Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on September 29, 2022. If you’d like to sign up for the free e-newsletter, you may do so here (we will never share your e-mail with anyone, just as we don’t accept advertising).
The expanding diagonal pattern, first identified in the July 31 Profit Radar Report, continues to play out. The pattern is outlined via the purple lines below.
This pattern has been a surprisingly simple way to navigate an incredibly complex investing environment (I wrote about this here).
To continuously validate the pattern, I’ve also provided ‘the trend is down as long as’ resistance levels, such as the following:
September 18, Profit Radar Report: “Bears have the upper hand as long as the S&P 500 does not sustain trade above 3,920.”
September 21, Profit Radar Report: “Trade below 3,790 is another simple ‘line in the sand for short-term bearish risk.”
The ‘the trend is down as long as’ resistance levels are shown in red below. Neither of those level has been broken to the up side, so the trend continues down towards an eventual wave 5 low.
It’s beautiful when a pattern works out like ‘painting by numbers,’ but the market never consistently rewards one trick pony analysts.
Just last Sunday, I did a deep dive analysis of market breadth and investor sentiment to see if the weight of evidence supports or contradicts the expanding diagonal pattern.
Being aware of a wide spectrum of indicators prevents tunnel vision and getting blind sighted.
Market breadth
Shown below are 6 different breadth measures. Some of them are near their June lows (like the S&P 500) and others are reaching levels where a reversal to the mean becomes more likely.
Investor Sentiment
Only one out of the six short-term sentiment gauges plotted below is at a real extreme, the others still have room to grow.
In addition to just looking at the data, I also identify other times that most closely replicate today’s readings.
For example, there were 3 other signal dates that closely correlate to the market breadth data shown above and 9 signal dates that are closely correlated to current sentiment readings.
Would you like to know how the market reacted to similar conditions in the past?
Those findings, along with purely fact-based analysis is available via the Profit Radar Report.
The Profit Radar Report comes with a 30-day money back guarantee, but fair warning: 90% of users stay on beyond 30 days.
Barron’s rates iSPYETF a “trader with a good track record,” and Investor’s Business Daily writes “Simon says and the market is playing along.”
Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on March 3, 2022. If you’d like to sign up for the free e-newsletter, you may do so here (we will never share your e-mail with anyone, just as we don’t accept advertising).
Last week we looked at the S&P 500 diagonal. This diagonal pattern has kept us on the right path for several weeks and has provided a down side target which has not yet been reached.
This week we’ll look at more traditional technical analysis.
1) The S&P 500 tagged support around 4,1130 and closed the open chart gap at 4,116.93
2) There was a bullish RSI-35 divergence at the February 23 closing low
3) The S&P 500 is now back a black trend channel resistance
4) The S&P 500 is above the first diagonal resistance line
5) The S&P 500 is about in the middle of the recent trading range
6) There is another open chart gap (and support) at 4,020.63
… And there is war in the Ukraine, inflation, and a pandemic
What does all this mean?
Thus far the S&P bounced from support and is now butting up against initial resistance, nothing unusual. However, price is getting close to invalidating the diagonal (I drew two potential diagonal resistance line, one solid and one dashed, both in purple and descending). The RSI divergence could mean a low (of some sort) is already in.
In other words, all the technical analysis in the world does not provide a big edge at this time. This is not unexpected. I warned in the Profit Radar Report that we are about to enter such a time:
“Last week’s (S&P 500) price overlap eliminated one clear Elliott Wave Theory pattern. We are left with either:
– A messy pattern
– A mid-term bullish pattern which would soon project another pullback
– A bearish pattern which would project a sizable bounce
Regardless of which path the market chooses, choppiness appears to be ahead. A decline should be followed by a bounce and a rally would likely to be followed by a pullback.”
I don’t pretend to know when I don’t, but knowing when to expect an untradeable environment is also helpful (unless you enjoy getting whip-sawed).
Based on the diagonal pattern, I’ve been looking for overall lower prices for about the past month. This pattern is not yet dead, but it’s getting stretched.
