S&P 500 Update: Top or Not?

The last S&P 500 update outlined why 2,500+/- has been our up side target for over a year.

Our view has been that S&P 2,500+/- is not the target for a major top, but it should lead to a 5-10% correction.

The August 7 Profit Radar Report zoomed in on 2,495 as short-term target (based on the ascending red trend line) and stated:

The S&P 500 ETF (SPY) closed at a new all-time high at the lowest volume of the year. The ideal scenario (and tempting setup to go short) would be a spike to 2,495+ followed by an intraday reversal.”

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Bussines Daily says “When Simon says, the market listens.

New Highs! Why?

On August 8, the S&P spiked to 2,490.87 and reversed lower. It initially looked like the 5-10% correction had started, but the August 13 Profit Radar Report warned that:

Odds for a bounce are high, and based on the wave structure, the likely up side target is 2,465 – 2,470. Purely based on the oversold condition however, the bounce could be stronger.”

The August 23 Profit Radar Report noted a bullish RSI divergence on the hourly chart, and stated:

Based on Elliott Wave Theory, this correction could even reach new all-time highs without violating any wave 4 guidelines. Whether this is the case remains to be seen, but it’s an option. Hourly RSI is fairly strong, therefore continued gains are easily possible.”

New Highs! Top or Not?

On Tuesday, the S&P surpassed the August 8 all-time high. In terms of Elliott Wave Theory, this high could be wave b of an ongoing wave 4 correction or wave 5 of wave 3, which would lead to the wave 4 correction (other options are possible, but those are the two most likely).

This article explains how and why Elliott Wave Theory has been such a valuable indicator.

The S&P 500 is nearing overbought, there is a bearish RSI divergence on the daily chart and seasonality is soon hitting a weak spot.

However, our reliable liquidity indicator (which has an incredible track record when it comes to sniffing out major tops) confirmed Tuesday’s new S&P highs.

Conclusion

The next inflection range spans from 2,500 – 2,540. Our working assumption is that the 5-10% correction will start then.

Our major market top indicators strongly suggests that the next correction will only be temporary and followed by new highs.

Continued analysis, with down side targets and buy/sell signals are provided via the Profit Radar Report.

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.

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S&P 500 Update: End of Growth Spurt?

Since the presidential election (November, 2016), the S&P 500 enjoyed three distinctive ‘growth spurts’ (chart below, green arrows).

The first one ended on December 12, 2016, the second one ended on March 1. What about the third one?

End of Growth Spurt?

The December 14, 2016 PRR and the March 5, 2017 Profit Radar Reports stated that: “Stocks rarely ever top at peak momentum. Any pullback should be temporary in nature. The question is how temporary.”

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Bussines Daily says “When Simon says, the market listens.”

The December 14 and March 5 peak momentum highs were followed by sideways corrections and eventually new highs.

The latest all-time high (July 27), however, did not occur on peak momentum. RSI-35 (momentum indicator) is now obviously lagging. The reverse conclusion is that risk of a top is higher today than it was in December and March.

However, our ‘secret sauce’ liquidity indicator (more details about ‘secret sauce’ is available here) is at new all-time highs.

Several times since the 2016 low, the Profit Radar Report stated that: “Our liquidity indicator is already at new all-time highs, it’s just a matter of time until the S&P 500 will follow.”

Short-term vs Long-term

In general, RSI divergences tend to be more short-term (weeks) in nature, while ‘secret sauce’ is longer-term (months). This would translate into shorter-term risk, but longer-term gains.

Up Side Target

For the past year, the Profit Radar Report’s S&P 500 up side target has been around 2,500 (more details here), and a ‘melt up alert’ was issued in 2016.

Now that the S&P 500 as good as reached our up side target, we are using (ascending) short-term trend lines/channels to help narrow down the final squiggles.

So far, the low end of our target was missed by one point. This may have been enough, but for now we are allowing for another stab higher.

Continued analysis along with up-and down side targets and trading recommendations are available via the Profit Radar Report.

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.

 

Gold Seasonality and Sentiment Turned Frosty

In early November, gold finally reached my down side target and I became a self-proclaimed gold bull, at least for 2015.

After over three years of falling prices (from 1,927 to 1,130) it just felt right to put the bear down for its hibernation and become a bull. In November 2014, at the 1,130 low, the pieces were in place for at least a tradable and perhaps a lasting low:

  1. Gold reached my down side target
  2. There was a bullish RSI divergence
  3. There was a big green reversal candle at the November 7 low
  4. Seasonality was turning temporarily bullish
  5. Sentiment was ripe for a reversal. The ‘smart money’ was bullish and the ‘dumb money’ was bearish

On queue, gold started cruising higher and everything went according to plan … until something odd happened in late January.

