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.

S&P 500 Update – Churning for a Burning?

The S&P 500 reached our minimum down side target and rallied strongly. Is this rally for real or are stocks just ‘churning for another burning’?

Bullish Signals

This week’s rally is credited to the French election, but a series of solid buy signals triggered days before the news from France.

The CBOE equity put/call ratio signaled a S&P 500 rally.

Contango and the VIX/VXV ratio signal a VIX decline.

The chart below – which plots the S&P 500 against the VIX, VIX/VXV ratio, CBOE equity put/call ratio, and contango – was published in the April 16 PRR along with the following commentary:

The VIX/VXV ratio, equity put/call ratio and contango are at multi-month extremes.It appears like the amount of sellers left (needed to drive prices lower) is rather limited. The weight of evidence strongly suggests that we should focus on the upcoming buying opportunity, not on how much more down side may or may not be left.”

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.

The same Profit Radar Report also highlighted positive seasonality (see below).

Bearish Caveat

This bounce is in sync with seasonality and various buy signals, but will it last?

The April 9 PRR featured the yellow projection shown below. According to this scenario (based on Elliott Wave Theory), the S&P would reverse above 2,390 and fall to new lows (2,320 or below).

The S&P 500 is above 2,390 and has entered a price zone where a relapse becomes possible.

We will be watching various breadth, money flow, sentiment and technical indicators to determine whether this rally will stop here or not.

Continuous 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.

 

Comprehensive S&P 500 Analysis Reveals Longevity of this Rally

The S&P 500 has soared almost 10% since Election Day. This move has been dubbed the Trump rally or Trump bump.

The media is quick to slap a label on an event (especially after the fact), but lest we forget that the media, analysts and pundits a) did not see a DJ Trump win and b) expected a market crash in the unlikely event of a DJ Trump win.

Key stock market indicators strongly suggested prior to the election that stocks would rally regardless of the election outcome (the four most powerful stock market indicators are discussed in detail here).

Here is what indicators said before the election, and what they are still telling us today:

Money Flow

The stock market is a supply and demand-based market place, that’s why money flow is one of the most important indicators. Falling demand will eventually be followed by falling prices and vice versa.

The September 25 Profit Radar Report published the chart below. The dark and light blue graphs make up our favorite money flow indicator (two versions of the same indicator). This indicator has correctly foreshadowed the 1987, 2000 and 2007 bear markets and projected higher prices since 2009 (except for a brief ‘caution’ signal in 2015). The indicator and its track record is discussed in detail here.

Out of respect for paying subscribers (who know the indicator’s real name), we will call this indicator ‘secret sauce.’

On September 22, the ‘secret sauce’ money flow indicator (blue graphs) rallied to new all-time highs even though the S&P 500 did not. This was to be longer-term bullish, because rising demand was to be followed by rising prices.

The percentage of stocks above their 50-day SMA (purple graphs) did not confirm the new ‘secret sauce’ highs. This suggested short-term weakness.

The September 25 Profit Radar Report concluded the following: “Longer-term: We are still looking for the S&P 500 to reach our long-standing up side target around 2,300. Short-term: We are waiting whether the S&P will break below 2,119 prior to moving higher.”

Investor Sentiment

Investors have been predominantly bearish throughout this bull market. Based on bearish investor sentiment (bullish for stocks), we never wavered from our position that a major market top is not visible.

For example, the Profit Radar Report’s 2016 S&P 500 Forecast stated back in January that: “Investor sentiment near the May 2015 all-time highs was not as euphoric as at prior tops and not bullish enough for a major market top.”

The January 29 Profit Radar Report, however, pointed out bearish sentiment extremes (bullish for stocks) and noted that: “The pessimistic extremes were relieved enough to allow for another drop lower in the coming days. A drop lower is not required, but would be a good buying opportunity if it happens.”

The buying opportunity appeared in February, when the S&P 500 dropped into the low 1,800s.

The most recent comprehensive sentiment update (November 27 Profit Radar Report) compared current sentiment with the 2015 S&P 500 highs (see chart below).

The conclusion: “On average, investors today are still not as bullish as one would expect at a major market top. This allows for, and suggests, further gains in the months to come.”

Technical Analysis

The August 28 Profit Radar Report showed three uber-bullish forward projections (shown here) and stated that: “At this point we don’t know the scope of any pullback, but EWT and the June breadth thrust suggest that any weakness will be bought (perhaps even furiously). We consider the longer-term up side potential to be significantly larger than the down side risk.”

The June breadth thrust is discussed in detail here: 2016 Bear Market Risk is Zero Based on this Rare but Consistent Pattern

A detailed technical analysis and Elliott Wave Theory-based outlook is available here: S&P 500 Update – Expect the Abnormal (the ‘abnormal’ refers to continuous gains despite overbought conditions).

Seasonality

S&P 500 seasonality is bullish for the entire fourth quarter into the New Year.

Conclusion

All important indicators pointed higher before the election. The question was only how much of a pullback and how deep of a shakeout move we’ll get prior to the melt up. “The question therefore is not if stocks will rally, but when they will rally” was the conclusion shared in this MarketWatch article.