Although it’s difficult to find a low-risk entry at this time, the most promising approach looks to buy if and once we see new lows.
Whether the ensuing bounce will challenge or surpass the prior all-time highs is not clear, but it should be tradeable.
On that note, crowd psychology is providing very interesting feedback.
At least once a month, the Profit Radar Report provides an in depth look at investor sentiment. Here is what was published on February 27:
The first chart plots the S&P 500 against 9 different sentiment gauges. At first glance this chart probably doesn’t tell you much.
That’s why I take it a step further. That step is to identify other times with the most similar sentiment readings.
How do I quantify ‘most similar’?
Most similar means when at least 6 (of the 9) sentiment gauges fall within a 10% range of current readings. And that’s where it gets interesting.
The next chart shows that there were 7 signal dates where at least 6 of 9 indicators are within a 10% range. All of them occurred near significant lows (2015, 2016) or after a low was carved out (2020).
The sample size is small, but its curiously unanimous.
Regular readers of the Profit Radar Report know that I apply the same approach to identifying precedents to market breadth, volatility, most closely correlated price patterns, etc.
The result is not always as clear (or small), but it gives us an idea of how markets have reacted in the past under similar circumstances (which obviously don’t include Russia, inflation or a pandemic), but it’s still the best we can do.
Continuous updates and factual out-of-the-box analysis is available via the Profit Radar Report.
The Profit Radar Report comes with a 30-day money back guarantee, but fair warning: 90% of users stay on beyond 30 days.
Barron’s rates iSPYETF a “trader with a good track record,” and Investor’s Business Daily writes “Simon says and the market is playing along.”
Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on March 3, 2022. If you’d like to sign up for the free e-newsletter, you may do so here (we will never share your e-mail with anyone, just as we don’t accept advertising).
Last week we looked at the S&P 500 diagonal. This diagonal pattern has kept us on the right path for several weeks and has provided a down side target which has not yet been reached.
This week we’ll look at more traditional technical analysis.
1) The S&P 500 tagged support around 4,1130 and closed the open chart gap at 4,116.93
2) There was a bullish RSI-35 divergence at the February 23 closing low
3) The S&P 500 is now back a black trend channel resistance
4) The S&P 500 is above the first diagonal resistance line
5) The S&P 500 is about in the middle of the recent trading range
6) There is another open chart gap (and support) at 4,020.63
… And there is war in the Ukraine, inflation, and a pandemic
What does all this mean?
Thus far the S&P bounced from support and is now butting up against initial resistance, nothing unusual. However, price is getting close to invalidating the diagonal (I drew two potential diagonal resistance line, one solid and one dashed, both in purple and descending). The RSI divergence could mean a low (of some sort) is already in.
In other words, all the technical analysis in the world does not provide a big edge at this time. This is not unexpected. I warned in the Profit Radar Report that we are about to enter such a time:
“Last week’s (S&P 500) price overlap eliminated one clear Elliott Wave Theory pattern. We are left with either:
– A messy pattern
– A mid-term bullish pattern which would soon project another pullback
– A bearish pattern which would project a sizable bounce
Regardless of which path the market chooses, choppiness appears to be ahead. A decline should be followed by a bounce and a rally would likely to be followed by a pullback.”
I don’t pretend to know when I don’t, but knowing when to expect an untradeable environment is also helpful (unless you enjoy getting whip-sawed).
Based on the diagonal pattern, I’ve been looking for overall lower prices for about the past month. This pattern is not yet dead, but it’s getting stretched.
Although it’s difficult to find a low-risk entry at this time, the most promising approach looks to buy if and once we see new lows.
Whether the ensuing bounce will challenge or surpass the prior all-time highs is not clear, but it should be tradeable.
On that note, crowd psychology is providing very interesting feedback.
At least once a month, the Profit Radar Report provides an in depth look at investor sentiment. Here is what was published on February 27:
The first chart plots the S&P 500 against 9 different sentiment gauges. At first glance this chart probably doesn’t tell you much.