 

The January 27 Profit Radar Report noted that commercial traders (smart money) were selling gold at a rapid pace, and published the chart below. The dashed red lines illustrate what happened the last two times commercial traders fled gold.

The chart also included Elliott Wave labels (numbers from 1 – 5). In case you’re not familiar with Elliott Wave Theory, you may find this excerpt from the same Profit Radar Report interesting:

The chart shows that current trade is important from an Elliot Wave perspective. Gold appears to have completed a 3 wave rally. There are now two options:

  1. Gold will trace out a wave 4 correction followed by wave 5 higher. Target for a wave 5 high is around 1,330.

    Longer-term, a complete 5-wave rally will be followed by a corrective decline and at least one more rally leg.

    Shorter-term, a wave 4 correction could become a pain to manage. Waves 4 tend to seesaw over support/resistance levels, therefore using the trend channel support at 1,275 as stop loss could kick us out at the wrong time.

  2. A 3-wave rally is indicative of a correction and would translate into a relapse to new lows. This option is unlikely, but theoretically possible.”

Balancing the potential of long-term gains and short-term risk was a tough call, but my recommendation was as follows:

We can either take our profits and run or commit to endure a potentially painful correction in exchange for further gains. I like to keep things simple and recommend taking profits. Lets cash in gold around 1,295 and GLD around 124.20 for a nice 13.5% gain.”

In addition to bearish sentiment developments, the Profit Radar Report cautioned of weak gold seasonality. The chart below plots the actual price of the SPDR Gold Shares ETF (NYSEArca: GLD) against gold seasonality up until mid-March (a full year gold seasonality chart is available to subscribers of the Profit Radar Report).

It’s hard to ignore the textbook November bottom, but it’s also hard to ignore the January sentiment and seasonality warnings. The risk of more down side is real, and my inner gold bull is set on hibernation mode for now. As per the second Elliott Wave Theory option discussed above, new lows are at least possible.

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.

MACD Did Not Yet Confirm Stocks’ Up Trend

There’s another indicator that hasn’t (yet?) confirmed stocks’ up trend. Compared to prior snap back rallies, MACD is moving quite slow this time around. It will take another push higher to convince MACD of this rally’s staying power.

There are leading indicators and there are lagging indicators.

Leading indicators (are supposed to) predict turns before they occur. Lagging indicators confirm a turn after it occurred.

It was a combination of leading indicators that prompted this forecast in the February 3, 5 Profit Radar Report: “There was a bullish RSI divergence. Selling pressure is subsiding. The potential for a roaring rally exists.”

The S&P 500 (SNP: ^GSPC) has overshot 1,830; the ideal up side target outlined by the February 9 Profit Radar Report.

Despite the strong rally, one lagging indicator has not yet confirmed the S&P’s up trend. MACD.

The chart below plots the S&P 500 against weekly MACD.

The green line is still well below the purple line as the histogram shows.

MACD is a momentum indicator so a delayed reaction is normal, however prior up trends were confirmed quicker than the current one.

The vertical black lines mark bullish MACD crossovers. The horizontal red lines mark the high prior to the correction.

The blue dots illustrate that the MACD generally turned positive before the S&P 500 (NYSEArca: SPY) surpassed its prior highs.

This isn’t the case this time around. Although the S&P 500 has come within four points of its prior high, MACD continues to lag.

It’s always difficult to extrapolate meaningful forward looking guidance from a backward looking indicator, but MACD suggests the rally may not (yet?) be as strong as it needs to be to break out.

In addition, we note that MACD at the S&P’s January high stayed below the MACD reading at the May S&P high. This is another potentially bearish divergence.

If you’ve read my recent articles, you notice that there are enough bearish indicators to paint a bearish picture  and enough bullish indicators to paint a bullish one.

Am I playing both sides of the market? No. But it is important to be aware of all the facts and make an educated decision.

Sometimes the most obvious path is the right path. So far, the S&P 500 has followed the Profit Radar Reports proposed outlook (rally from the 1,730s to the 1,830s) so it deserves the benefit of doubt until proven wrong.

If you read the articles above, you’ll see that there is a clear level of ruin for this outlook and one specific outcome that will prove it correct. Here are more details: The Last Hope for Bears

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500 technical analysis, 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 We Miss A Major Gold Low? GLD Option Traders Were Near-Record Bearish

Has gold already bottomed? Did we miss a great buying opportunity or will there be a better one ahead? Here is a look at three indicators (along with charts) that help narrow down the next best entry point.

Following gold’s record setting decline, gold prices have rallied 10% and the (gold) dust is starting to settle. Does that mean the bottom is in for gold?

Demand For Gold Coins at Record High

The drop in gold prices was viewed as a buying opportunity by gold coin investors. The United States Mint sold a record 208,500 ounces of gold coins in April 2013 (data as of April 29). The only month investors bought more gold coins was in December 2009.

