S&P 500 is the Latest Coronavirus ‘Casualty’

The ‘death cross’ has struck again, demanding the next ‘casualty,’ the S&P 500.

Yesterday, the S&P 500’s 50-day SMA crossed below the 200-day SMA, commonly – and ominously – considered the ‘death cross.’

Something with such a dire name has got to be bearish, right?

There were 5 other S&P 500 death crosses in the last decade (red lines, chart below). None of them was particularly bearish. But, all of those happened during one of the greatest bull markets of all time.

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Let’s expand the look-back period to 50 years and apply the following two filters to get the most similar precedents:

  1. First crossover (50-day SMA below 200-day SMA) in at least 10 months
  2. Crossover preceded by a 5% decline over the prior 4 weeks

Here are the signals: 2/1984, 11/1987, 4/1994, 7/2010, 8/2011, 8/2015, 12/2018.

The chart below shows the performance of each signal 40 trading days before the crossover and 250 trading days (1 year) thereafter. 

Short-term, the performance was rocky, but long-term performance was solid:

  • 1 month later: S&P 500 down 5 of 7 times (average loss: 1.47%)
  • 2 month later: S&P 500 up 6 of 7 times (average gain: 2.29%)
  • 3 month later: S&P 500 up 7 of 7 times (average gain: 4.58)
  • 6 month later: S&P 500 up 6 of 7 times (average gain: 7.00%)
  • 12 month later: S&P 500 up 7 of 7 times (average gain: 16.06%)

The chart below shows the S&P 500 performance for the past 40 days and the average forward performance of the past 7 signals projected forward.

Based on the past 50 years of history, the death cross has not been a bearish signal. The caveat is that the 2020 stock market has already defied many historic patterns.

Some of those historic extremes along with the short-term S&P 500 forecast are available here.

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.

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Comprehensive S&P 500 Update

Short-term S&P 500 Analysis

In the April 7 Profit Radar Report I introduced a very simple approach to analyzing the S&P 500. See chart and commentary below:

Red trend line resistance has held thus far, and has not become main stream enough to be negated. Green trend line is near-term support. An immediate break above trend line resistance may lead to closure of the open chart gap (2,921.36).”

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

Troughout April, the S&P has been clinging to the red trend line like a tourist hooked to a zip line. Chart gaps are not reversal levels, but they are like magnets, and once that gap was filled on April 17, there was one less reason for the S&P to move higher.

The April 14 Profit Radar Report warned that: “Technicals do not indicate an immediate break down, and trade may continue to grind higher. However, any gains are likely to be slow and choppy, and risk of a drop lower – where a one-day drop can erase days or weeks of gains – exists.”

Longer-term S&P Analysis

The first few trading days of May basically almost all of April’s gains. But more importantly, prior to the May drop, the S&P 500 actually reached a new all-time high.

This new high was the minimum requirement outlined in my 2019 S&P 500 Projection (published in the 2019 S&P 500 Forecast, see below).

Why was a new all-time high ‘required?’ As explained in the 2019 S&P 500 Forecast, there were not enough bearish divergences for a major market top at the September 2018 high, and no bullish divergences at the December 2018 low.

New all-time highs – as projected – were the only possible way to reconcile those indicators.

Even though the S&P has reached the minimum requirement before a larger (and quite possibly nasty) pullback, the yellow projection carries the S&P 500 to trend line resistance around 3,000.

My preferred scenario was featured in the May 1 Profit Radar Report (see below). Based on this scenario, the S&P would drop to 2,890 – 2,865 (in wave 4) and rally towards 3,000 (in wave 5).

Why is this my preferred scenario? Because waves 4 (especially when comparatively long-winded) tend to drag down high breadth and momentum readings (seen at wave 3 highs), which creates the bearish divergences usually seen at the wave 5 top (although the upcoming top should be noteworthy, I don’t expect this to be a major market top).

There was a bearish RSI divergence at the April 30 closing high, which could be enough for a sizeable drop, but a more pronounced set of divergences at higher prices would be a clearer signal.

Summary

The expected down side risk became reality, and the S&P may continue lower, but the 2,890 – 2,865 zone is where a rally to about 3,000 may start. How big is the eventual down side risk is one of many questions answered in continuous Profit Radar Report updates. You may take the Profit Radar Report for a ‘test drive’ here.

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.

