Party Over for Nasdaq QQQ, AAPL, AMZN?

Tech stocks have been on fire before hitting an ‘air pocket’ last week. Is the current dip the end of the tech party or a buying opportunity?

After pointing out Fibonacci resistance (for QQQ) at 143.75, the May 31 Profit Radar Report noted that: “The Nasdaq-100 painted a bearish reversal candle today. Every red candle high (since October 2013) saw lower prices at some point over the next 1-2 weeks.”

Seven days after the May 31 bearish reversal candle, the Nasdaq suffered a monster reversal candle. Volume (for QQQ) soared to a 2017 record. The June 9 ‘red stick’ erased 10 days of gains.

On that day, more than one third of the 100 QQQ ETF components suffered a buying climax (where a stock rallies to a new 52-week high, but ends down for the week). Buying climaxes are generally a sign of distribution and indicate that stocks are moving from strong to weak hands.

Similar buying climaxes in 2010, 2014, and 2015 led to noteworthy pullbacks.

The problem with extreme ‘air pocket’ days (like June 9) is that they almost instantly create an oversold condition, and the propensity for a bounce.

Next support for QQQ is at 137.20 – 135.70. Resistance is around 141. Support may cause another bounce, but risk of further losses remains elevated as long as QQQ is below 141.

AAPL

Due to its humungous market cap, AAPL is Wall Streets’ VIP and MVP stock. More often than not, if AAPL sneezes, the S&P 500, Nasdaq and at times DJIA will catch a cold.

Based on the long-term black trend channel(s), we determined that up side for AAPL (and indexes like the S&P 500 and Nasdaq) was limited after hitting 155 in May.

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Support worth watching is around 140 and 135.

AMZN

The May 29 Profit Radar Report stated: “AMZN almost cracked the 1,000 mark, which more than anything is a psychological ‘resistance’ level. Cycles project a severe drop for AMZN. Last time this happened (late 2015), AMZN reacted late, but ultimately dropped around 30%. Although more gains are possible, late buyers will probably end up regretting their decision.”

Since May 29, AMZN gained as much as 2%, but subsequently dropped as much as 8.8%, before finding support around 925 (green line). 925 and support near the black trend channel deserve to be watched. It would take a move above 991 to unlock the potential for new highs.

Summary

Based on our research, we don’t expect to see a major market top at this time, but QQQ, AAPL and AMZN are likely to enter a period of consolidation and quite possible some ‘shake out’ moves designed to shake out weak hands.

The Profit Radar Report’s goal is to simplify investing decisions, avoid big losses and spot high probability, low-risk trades. The Profit Radar Report hasn’t suffered a losing trade since June 2015.

A comprehensive analysis for the S&P 500 is available here: Comprehensive S&P 500 Update

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.

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S&P 500: The Tug of War Between the Need of New Lows and ‘Magnet’ Highs

Stocks are caught between a rock and a hard place.

On one hand, there’s the ‘need’ for a new low (more about why this is a ‘need’ in a moment). On the other hand, there’s a bullish reversal (selling climax), a breadth thrust, and an open chart gap (about 7% higher) that needs to get filled.

Who will win this tug of war? Bulls or bears?

Bullish Factors

Reversal Week: The S&P 500 painted a weekly reversal candle on January 22. The January 24 Profit Radar Report pointed out that: “All but one weekly reversals since mid-2013 were followed by at least another week of gains.”

Last week’s strong performance locked in the second week of gains. More details about the significance of weekly reversals (especially after a 52-week low) is available here: Spike in Selling Climaxes Leads to S&P 500 Reversal Week

Chart Gap: There is an open chart gap at 2,043. Since 2009, all open chart gaps have been closed. This one is unlikely to be different. At some point in 2016, the S&P will take care of this unfinished business.

Breadth Thrust: Last Friday (January 29), the S&P 500 soared 2.42%. 92% of S&P 500 stocks ended that day with gains. This was the strongest up day since September 8, 2015.

In theory, 90% up days, are an indication that buyers are ready to step up and drive price higher. But theory is not always reality.

The chart below marks all recent 92% up days. The two 92% up days during the V-shaped recoveries of 2014 led to new all-time highs. The two 92% up days in August/September 2015 were followed by a retest of the prior low.

The January 24 Profit Radar Report outlined this path for the S&P 500 (solid yellow projection more likely, dashed yellow projection less likely).

Thus far, the S&P is following the projection quite closely.

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Does the January 29 breadth thrust conflict with the solid yellow projection? No.

Bearish Factors

As the chart below shows, there were numerous 92%+ breadth thrusts in August/September 2011, which closely resembles the yellow projected show above. The S&P eventual dipped below its initial panic low.

Why are we looking at the 2011 chart?

  1. This was the last 10%+ correction.
  2. It’s been more than three years since the S&P had a 2011-style correction (2012 was the last time), where the initial panic low is broken after weeks of sideways W action.

Throught 2013 and 2014 we’ve only seen V-shaped recoveries. The August/September 2015 correction was W-shaped without break of the initial panic low.

This doesn’t mean a 2011 correction (W-shaped with break of the initial panic low) has to happen now, but based on the principal of alternation (the stock market rarely delivers the same pattern over and over), the odds of a 2011-style correction are higher than before.

New lows against bullish divergences would likely be a good opportunity to buy. We are always looking for low-risk entry levels, thus the ‘need’ for new lows.

