Stock Market Update: This is the Clearest Chart Right Now

There’s never been a time when articles on iSPYETF.com have been posted at the snail-pace of about one per month … until now.

Unless you are a stock picker, there’s simply been nothing worthwhile to write about.

The October 1 Profit Radar Report warned of just such a period of inactivity:

The bullish Elliott Wave Theory count would see stocks grind higher for a number of weeks in a 2 steps forward, 1 step back pattern. A real unexciting, unstimulating and uninspiring grind higher to 2,600+/-. Unless the S&P drops below 2,500, this is now the most likely outcome.

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Bussines Daily says “When Simon says, the market listens.” Find out why Barron’s and IBD endorse Simon Maierhofer’s Profit Radar Report.

This ‘real unexciting, unstimulating and uninspiring grind higher to 2,600+/-‘ has already lasted more than 7 weeks.

The Clearest Chart Right Now

One of the best tell-tale since during this 7-week period came from the Russell 2000. The chart and commentary below were published in the November 15 Profit Radar Report:

The Russell 2000 is leaking lower. RSI-2 is now oversold with support around 1,452. The correction since the October 5 high looks like a wave 4. The 38.2% Fibonacci retracement level (a common target for waves 4) is at 1,451.35 (just 3 points below today’s low). The R2K appears to be nearing a bounce, there’s even a possibility today’s low was a more sizeable low.”

Below is an updated Russell 2000 chart. Trade touched support around 1,450 on November 15, and rallied strongly. The minimum requirement for wave 5 is to reach new highs (which it already did), but the convergence of resistance levels around 1,542 (red oval) is the next most logical up side target (higher is also possible).

S&P 500 Update

The S&P 500 has basically reached our up side target around 2,600. The post-Thanksgiving week is seasonally weak, but as long as trade stays above 2,590, the S&P is likely to move towards the next resistance cluster around 2,650.

Continued analysis for the S&P 500, Russell 2000, gold, silver, euro, dollar and other equity indexes is 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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Are Stocks Quietly Deteriorating or Revving up for More Gains?

Every major market index has been marching to the beat of their own drum.

The Nasdaq-100 just slid to the lowest level since May 18, while the Dow Jones Industrial Average (DJIA) set a new all-time (intraday) high just on Monday. The S&P 500 is about a percent below its all-time high.

Some reason that there’s no longer enough liquidity to buoy the whole market.

This begs the question, if all this range bound churning is a sign of internal deterioration (and the ‘inevitable’ drop) or if stocks are just taking a breather and revving up for the next spurt higher?

KISS – Bottom Line

The May 29, 2017 Profit Radar Report already observed this: “There are times when indicators line up and we discuss (high) probabilities, and there are times when indicators conflict, and we are forced to discuss possibilities. Unfortunately the later is the case right now.

Each of the major indexes is tracing out a different EWT pattern, breadth measures, seasonality and investor sentiment do not offer a clear message. Therefore we are reduced to dealing with possibilities.

The weight of evidence suggests that in the not so distant future stocks will run into some trouble. The up side target for the S&P 500 is 2,450 – 2,530. The S&P 500, Russell 2000, DJIA and Nasdaq-100 are all overbought, but above short-term support. As long as this support holds, more gains are likely.”

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Bussines Daily says “When Simon says, the market listens.” Find out why Barron’s and IBD endorse Simon Maierhofer’s Profit Radar Report.

Not Exciting, but Effective

Ever since we’ve been watching support (which has been at 2,420 for the S&P 500) as stocks have gone nowhere. It should be noted that the 2,420 support level is becoming too obvious and therefore less important. The June 25 Profit Radar Report stated that: “A move below 2,420 (especially 2,400) would increase the odds that a multi-week/month top is in.”

Watching support (and resistance) is not the most exciting approach to market forecasting, but there are times where it’s best to realize there are no clear signals (such as in May), and simply wait for the market to offer the next actionable clue.

This approach protects against overtrading or the anxiety associated with a non-performing (or worse, losing) trade. In short, it provides a measure of peace of mind, a rare commodity in this market.

Summary

Mid-and long-term, our comprehensive S&P 500 forecast remains on track.

Short-term, we are waiting if the S&P pushes deeper into the 2,450 – 2,530 target zone, or if the June 19 high at 2,454 was the beginning of a more protracted (but temporary correction).

Whichever direction the market breaks, it will eventually be reversed. Ideally, we are looking to sell the rips (above 2,454 if we get it) and buy the eventual dip (although this dip may last longer than many expect).

Continued updates 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.

Russell 2000 Delivers New All-time High with Bearish Divergence

The Russell 2000 has been on a tear. On November 28, the R2K ended a 15-day winning streak when it touched red trend line resistance at 1,349 mentioned by the Profit Radar Report.

This pullback was to be temporary. The November 30 Profit Radar Report stated that: “The R2k is nearing an oversold condition and strong support at 1,309 – 1,296,” and recommended to buy R2k at 1,305. The corresponding level for the iShares Russell 2000 ETF (IWM) was 129.90.

Now the R2K is back at trend line resistance, but this time it carved out a bearish RSI divergence. There was no such divergence on November 25, which strongly suggested new all-time highs.

Bearish RSI Divergence, a Red Flag?

Under normal conditions, this bearish RSI divergence would be a serious red flag. However, the November 13 Profit Radar Report included the following observation:

The DJIA and Russell 2000 ended the week overbought, which normally will cause a pullback. However, if the S&P is truly in a wave 3 advance, stocks will continue to plow higher without much letup.”

The Russell 2000 has plowed higher ever since. The unique condition that allows for continuous gains despite on overbought condition is discussed here: S&P 500 Update – Expect the Abnormal?