An indicator-based investment approach is superior to a news-based approach.

Using multiple credible and time-tested indicators further enhances results, especially when all indicators point in the same direction (such as before the election).

The image below illustrates how the odds of a winning trade are improved by a multi-indicator approach.

This doesn’t guarantee a profitable trade, but Profit Radar Report subscribers rarely ever find themselves on the wrong side of the trade.

Short-term, the market is overbought and over-loved and may pull back, but the bullish longer-term factors present months ago (aside from sentiment) remain valid.

Continuous updates with actual buy/sell recommendation 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.

 

S&P 500 Update – Expect the Abnormal?

Last week the S&P 500 almost reached the year-end target (2,220) given by the Profit Radar Report back in January. What’s next?

The S&P 500 is up 130 points since the beginning of the month, S&P 500 futures soared as much as 183 points.

Stocks are overbought, and under normal circumstances there should be a noteworthy pullback. But there is reason to expect the abnormal.

When Abnormal Becomes Reality

The August 28 Profit Radar Report published an uber-bullish Elliott Wave Theory-based projection. The Profit Radar Report’s forecasts are always built on multiple indicators, and this bullish projection was confirmed by liquidity, long-term investor sentiment and bullish year-end seasonality.

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.

The excerpt below is longer than usual, but it explains why an ‘abnormally’ strong rally was likely to develop. From the August 28 Profit Radar Report:

The two main reasons we want to buy in the foreseeable future is:

1) The breadth thrust off the June low (July 4 PRR)
2) Bullish Elliott Wave Theory potential

We never rely unduly on any one single indicator. It is noteworthy however, that the three most likely Elliott Wave Theory (EWT) interpretations are all bullish. The degree of bullishness varies, but according to EWT, more gains are ahead. The question is not if, but how much and for how long.

The first chart below shows conceptually where the S&P 500 is at relative to the three most likely EWT options along with the odds for each scenario.

The second chart provides a more detailed (yet basic) outline/labeling of EWT counts #1 (45% probability – light green) and #2 (35% probability – dark green).

What we are focused on for now is the most likely scope of any pullback. The down side risk for #1 is larger (around S&P 2,130 – 2,070 – see light green square) than for #2 (around S&P 2,150 – 2,130 – see dark green square).

No further detail is shown for the most bullish option, #3 which would translate into a few more years of bull market. At this point, we discount #3 (20% probability) because some cycles point to prolonged weakness starting in H2 2017.

Summary: At this point we don’t know the scope of any pullback, but EWT and the June breadth thrust suggest that any weakness will be bought (perhaps even furiously)We consider the longer-term up side potential to be significantly larger than the down side risk.

The anticipated pullback drew the S&P 500 to 2,084 (right inside the first target zone). Stocks haven’t looked back since.

The November 13 Profit Radar Report added that: “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.”

Overbought, But No Bearish Divergences

Unless you’re already on the bus, a momentum driven market is one of the hardest markets to get in (like jumping onto a moving bus), because it rarely stops.

At some point momentum will halt (which is sometimes followed by a nasty correction), but the question is when? The chart suggests to watch support at 2,190 – 2,200 (if lucky, we may even see 2,170 – 2,150).

Waves 3 (according to EWT) are generally strong and relentless moves. Stocks appear to be in such a third wave advance.

Many investors consider EWT hocus-pocus, and I can understand way. I’ve seen many horrid EWT interpretations cost investors a ton of money.

That’s why the Profit Radar Report never relies on any one single indicator. As of right now, the weight of evidence (not just EWT) points towards higher prices (with or without prior pullback). We go where the indicators take us.

Back in January, when the S&P traded below 1,900, our year-end target of 2,220 seemed outrageously bullish. As it turns out, it actually may not have been bullish enough.

Continuous updates with actual buy/sell recommendation (which help balance down side risk with the risk of missing out on the up side) 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.

 

Are Gold and Silver Setting up for a Slingshot Move?

Gold and silver have been stuck in their respective trading range for three months.

How long the yawning continues remains to be seen, but a slingshot move would be a welcome change of pace. What is a slingshot move? It’s a powerful directional move preceded by a fakeout step.

The review below explains the potential slingshot setup:

The July 4 and July 7 Profit Radar Reports highlighted various conflicting indicators and decided that: “With both metals approaching our up side targets, we don’t want to chase trade.”

The chart below, published via the July 7 Profit Radar Report, shows two of the conflicting indicators for gold:

  • Investor Sentiment (commercial hedgers’ exposure – light blue graph): Bearish for gold
  • Seasonality (dark blue graph): Bullish for gold

Silver essentially suffered the same conflict and was nearing a resistance clusters.

The July 4 Profit Radar Report showed the chart below along with the following commentary:

Silver is overbought. In general, large spikes are followed by sideways trading or sizeable drops. Aggressive traders may find success shorting silver (corresponding ETF: ZSL).”

In hindsight it becomes obvious that bullish seasonality and bearish sentiment cancelled each other out, resulting in the three-month stalemate.

Some sort of a trading range is usually the result when our indicators are in conflict, that’s why we generally don’t trade during such periods (the Profit Radar Report’s last precious metals recommendation was to buy gold at 1,088 in November 2015).