The 2016 S&P 500 Forecast has just been published. It includes a detailed analysis of supply & demand, technicals, investor sentiment, seasonality, cycles & patterns. The forecast answers whether a major top is in or not, and shows the maximum up-and down side for 2016. Numerous unique data points are combined to craft an actual 2016 S&P 500 performance projection chart. The 2016 S&P 500 Forecast is available to subscribers of the Profit Radar Report. Subscribe now and become the best-informed investor you know.

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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Bullish Russell 2000 Signals – Will They Last?

The Russell 2000 has weighted down the broad stock market since March. Now, for the first time in a while, the Russell 2000 is actually outperforming large cap stocks. Does that mean that small caps will lead the market higher?

The Russell 2000 is showing signs of life, after months of underperformance relative to the S&P 500.

The Russell 2000 is one of the only indexes (along with the MidCap 400) that painted a green reversal candle (see chart insert).

Prior to erasing last week’s losses, the Russell 2000 also dipped to a 52-week low. A weekly reversal after a 52-week low is also considered a selling climax.

605 stocks recorded selling climaxes last week. This is the highest count of selling climaxes since October 2011, which marked a major bottom (more details here: Selling Climaxes Soar to 4-year High).

From a technical perspective, here are a few Russell 2000 developments to keep in mind:

  • Bullish: Last week’s green reversal candle pushed the Russell 2000 back above support at 1,080.
  • Almost Confirmed: The chart below shows one indicator I like to monitor when it comes to spotting trend changes. On the short-term daily chart, this indicator requires a close above Friday’s high. The same is true for the weekly chart.
  • Confirmation Needed: The IWM:IWB ratio shows the performance of small caps (IWM Russell 2000 ETF) relative to large caps (IWB Russell 1000 ETF). The IWM:IWB ratio is about to test prior support, now resistance.

Unless the ratio can move above 1.05, small caps are likely to continue underperforming their large cap cousins.

In short, the Russell 2000 is showing strength, and odds of continued up side are increasing.

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.

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S&P 500 is Showing First ‘Chink in the Armor’

After many weeks of relentless gains, the S&P 500 is showing first ‘chink in the armor.’ In fact, there are three persuasive reasons to expect lower prices, but there’s also one strong force that’s pushed the market continuously higher.

After weeks of strong price action, the S&P 500 is showing the first signs of weakness. Here are three early developments that may lead to lower prices:

1) Bearish reversal candle: On Tuesday the S&P 500 shot higher, but closed the day below its open price. This created a red reversal candle. A similar reversal candle on April 4 led to further weakness (blue boxes).

2) S&P 500 reversed at resistance. The S&P 500 reversed at the ascending red trend line (which connects all highs since April 2, 2012) and monthly pivot resistance (short red line) at 1,967 (both outlined in the June 22, Profit Radar Report).

3) S&P 500 moved above and dropped back below long-term resistance: In its 2014 S&P 500 Forecast (published on January 15), the Profit Radar Report projected a pre-summer market top at 1,955. Why 1,955?

1,955 is a convergence of two significant resistance levels: a) Long-term Fibonacci projection resistance (red horizontal line) and b) Parallel trend channel going back to the October 2011 low (black line).

Summary

The S&P 500 (NYSEArca: SPY) has run over similar setups before. Although this time may be different, we should keep in mind that one snow goose doesn’t make for a winter.

Especially since there is one force that continues to drive stocks higher. This force is not QE. No, it’s much more visible. In fact, it’s an ‘in your face kind of nuisance’ that’s easily assessed, but often overlooked.

The article below exposes the development that keeps extending the bull market’s life:

False Promises: Where is the Promised Crash or 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.

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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What The Dow’s Big Red Reversal Candle Means

On Monday the Dow spiked within 120 points of a new all-time high before falling hard. In fact, Monday’s red candle engulfs all of the 21 previous candles. However, the bearish candle is in conflict with bullish short-term indicators.

The Dow Jones Industrial Average (DJIA) reversed trends with an exclamation mark on Monday. After spiking to a new recovery high, the DJIA (corresponding ETF: Dow Diamonds – DIA) fell to a 21-day low.

A chart simply and elegantly displays a ‘bad day’ like this with a big red candle. This one red candle engulfs the 21 previous candles (shaded gray box).

This red candle high is also called a reversal candle. Candles like it tend to mark trend reversals. In this case from up to down. This doesn’t mean the Dow can’t and won’t eventually move higher (short-term bullish developments discussed below), but it cautions of lower lows ahead.

Two other facts enhance the message of this red candle. The high occurred right against a parallel channel anchored by the June/November 2012 lows and September 2012 high.

Perhaps even more importantly, the Dow stalled and reversed just before its all-time high water mark at 14,198.10. The Dow’s all-time high is huge resistance.

The February 18 Profit Radar Report referred to the all-time high resistance: “Next week has a bearish seasonal bias. With its all-time high just ahead, the Dow has a well-defined resistance level for a short trade. Aggressive investors may short the Dow close to its 2007 high with a stop-loss at 14,200.”

At the Profit Radar Report we call this kind of a trade a low-risk trade. Why? Because we were only 200 points or 1.5% away from the stop-loss level.

One Swallow Doesn’t Make a Summer

But one swallow doesn’t make a summer one one red candle doesn’t make a bear market. After two 90% down days (February 20, 25) stocks were likely to rally. That’s why Monday’s (February 25) Profit Radar Report recommended to cover short positions at S&P 1,491.

In addition the VIX triggered a sell signal (buy signal for stocks) yesterday. Although I think that stocks will slide to a lower low, it will take a break below support or a spike to resistance to place a possible short bet. Important short-term support/resistance levels are outlined in the Profit Radar Report.