That’s why I take it a step further. That step is to identify other times with the most similar sentiment readings.
How do I quantify ‘most similar’?
Most similar means when at least 6 (of the 9) sentiment gauges fall within a 10% range of current readings. And that’s where it gets interesting.
The next chart shows that there were 7 signal dates where at least 6 of 9 indicators are within a 10% range. All of them occurred near significant lows (2015, 2016) or after a low was carved out (2020).
The sample size is small, but its curiously unanimous.
Regular readers of the Profit Radar Report know that I apply the same approach to identifying precedents to market breadth, volatility, most closely correlated price patterns, etc.
The result is not always as clear (or small), but it gives us an idea of how markets have reacted in the past under similar circumstances (which obviously don’t include Russia, inflation or a pandemic), but it’s still the best we can do.
Continuous updates and factual out-of-the-box analysis is available via the Profit Radar Report.
The Profit Radar Report comes with a 30-day money back guarantee, but fair warning: 90% of users stay on beyond 30 days.
Barron’s rates iSPYETF a “trader with a good track record,” and Investor’s Business Daily writes “Simon says and the market is playing along.”
Two of the most powerful stock market forces are facing off in an epic tug-of-war. Momentum vs sentiment.
On October 25, 2019, the S&P 500 broke above the blue triangle shown below. Although this break suggested higher prices, I did not – at first – expect such relentless momentum.
But in late November it became clear that we are dealing with a rare momentum market and I warned via the November 24 Profit Radar Report that: “Momentum markets tend to move higher than expected.”
Here is one example of why momentum markets do not die easily: On December 12, the NY Composite hit a new high for the first time in 20 month. Since 1970, the NYC hit a 20-month high 8 other times. 3 month later, it was higher every time. 1 year later, it was higher 7 times.
Of course, a by-product of persistent gains is increase optimism. In fact, in mid-December we started seeing some legitimate extremes of enthusiasm. The equity put/call ratio set a number of extremes, one of them being a 1-year low. When this happened in the past, the S&P 500 was higher 1 and 3 month later only 33% of the time.
Here is the chain reaction extreme optimism tends to trigger:
Most investors have converted into buyers
There are few buyers left to bid up price
Sellers outnumber buyers and price falls, often rapidly
The Stage is Set
The stage has been set and the battle between momentum (bullish for stocks) and excessive optimism (bearish for stocks) has begun.
To better assess and gauge the risk/reward potential going forward, I introduced the risk/reward-meter or risk/reward heat map in December.
Risk/Reward Heat Map
Here is how this heat map is compiled: I look at various indicators, studies, signals (ISSs) and calculate their statistical forward return over the next 1, 2, 3, 6, 9, 12 month.
The ISSs include the two examples mentioned above, as well as other ISSs related to sentiment, momentum, money flow, technical break outs (or break downs), certain economic indicators (like the yield curve), seasonality, cycles, etc.
ISSs with positive forward returns 80% (or more) of the time are added to the green reward side.
ISSs with negative forward returns 50% (or less) of the time are added to the red risk side.
The result is a visual heat map. Below is the first heat map published back in December. Since then, the visual has been refined and dozens of additional ISSs have been added.
The risk/reward heat map allows us to properly and objectively assess current risk, but it is not a stand alone tool. Why? Risk only becomes reality when price follows.
The S&P 500 futures chart shows that price has been advancing within a trend channel. I am showing the futures chart because it includes over-night activity and reveals price action not seen in the S&P 500 cash chart.
For example, on Tuesday night, S&P 500 futures fell over 70 points or 2% to test trend channel support (this move happened overnight and is ‘invisible’ on the S&P 500 cash chart), but support held and the trend remains up.
Based on the risk/reward heat map, risk outweighs reward for the January/February period, but a break below support is still needed to trigger a deeper pullback.
Continued updates, projections, buy/sell 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 evaluation 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, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.
Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF e-Newsletter to get actionable ETF trade ideas delivered for free.
