause a failed bearish percentR low-risk entry. Keep a tight stop loss as cycles do not support this bounce and don’t be too afraid to take profits when you get them.

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Is There a Bullish Breakout for the Gold Miners ETF – GDX?

Gold mining stocks and the gold mining sector as a whole have been in free fall mode since September 2012. The Market Vectors Gold Miners ETF (GDX) is still trading 55% below its peak, but it is showing signs of life. Is this a bullish break out?

The March 6, iSPYETF article on ‘Gold vs GDX’ mercilessly ousted the fundamental profit making flaws of the gold mining sector.

To say that gold mining stocks have had a hard time monetizing their mining activity in an environment of falling gold prices is like claiming hurricane Sandy was just a stiff breeze.

The Market Vectors Gold Miners ETF (GDX) lost 60.8% from top to bottom tick, but if there’s anything we’ve learned from QE is that what comes down likely goes back up.

Based solely on technical analysis, GDX just completed the first steps of a bullish breakout.

The May 20 low has three trademarks of a tradable bottom.

  • It sports a bullish RSI divergence where price dropped to a new low, but RSI did not.
  • Prices were able to close above the black parallel channel that confined much of the previous down trend.
  • Thursday’s pop canceled a bearish percentR low-risk entry. percentR (or Williams %R) is a momentum indicator. According to my personal methodology (which is correct about 60 – 70% of the time) the immediate down trend is now broken.

It obviously will take more confirmation for the fledgling breakout to ‘stick,’ but the above-mentioned bullish factors decrease the odds of being cut by trying to catch a falling knife.

A close above the first red resistance line at 31.27 will be further confirmation that a tradeable low is in while key support is located right around 27. Use illustrated support/resistance levels to spot low-risk entries.

Low-risk entries are not no-risk entries. But going long against support, or once resistance is broken (and then used as support and foundation for a stop-loss level), significantly limits your risk and lets you know exactly when you’re wrong.

Currently prices are 5%+ away from support or resistance. Using support at 27 as stop-loss, the risk (drop from 29.40 to 27) is 8.2%. It makes sense for prices to pull back or resistance to be taken out for a lower risk entry.

The Profit Radar Report specializes in pinpointing low-risk entries for the S&P 500, Nasdaq-100, euro, dollar, gold, silver and 30-year Treasuries. There’s always an opportunity somewhere, and the Profit Radar Report helps you find it.

Is Apple’s Decline Over?

Wow! Apple, the world’s largest company lost 31.6% of its market capitalization since mid-September. This week’s new price low showed the first real bullish divergence. Is AAPL’s decline over, at least for now?

The shares of the world’s largest company recovered a bit after falling as much as 31.6%. What’s the bigger story, the 31.6% drop or Wednesday’s 4% recovery?

The chart below shows that Wednesday’s low at 483 occurred right around double green trend line support.

This is pretty much in line with the expectation I shared via the December 10, article about Apple here on iSPYETF: “It seems to me that Apple is heading for a new low, perhaps around 480 – 490.”

The same article stated that: “A new low unconfirmed by a new RSI low would create a bullish divergence and possibly prove as a springboard for a more sustainable rally into Q1 2013.”

The new low was carved out against a bullish RSI divergence. Will that be enough to get Apple shares moving higher again?

percentR, the same indicator we used to confirm Apple’s top, has moved from below to above 20. This is considered a bearish low-risk entry. The regular ‘default trade’ is to go short with a stop-loss (based on closing prices) at Wednesday’s high.

However, going short may not be the greatest idea since Apple precisely hit our down side target against a bullish RSI divergence. It may be better to use RSI as an initial change of trend confirmation. A close above 510 would be positive.

Apple Sentiment Gauges

I like looking at sentiment extremes to gain an extra edge. Bullish extremes are bearish for the stock and vice verse. Unfortunately, there are no sentiment extremes for Apple.

The short interest on AAPL is within the normal range (about 2% of outstanding shares) as is the options put/call ratio. Other options measure a closer to optimistic than pessimistic extreme, which is odd considering Apple’s 31% tumble.

Apple Cycles and Seasonality

AAPL has enjoyed a multi-year bull market with average annual gains of 63% since 1998 (the first year of profitability after Steve Job’s return to Apple).

For that reason Apple’s seasonality has a distinct bullish bias. The beginning of the year is generally less bullish for Apple shares, but obviously a 14-year predominantly bullish seasonality chart is little help during this bear market period.

Summary

Sentiment and seasonality don’t provide much of an edge, so we’ll keep technicals in the driver’s seat. Based on the bullish RSI divergence there’s good potential for a bounce. percentR suggests to wait for a close above 510 before going long.

Due to the potential for an upcoming S&P 500 reversal, it will be smart to elevate stop-losses if prices do rally and keep a stop loss no lower than 480 initially.