The Slingshot Move

As the above charts show, gold and silver reached the low end of our up side targets. Gold and silver have been stair-stepping lower ever since (see updated charts below).

Our intention was to short gold and silver in their respective resistance areas. Unfortunately they never fully got there.

New Bear Market Lows?

The question now is whether the top is in or not?

The best-case scenario would be a swift rally into the red resistance zone (above 1,380 for gold, above 21.2 for silver). We’d consider this rally the slingshot move (fakeout rally before sizeable decline).

The rally to new recovery highs would get bulls excited just before a considerable down side reversal (and quite possibly a drop below $1,000/oz for gold).

However, the best-case scenario may not happen. Gold and silver as good as touched the bottom of our up side targets, which may be enough. A sizeable top may already be in place (watch green support areas).

The strategy for precious metals is to sell the bounces. Now we just need to figure out how big the bounces will be.

Continuous updates for gold and silver 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.

 

September is Here, Could it Make Sense to Buy Stocks in Worst Month of Year?

The July 4, 2016 Profit Radar Report featured the following S&P 500 projection.

Based on this projection, the S&P was to rally to about 2,195 followed by a pullback to about 2,155.

Barron’s rates iSPYETF as a “trader with a good track record.” Click here for Barron’s assessment of the Profit Radar Report.

Despite a prolonged trading range, the S&P followed this projection very closely. It rallied as high as 2,193.81 and subsequently slid as low as 2,157.09 (see ‘are we here’ arrow).

Does that mean that the next leg higher us about to launch?

The Big Question

It could be. The question is whether stocks will correct further before the next rally or not.

Under normal condition, stocks should pull back further. However, we’ve seen one of the longest and tightest trading ranges in history (July 14 until today).

This trading range was enough to digest over bought readings caused by the post-Brexit spike. We may have just seen a correction in time rather than price.

However, in terms of seasonality, September is the worst month of the year. Buying in September is less than ideal.

October, on the other hand, has often served as launching pad, most recently in 2014 and 2015.

Best Setup

Further weakness with targets around 2,150 – 2,130 and 2,130 – 2,070 reached later in September or in October would certainly set up a much better buying opportunity than chasing price around 2,200 in September.

We consider any pullback into the above ranges a gift. Life is always more pleasant if you receive a present. If we’ll get it, we’ll certainly accept it (buy stocks), but we can’t bank on it.

If the market moves higher soon without noteworthy pullback, we’ll have to deal with it, and determine whether it’s a temporary or a sustainable move higher.

Short-term, the S&P has broken outside of the descending black trend channel and butting against minor resistance (see chart above). Based on the put/call ratio and short-term RSI, the S&P is nearing overbought, but as long as trade remains above the black trend channel, the S&P may venture higher.

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.

 

Is the Crude Oil Rally Over?

Déjà vu. Crude oil prices dropped as much as 24% over the past two months. Does this mean the oil rally is over?

Here is a look at various timeframes and indicators to help answer this question.

Longer-term Analysis

The April 24 Profit Radar Report showed the long-term chart below, and stated:

Barron’s rates iSPYETF as a “trader with a good track record.” Click here for Barron’s assessment of the Profit Radar Report.

Based on long-term Elliott Wave Theory, a rally to 50+/- followed by a significant relapse (perhaps even below this year’s low) is a real possibility.”

Over the next six weeks oil tried to move above 50, but ultimately failed.

The July 7 Profit Radar Report noted that: “Seasonality shows a bearish window for the second half of July. Near-term as long as trade remains below 50, and if trade falls below 45.80, bears are in charge. It then remains to be seen whether short-term weakness will turn into a longer-term selloff.”

Shorter-term Analysis

Oil broke (and remains below) 45.80. To better assess the recent selloff, it helps to analyze the rally from the February 2016 low at 26.05.

On February 12, a few days after oil’s bottom at 26.05, the Profit Radar Report stated that: “Crude oil filled the massive gap left by Wednesday spike and is sitting right atop trend line support. Seasonality is strongly bullish until late April. For anyone interested in trading oil, this is a tempting setup to go long.”

At that time, sentiment, seasonality and technicals suggested a strong rally for oil. However, we did not know if this rally would be a new bull market or just a counter trend rally.

Unfortunately, we still don’t know for sure.

Based on Elliott Wave Theory, the rally from the February low is likely a corrective wave 4 rally. Once complete, all the wave 4 gains should be completely erased (which means new lows eventually).

However, a deeply bearish posture may be premature for a number of reasons:

  • Waves 4 are notoriously choppy and difficult to predict.
  • Oil seasonality is strong until late September.
  • The rally from the February low appears shallow (retracing less than 38.2% of the prior decline). The red lines show additional resistance levels.

Summary

Oil is likely to relapse to new lows eventually. The key word is eventually. Seasonality doesn’t turn bearish until the fourth quarter.

Near-term resistance is around 44. If trade can break above 44, it may continue to move higher, perhaps even to new recovery highs, before turning down for a multi-month decline.

Not every Profit Radar Report update features oil price analysis, but when indicators align, we try to point out some of the larger turning points.

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.