The Profit Radar Report monitors dozens of indicators to compile a broad-based and educated forecast. All those indicators fall into one of the following four categories:
The September 2 Profit Radar Report included a detailed analysis of investor sentiment (called the Sentiment Picture). Based on sentiment, the September 4 Profit Radar Report stated that: “A fakeout breakout would burn a lot of premature bears, and may be just what is needed to clear the air for another leg lower.”
Below is a reprint of the entire Sentiment Picture:
August Sentiment Picture (Published September 2, 2019)
The July Sentiment Picture (published August 3) concluded that: “Short-term sentiment gauges are nearing a point where a bounce becomes likely. We’ve seen many bounces turn into spirited rallies (and this may happen again), but longer-term bullishness allows for additional losses after any bounce.”
The S&P 500 found a low the next day, but bounces (thus far) lacked escape velocity and remained within a trading range.
The following longer-term sentiment polls went from bullish to bearish (bearish considering how close the S&P 500 is to its recent all-time high):
National Association of Active Investment Managers (NAAIM)
Investors Intelligence (II)
American Association for Individual Investors (AAII)
The dash green arrows highlight when any of the above-mentioned polls showed similar readings over the past 56 months. Most of them occurred near a significant low.
Since inception of the AAII poll, sentiment (as measured by the AAII bull/bear ratio) was as bearish when the S&P 500 was within 5% of a 52-week high 9 other time (the only such instance in the 21st century was in April 2005). The worst return was 1 month later (S&P 500 down 44% of the time), the best return was 3, 6, and 12 month later (S&P 500 up every time).
According to Lipper, investors yanked more than $40 billion from equity funds over the past weeks (that’s 0.3% of total equity assets) and 2% over the past year. This is the biggest exodus out of stocks since 2016 and nearly as pronounced as in 2002. This is not a short-term timing tool, but strongly suggest that a deeper correction would be a buying opportunity.
The sentiment-based conclusion made last month (“longer-term bullishness allows for additional losses after any bounce”) has become less likely.
A change of character would have to occur for stocks to fall further despite a number of bearish (bearish relative to how close the S&P 500 is to its all-time high) sentiment gauges.
Short-term sentiment indicators are neutral.
Continued updates, projections, buy/sell 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 evaluation 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, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.
Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF e-Newsletter to get actionable ETF trade ideas delivered for free.
Below is a free excerpt of the December 9, Profit Radar Report, which takes a detailed look at various sentiment, liquidity, breadth and moment indicators to gauge the down side risk. Since this update is published out of context with all the other updates, an additional “Summary” section is provided at the end of the December 9 Profit Radar Report to provide bigger picture context.
The S&P 500 closed at 2,633.08 on Friday. That’s only 1.99 points higher than the November 23 low. If the S&P would have closed at a new low, it would have been interesting to see if there are any bullish divergences.
Well, futures are down 20+ points in Sunday’s trading, so let’s just pretend the S&P closed at new lows, and look for potential divergences anyway. The blue box highlights the price action since the September high.
RSI-35 did not confirm the ‘new low’ (RSI-2 is near over-sold)
The cumulative NY Composite a/d lines did not confirm
The NY Composite a/d ratio did not confirm
The percentage of stocks below their 50-day SMA did not confirm
How about different sentiment gauges?
The VIX is below its October extreme
The VIX/VIX3M ratio is below its October extreme
The CBOE equity put/call ratio is at the same level
Contango is above its October extreme
The SKEW carved out a new low
The CBOE equity put/call ratio (5-day SMA) is below its November extreme
NAAIM equity exposure is about even, but above its November extreme
Bullish Advisors polled by II are less bearish than last week
Bullish Investors polled by AAII are less bearish than last week
All the above indicators show that there is little panic, certainly less panic than in October or November. This could be viewed as either 1) a bullish divergence or 2) there is enough room for the market to fall further.
Based on Elliott Wave Theory, the S&P 500 could be 1) nearing the exhaustion point of this down leg, or 2) be in a strong and sustained wave 3 lower (S&P could still rally towards or into 2,700s before next down move). The summary section below discusses which scenario is more likely.