Here is another statistic in favor of higher prices: Since 1979, there’ve been 12 other times when the R2K rallied at least 12 days in a row. A month later, the R2K was higher 10 times. 3 month later, the R2k was higher 7 times. 6 months later the R2k was higher 10 times.

The chart above provides long-term context for the R2K. The red trend line going back to 2011 is obvious resistance. If (and as long as) the R2K is able to sustain a break above this line, it may just continue higher.

Until it does, some caution is warranted.

Continuous updates for the Russell 2000, S&P 500 and other asset classes 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.

 

Russell 2000 and Transports at Crossroads?

The Russell 2000 (RUT) and Dow Jones Transportation Average (DJT) racked up some pretty significant losses since their 2015 all-time highs.

From the 2015 peak to the 2016 trough, the RUT lost as much as 27.23%, DJT as much as 31.22%. The S&P 500 lost ‘only’ 15.20%.

It was the prevailing opinion for much of 2015 and early 2016 that the RUT and DJT would lead U.S. stocks into the next bear market.

It is correct that small cap underperformance is one of the stages of an aging bull market, and in line with our analysis (view 3 Stages of a ‘Dying’ Bull Market). However, the timing for an immediate bear market didn’t seem right.

The February 11 Profit Radar Report listed six reasons why stocks are likely to rally. The ‘six reason buy signal’ is also discussed here.

After almost three weeks of rising prices (RUT up 11%, DJT up 17%), the RUT and DJT have arrived at their first inflection point.

Russell 2000 (RUT)

The RUT is back-testing the ascending green trend line (currently at 1,045), which originates at the March 2009 low. Sustained trade above this trend line is bullish until the signal is reversed.

Dow Jones Transportation Average (DJT)

The DJT is threatening to break above the 7,400 – 7,500 zone. This zone served as support a few months ago.

This is not only price resistance for DJT, it’s also momentum resistance as DJT’s prior rallies failed at similar RSI readings.

Conclusion

When the Profit Radar Report issued a buy signal at S&P 1,828, it wasn’t clear whether this rally would only move to the initial up side target at 1,950 or beyond.

Based on investor sentiment, there was a distinct chance that a runaway rally (with higher targets) would develop.

The S&P is not in the clear yet, but the RUT and DJT charts may help gauge the broad market’s prospects. RUT and DJT above their respective resistance levels is a positive for the S&P and other indexes.

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, 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.

Spike in Selling Climaxes Leads to S&P 500 Reversal Week

There were 105 S&P 500 selling climaxes last week. This means that 105 of the 500 S&P stocks (21%) dropped to new 52-week lows, but bounced back to end the week with a gain.

Selling climaxes are considered a sign of accumulation as ‘strong hands’ buy the stocks offered for sale by ‘weak hands.’

The S&P 500 Index itself also saw a selling climax. The chart below highlights all weekly reversals (not all of them led to 52-week lows) since mid-2013. All but one (August 24, 2015) were followed by at least another week of gains.

The weekly bar chart also shows that the S&P 500 reached (and exceeded) the minimum down side target at 1,848.77 and the October 2014 low at 1,820.66.

The January 18 Profit Radar Report proposed that a break below S&P 1,870 would lead to a swift drop to 1,820, but listed five reasons why stocks should bounce thereafter.

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With the minimum down side target(s) met, the odds of a bounce or more lasting low have increased.

It remains to be seen whether this bounce will stick or eventually (perhaps after weeks of chopping around) roll over.

A break below 1,812 would unlock the next down side targets. Such a break, if it does occur, would probably set up a better buying opportunity (assuming there will be a number of bullish divergences).

Continued updates and analysis are provided via the Profit Radar 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 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.

The Best Place for Tell Tale Signs: Small Caps?

The S&P 500 inched up a pitiful 0.03% last week. The Russell 2000 rallied 2.33%.

But that’s not the only reason small cap stocks are worth a second look right now.

As the weekly bar chart below shows, the Russell 2000 (NYSEArca: IWM) is bumping against significant double resistance.

The November 29 Profit Radar Report stated that: “Last week’s push higher happened during a holiday week on low volume, and therefore needs confirmation. RSI just barely failed to issue a bullish confirmation.

Small caps enter a bullish 1-month window (of relative outperformance compared to large caps) in mid-December. However, prior to catching this bullish seasonal tailwind, small caps will likely have to digest recent gains.”

This digestive period is now underway. Regardless of the immediate down side risk (which should be limited), the Russell 2000 sports the most pronounced overhead resistance.

A strong move above resistance may be the best tell tale sign of further gains. The Profit Radar Report will monitor the strength of any breakout to assess its longevity.

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 and 17.59% in 2014.

Follow Simon on Twitter @ iSPYETF

 

Is the Russell 2000 Forming a Bearish Wedge?

The Russell 2000 sports an interesting chart.

Here is what Wednesday’s (April 15) Profit Radar Report observed:

The Russell 2000 rallied to a new all-time high today. The chart shows a wedge, which is generally considered a bearish formation. RSI did not confirm today’s high and MACD is barely positive (blue bubble). The 2-day RSI is short-term overbought at 96. The Russell 2000 also touched the upper Bollinger Band today.

History suggests a pullback, sooner or later. Aggressive investors may short the S&P 500 (NYSEArca: SPY) or Russell 2000 (NYSEArca: IWM) against today’s high.”

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Well, the Russell 2000 pullback happened sooner rather than later.

However, the Russell 2000 is still within the rising wedge formation (and above wedge support). There are two ways to draw wedge support (solid and dashed green line).

Notice also the open chart gap created by today’s massive gap down. Such chart gaps have a tendency to be closed – sooner or later.

In summary, while today’s drop comes at the right time to start the initial validation process of the bearish rising wedge, the Russell 2000 still needs a break below support (on increased volume) to unlock the potential for much lower targets.

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.

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