S&P 500 Reaches Up Side Target – Now What?

The S&P 500 has reached the up side target zone highlighted in February and August/September 2016. Now what?

The August 28, 2016 PRR published the chart below and stated: “Elliott Wave Theory 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.”

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.

Since the wave 2 pullback was on the shallow side, the dark green Elliott Wave Theory count (with wave 3 target around 2,390) became operative.

The September 5, 2016 Profit Radar Report said the following: “The chart below shows the long-term up side target purely based on projected symmetry. Based on the 1997 – 2013 trading range, the measured up side target is S&P 2,330 – 2,485, which is in the general vicinity of the 2,290 – 2,342 Fibonacci levels mentioned in the 2016 S&P 500 Forecast. Higher targets are possible, but we’ll reassess once we get there.”

As the updated symmetry chart shows, “we are here!” Now what?

Stocks are at peak momentum (35-day RSI is at the highest level in 20+ years). As the Profit Radar Report highlighted many times in the past (most recently on December 14), stocks rarely ever top at peak momentum.

This means, we are not at a major market top. But the risk of a pullback is increasing. The latest Profit Radar Report shows the most likely spot for a pullback, along with the scope of any pullback.

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.

Profit Radar Report’s 2017 S&P 500 Forecast

The full year S&P 500 forecast is my biggest project of the year, and quite frankly it’s kind of a thankless job. Why? It gives every critic a documented, black and white foundation for criticism.

It is impossible to predict a full year of stock market future, that’s why market forecasts are loaded with ‘ifs,’ “buts,’ and other ambiguities. Anyone attempting to predict the unpredictable is doomed to miss the mark.

That would explain why no other newsletter (at least not that I’m aware of) publishes an actual full year S&P 500 chart projection (2016 projection shown below). Accountability is an underrated (if not entirely ignored) concept on Wall Street. But what’s the purpose of following many time-tested indicators if we don’t put them to work?

Subscribers to the Profit Radar Report deserve a straight-forward forecast. My goal is to provide a rough roadmap for the year ahead, based on what indicators are telling us right now.

Before we get to the 2017 S&P 500 Forecast, here is a review of the 2016 S&P 500 Forecast, published on January 31, 2016.

2016 S&P 500 Forecast Review

Below is a review (and small excerpt) of our 2016 S&P 500 Forecast, based on four key indicators (supply & demand, technical analysis, investor sentiment, seasonality and cycles). Each indicator/forecast is graded with a green pass, red fail or red/green draw symbol.

At the time of publishing (January 31, 2016), our bullish 2016 outlook was truly contrarian.

A more detailed version of the 2016 S&P 500 Forecast was published here.

2017 S&P 500 Forecast

It wouldn’t be fair to re-publish analysis paid for by subscribers here for free, but I feel comfortable sharing a few key points.

The 2016 S&P 500 Forecast featured this Elliott Wave Theory based forecast, which pointed to new all-time highs with a target around 2,290.

Our major market top indicator confirmed the most recent S&P 500 highs. This means a major market top is, at minimum, months away.

The up side target has been adjusted accordingly. In fact, the 2017 S&P 500 Forecast expounds on a more bullish Elliott Wave interpretation (which was first discussed in the August 28 Profit Radar Report).

We will crosscheck the S&P 500 future S&P 500 pattern against our major market top indicators and investor sentiment (the 2017 S&P 500 Forecast includes a sentiment comparison between 2007 and 2017) to determine whether upcoming all-time highs will be a major top or not.

Beware of 15% Correction!

Despite the bullish potential, and even if this bull market has (much) further to go, the S&P 500 is likely to suffer a 15% correction in 2017.

Why and when, and much more detail, is revealed in the Profit Radar Report’s 2017 S&P 500 Forecast

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.

What to Expect from the Post Election Stock Market

Were you able to get one of the special edition “Madam President” Newsweek issues?

That’s right, Newsweek printed and delivered newspapers featuring Hillary Clinton as president elect.

News-based Approach

“Like everybody else, we got it wrong,” said the CEO in charge of this mishap.

Indeed, the media did get it wrong. According to the media:

1) Donald Trump was ‘supposed to’ be only second best

2) The stock market ‘was supposed’ to sell off if Trump wins

This is the second time in 2016 that media and market pundits got blind sighted and fooled by a big event.