Another attention grabber was last week’s ‘death cross,’ where the 50-day SMA fell below the 200-day SMA.
The last time death cross that received a lot of attention was in May 2016, when the 50-week SMA fell below the 100-week SMA. This was supposed to be an ‘irrefutable sell signal,’ but ultimately turned out to be one of the best buying opportunities ever.
At best, SMA crossovers have a spotty track record, and we don’t base our anlysis on such lagging indicators. For those interested, the arrows in the weekly chart below mark all bearish and bullish 200/50-day SMA crosses over the past 20 years (weekly chart shown to capture longer-term history of signals).
Shown below are various support levels that may help navigate the coming weeks, and answer the question posed above: What’ next? Sustained move lower, or quick wash out decline followed by snap-back rally?
2,618: Black trend channel
2,607: Wave C = 61.8% wave A
2,550: Wave C = 78.6% wave A
2,500: Fibonacci support going back to 2011
2,478: Wave C = 100% wave A
2,385: Trend line support going back to 1998
2,280: Trend channel support going back to 2009
The Russell 2000 IWM is in the general green support range, with trend channel support at 143.25 and 141.30. A bounce from 143.25 – 141.30 seems likely, but sustained trade below the lower trend channel would unlock lower targets.
The Nasdaq-100 QQQ has a general range of support at 161 – 157. A break below, would likely lead to a retest of the February/March lows at 154-150.
Summary: The above analysis was based on Friday’s closing price. The S&P 500 futures chart below includes Sunday’s 20+ point drop. Trade is right around black trend channel support. Anytime prices reaches support, odds of a bounce increase.
Based on the Elliott Wave Theory structure, we are trying to figure out whether we are nearing the end of this down leg (with a potential wash out decline), or if trade will accelerate lower (as a wave 3 would).
A brief drop (1-3 days) below 2,618 (with next support at 2,607, 2,550 and perhaps as low as 2,500) followed by a quick recovery would preserve the bullish divergences and suggest sellers got ‘washed out’ and a year-end rally is underway.
Persistent trade below 2,618 and 2,607 means we need to allow for more weakness.
We will take a stab at going long (only with a small amount as this correction may carve out lower lows eventually) if the S&P 500 drops below 2,607 and subsequently rallies above 2,620 (stop-loss to be set at that day’s low). The SPY buy level is thus linked to the S&P 500 (approximate corresponding SPY levels: buy on drop below 261 followed by move above 262.10 with stop-loss at day’s low).
The very first graph of today’s update (S&P 500 in 2011 – blue box) illustrates what a wash out decline may look like.
SUMMARY: The lack of fear, expressed by various ‘bullish divergences,’ is likely to result in a short-term bounce. Back in September, we expected a correction toward 2,400, and that seems still likely (longer-ter S&P 500 outlook available here). A drop toward 2,400 (or at least below 2,500), would probably trigger the kind of ‘panic readings’ commensurate with a more significant bottom.
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 evaluation 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, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.
Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF e-Newsletter to get actionable ETF trade ideas delivered for free.
Gold has been zigzagging up and down for all of 2017. This erratic performance brings a measure of uncertainty, but – in a way – it also increases confidence in our long-term forecast.
Starting in November 2015, the Profit Radar Report expected a sizeable gold rally.
The November 30, 2015 Profit Radar Report published the chart below, which shows gold at quadruple support and record bullish smart money hedgers. An ideal setup for a rally (gold’s final low occurred on December 3, 2015 at 1,045).
The second chart shows the Elliott Wave Theory (EWT) labeling we’ve been following for the past years.
According to EWT, the first wave (comprised of five sub-waves) of the bear market ended in December 2015. The rally since is a counter trend move.
Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Bussines Daily says “When Simon says, the market listens.”
Common Fibonacci target levels for this counter trend rally are 1,381, 1,485 and 1,588. Counter trends are generally more choppy and less predictable, which is true of the rally from December 2015 to September 2017 (this increases confidence in our forecast).