Gold prices and the SPDR Gold Shares (GLD) dipped a bit lower in January and February and soared thereafter (see chart).

GLD Option Volatility Soared at Recent Low

A few years back the CBOE launched the CBOE Gold ETF Volatility Index (GVZ). GVZ measures the market’s expectation of 30-day volatility of gold prices by applying the VIX methodology to options on SPDR Gold Shares (GLD). GVZ works like a VIX for GLD.

When the VIX soars, stocks usually find a bottom. When GVZ soars, the Gold ETF usually finds a bottom. In mid-April GVZ spiked to the highest level since gold’s 2011 meltdown.

This kind of volatility event tends to shake out a ton of ‘weak hands,’ but doesn’t always punctuate the final low. The red circles in the chart below illustrate that lasting lows frequently take the shape of a double bottom.

Up Against Resistance With Only a Minor Bullish RSI Divergence

Lasting price lows usually coincide with waning selling pressure. This creates a bullish RSI divergence (price makes a new low, RSI doesn’t). Ideally there should be a few days in between the RSI and the actual price low.

At the April 16 low for gold, there was a small RSI divergence (one day difference between price and RSI low). Such small divergences can lead to larger scale lows (one example is the March low in 30-year Treasuries), but the absence of a clearly visible RSI divergence generally results in a price relapse and double bottom.

The bar chart below shows gold prices in relation to RSI and various support/resistance levels monitored by the Profit Radar Report. Gold prices are currently pressing against triple resistance.

Sustained trade above resistance would suggest that gold is ready to rally further. Another dip to or towards new lows, however, would provide a much more attractive buying opportunity.

Confession Time: The S&P 500 Went Higher Than I Thought

A smart person learns from his mistakes, but a truly wise person learns from the mistakes of others. There is no such thing as a truly wise investor, but learning from my mistake may make you smarter.

We all have our fears and we all need to face them eventually. My fear as a stock market analyst and forecaster is being wrong.

Unfortunately, that happens more often than I’d like it to be. Still, I just can’t get used to that feeling. Every time the market outsmarts me, I analyze what happened.

This analysis benefits me – as I try to reduce the amount of future ‘wrongs’ and increase the amount of ‘rights’ – and I thought it might benefit you. So here’s my latest slip up along with the ‘post game’ analysis.

In short, the S&P 500 pushed higher than I expected. I thought the S&P would reverse lower around 1,492. Here’s why:

What Went Wrong

In late January triple resistance converged at 1,492. The chart below shows two of the three resistance levels (the third was a 70-day trend channel, not shown because it doesn’t display well on the monthly chart).

The red trend line connects the 2002 low and 2011 high. The gray line is a parallel channel that connects the 2002 and 2009 low with the 2007 high. One resistance line is often enough to stop an advance, but triple resistance is pretty solid (at least so I thought).

Additionally, I ‘had faith’ in the repelling ability of the 10+ year parallel channel, because a very similar channel (dashed gray line: 2002 and 2009 low connected with the 2000 high) repelled the S&P in 2011 and caused a 20% decline.

But nothing trumps price action, and regardless of the rhetoric, the S&P went higher.

What Went Right

Prior to viewing resistance around 1,490 as a reversal point, I considered it a target. In the January 2 Profit Radar Report I wrote that: “Around 1,490 is now key resistance and the most likely target for this advance.”

This was consistent with prior comments, made at a time when Wall Street, the media, and investors were bearish (partially because of the fiscal cliff).

From the September 30, 2011 Profit Radar Report:

“The September 14 recovery highs for the S&P, Dow, Russell 2000, and XLF were all accompanied by new RSI highs. It would be rare for stocks to form a long-term peak without a bearish price/RSI divergence. Because of this lack of divergence we expect new recovery highs.”

This was reiterated on December 2: “The decline from September 14 – November 16 was a correction on the S&P’s journey to new recovery highs. This scenario is supported by the lack of bearish price/RSI divergences at the September 14 high, continuous QE liquidity, and bullish seasonality. There is no specific target, but any new recovery high marked by a bearish price/RSI divergence could mark the end of this rally.”

The move above 1,492 unlocked my ‘alternate’ target range of 1,515 – 1,530. The S&P has stalled here, in fact five daily doji candles last week reflect indecision. But indecision doesn’t have to be bearish. It will take a break below nearby support to unlock the potential for a somewhat deeper correction.

What’s the key lesson? An up market, especially in a QE world, should get the benefit of the doubt until momentum is broken. Instead of using technical analysis to pinpoint a reversal range, I should have followed the trend and focused on support levels, that – once broken – confirm a turn around.

The meaning of the recent string of doji candlesticks along with a comprehensive 2013 forecast is available via the Profit Strategy Newsletter.