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.

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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.

 

Some Investor Sentiment Indicators Show Excessive Pessimism

There hasn’t been a truly noteworthy investor sentiment extreme since the January/February lows, when the Profit Radar Report recommended buying.

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

Last week saw some unusual sentiment readings.

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.

Continued S&P 500 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.

Gold and Silver Bulls Risk Painful Whipsaw

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.

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

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.

 

The Best Trade of the Year

We’ve had a number of good trades in 2016. In fact, only 1 of 7 trades was closed in the red.

It’s tempting to label our S&P 500 trade (bought at 1,828, sold at 2,040) the best trade of 2016 (thus far).

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

True, the S&P 500 trade was the most contrarian trade of them all. It required a fair amount of moxie to go against the crowd.

But the best trade was a rare ‘high probability trade.’

The March 6 Profit Radar Report observed the following setup:

Natural gas futures fell to a multi-decade low ($1.611 per one million British Thermal Units – BTU).Sentiment is very bearish (bullish for gas) and seasonality is turning bullish. Trade is at or near support and there is a bullish divergence on the daily chart. This is shaping up for a rare high probability trade. We are looking for a low-risk entry point.”

The monthly bar chart shows a birds eye view of the setup.

The daily chart shows a bullish RSI divergence and the touch of double support.

Natural gas seasonality turned bullish in early March.

Some measures of investor sentiment were at or near bearish (bullish for gas) extremes.

Technicals, sentiment, and seasonality all pointed in the same direction (up). The pieces for a high probability buy signal were in place.

We bought on March 10, after trade poked above the initial red resistance line. We sold on March 30, when trade was overbought and against resistance.

The profit was about 14% for natural gas futures and about 9% for the related ETF (UNG) trade (corresponding commodity ETF returns tend to be lower due to contango).

Based on seasonality, there is more up side for natural gas, but the probability of further gains is not as high as it was in early March.

The Profit Radar Report is always on the prowl for rare high probability trades.

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 Swings from Long-term Over-hated to Short-term Over-bought

Gold was over-hated just a few weeks ago. The July 21 article “Gold Looks So Bad, it Might Actually be Good” observed the following:

  • Gold is having another bad year, and most ‘pros’ are looking for even more losses:
  • “Gold teeters near five-year low after ‘bear raid’, more losses expected” – Reuters
  • “3 Trends that are burying gold prices” – CBS News
  • “Why gold is falling and won’t get up again” – MarketWatch
  • “The one chart that shows that gold may not be as safe as you think” – The Independent

Every gold bear should know that the market has a nasty habit: It likes to fool the crowded trade.

Based on the above headlines, short gold is the crowded trade.”

Click here to view the chart that suggested a gold rally was due.

This week, gold gained as much as 3% (gold rallied as much as 5% from the July low).

However, sentiment has quickly swung from long-term over-hated to short-term overbought.

Yesterday’s (Wednesday’s) Profit Radar Report stated that:

Gold popped this week and is short-term overbought against resistance. Due to the extreme pessimism, gold may shrug off the overbought condition better than normal, but the vertical gray lines suggest a pullback.”

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The following chart went along with yesterday’s PRR update:

Based on sentiment and seasonality, the gold rally should continue for a while longer, once this pullback is complete. A drop below 1,100 would caution of a relapse to new lows.

Continuous gold analysis is provided by 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.

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2011 vs 2015 – Sentiment Comparison

Over the past two weeks we explored two developments:

  1. Stocks had to rally to flush out premature bears
  2. 2015 is looking a lot like 2011

A couple of sentiment indicators (such as AAII poll) showed extreme pessimism recently.

2011 saw an 18% drop starting in July.

The question for right now is this: Is there too much pessimism for a summer correction?

The first chart shows sentiment in 2011. The gray bar highlights June 2011.

By mid-June, investors polled by the American Association for Individual Investors (AAII) and Investors Intelligence (II) had become quite pessimistic. Only 24% and 37% of investors were bullish.

A 7.8% S&P 500 (NYSEArca: SPY) rally from June 16 – July 7 relieved much of that pessimism, but it didn’t take a spike into extreme optimism for stocks to plunge in July.

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A look at current sentiment shows a similar scenario.

Optimism was quite low (extremely low for the AAII survey), but recovered, no doubt due to the 58-point rally from the June 15 low.

Based on the 2011 analogy, stocks may rally into early July. An updated look at the 2011 vs 2015 analogy is available here: 2015 is Looking a Lot Like 2011

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.