Since we were looking for a move above 1,382, the Profit Radar Report issued a buy signal for gold and gold ETFs like the SPDR Gold Shares (GLD) in November 2015 (gold at 1,088), and in August 2017 (gold at 1282).
On September 8, 2017 gold became overbought and touched the top of the black trend channel. Smart money hedgers (which were record bullish at the December 2015 low) turned significantly more bearish (see daily chart).
For those reasons, the Profit Radar Report issued a sell signal on September 5, 2017.
We don’t have a down side target for the current pullback (yet), but the lack of a bearish RSI-divergence at the September 8 high and failure to reach or exceed Fibonacci resistance at 1,381 suggests gold will take another stab at new recovery highs.
The daily chart insert illustrates gold seasonality for the remainder of 2017.
The Profit Radar Report will continue to monitor technicals, Elliott Wave patterns, sentiment, seasonality and cycles to confirm (or invalidate) our preferred forecast and spot low-risk buy or sell entries.
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.
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.”
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.
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.
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.”
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.
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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Sunday’s (May 8) Profit Radar Report published the chart below and pointed out the following:
“Some measures of sentiment are in unusually bearish territory. Unusual considering that the S&P just traded only 1% away from its all-time high! Shown below are the % of bullish investors (polled by AAII) and the CBOE equity put/call ratio.
The put/call ratio doesn’t have a perfect track record, but as the dashed red lines show, high readings mark some sort of low more often than not.”
In addition to these ‘odd’ sentiment readings, various indexes reached support levels.
This constellation led to the summary offered by the same Profit Radar Report:
“As long as the bullish RSI divergence and support near 2,040 hold, odds favor either a bounce or rally to new recovery highs.We will be watching the open S&P chart gap at 2,079.12. Once/if the gap is closed, we’ll have to determine if this bounce has legs (new recovery highs) or if it is just a small bounce within a deeper correction.”
The S&P 500 is within striking distance of the open chart gap (2,079.12), we we’ll have to evaluate if this bounce ‘has legs’ or not.
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 and silver have been on a tear, but there’s reason to be cautious. Here are some facts to consider before following the crowded trade:
Gold Update
Since late December 2015, when we anticipated a tradable low, gold has rallied as much as 25%. Commercial hedgers (considered the ‘smart money’) are now heavily selling into this rally.
The chart below was published as part of the April 24 Profit Radar Report update.
Shown is the price of gold along with the net exposure of commercial gold hedgers. Hedgers have racked up the largest short position since 2012.
The April 24 Profit Radar Report stated that: “Out of the three driving forces we monitor for gold (technicals, sentiment, seasonality), technicals look the most bullish. Sentiment says risk is elevated. Immediate up side potential is limited based on seasonality.”
The May 1 Profit Radar Report included the following update: “Gold moved above resistance at 1,272 and above this year’s high at 1,290. It is next to impossible to peg the termination point of strong momentum moves, such as in February and currently. 2-day RSI is overbought and sentiment remains bearish, so the next resistance zone at 1,310 – 1,320 is a candidate for a pause/reversal. More up side is possible, but when the tide turns, it is likely to turn quickly and burn latecomers.”
As the updated gold chart shows, gold reversed just below the 1,310 – 1,320 zone, but remains above support. What this means is discussed in the latest Profit Radar Report update.
Silver Update
The chart below (published via the April 20 Profit Radar Report) shows that commercial hedgers are even more bearish on silver.
The May 1 Profit Radar Report included the following update: “Commercial traders ramped up their silver short positions to the highest level in decades, 2-day RSI is overbought and seasonality is getting close to the most bearish period of the year. Next resistance is around 18.5. A move to around 18.5 along with some bearish divergences would create the potential for a nice short trade (ZSL is one ETF option).”
The updated chart below shows silver reacting to its overbought condition and rising red trend line, but reversing before reaching resistance at 18.5.
The extreme short positions of commercial hedgers and the most bearish seasonal pocket of the year should be a worry for silver bulls, but may set up a nice trade for trading opportunists.
Continued gold and silver analysis is 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.
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