In June it was the Brexit vote, which 1) went different than expected 2) the stock market rallied instead of crashing like it was ‘supposed to.’

The news-based approach requires two accurate guesses:

1) How the vote (or any event) will go

2) How the market will react to a certain outcome

As the above two examples show, the market rarely follows the expected path.

Indicator-based Approach

The indicator-based approach has proven to be much more accurate than relying on news. The last free S&P 500 Forecast pointed out a number of sentiment extremes and stated that:

The best opportunities are born in times of panic. The more panic, the better the opportunity. It’s risky to short such a market, and much more promising to look for a low-risk buying opportunity.”

Stock futures suffered a brief panic selloff on Tuesday night (S&P 500 futures were down as much as 120 points), but quickly recovered.

This was in line with this observation shared in the November 6 Profit Radar Report:

The VIX is stretched to the up side, with various bullish sentiment extremes and bearish seasonality. Excessive fear shown going into an event causing uncertainty (election) usually results in a quick retreat of fear once results are in and digested.”

The VIX has lost over 50% in the past few days.

It’s hard to believe that the S&P 500 cash index (unlike the S&P 500 futures) remainded above support identified last week and reacted immediately to the oversold condition and bullish divergences.

Back to Basics

With election uncertainty out of the way, we can refocus on the basics:

Short-term, the S&P 500 is butting against triple resistance while overbought. In addition, the days following the election tend to show some weakness.

Longer-term, there are a number of bullish forces which should push stocks through resistance.

  1. The correction we expected last month reached our down side target (reason for correction and down side targets are shown here).
  2. The tailwind of two breadth thrust in 2016 bodes well for stocks (detailed breadth thrust analysis with implications is available here).
  3. S&P 500 seasonality is bullish for the remainder of 2016
  4. VIX seasonality is bearish for the coming weeks. XIV is up 8% since we last recommended it (after closing a 14% XIV gain in September). Here is why we like the XIV trade.

The Profit Radar Reports up side target may be surprising to many, but it is strictly indicator based. At this point, only one ingredient is missing to unlock higher price targets.

Up side targets, the missing ingredient, and continuous indicator-based S&P 500 analysis 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.

 

Stock Market Melt-Up Alert?

The S&P 500 is at new all-time highs, so it may be appropriate to call to mind – and then discgard – all the bear market chatter of recent months.

Here is just a small selection of bear market headlines:

  • Barron’s: “Bracing for a Bear Market” – February 19, 2016
  • Forbes: “Investor Alert: We’re Firmly in a Bear Market” – January 25, 2016
  • MarketWatch: “If it Looks Like a Bear and Feels Like a Bear, it Probably is a Bear” – January 14, 2016
  • Benzinga: “The Bear Market is not Over Yet” – September 30, 2015
  • Forbes: “Here Comes the Recession and Bear Market” – January 6, 2016
  • Kiplinger: “Best Funds for Riding out a Bear Market” – September 15, 2016
  • Time: “The Next Bear Market Won’t Roar a Warning Just for You” – September 12, 2015
  • Motley Fool: “3 Timeless Tips for Surviving a Bear Market” – September 11, 2015
  • Investorplace: “Why the Bears will Keep Winning” – February 9, 2016

We never bought into the bear market idea.

The Profit Radar Report’s 2016 S&P 500 Forecast expected new all-time highs in 2016, as illustrated by this projection published at the beginning of the year.

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

Double Kickoff

Our bullish outlook was confirmed by the February ‘Kickoff’ rally, which was discussed in this article: 2016 Bear Market Risk is Zero Based on this Rare but Consistent Pattern

The April 17 Profit Radar Report featured another liquidity study and a more detailed S&P 500 projection (see chart below) along with the following commentary: “The most likely longer-term implications of our liquidity study remain in harmony with our 2016 S&P 500 Forecast: New all-time highs.”

Another breadth thrust, or kickoff rally, launched in late June, two trading days after the Brexit vote (see chart below).

The post-Brexit kickoff rally sported three bullish developments:

  • Up volume surge
  • Advancing stocks surge
  • New NY Composite a/d highs

The July 4 Profit Radar Report included a detailed analysis of this triple breadth thrust and concluded: “The NY Composite a/d lines are already at new highs, although the S&P 500 is not yet. This, along with the breadth thrust, strongly suggests that the S&P will follow in the not so distant future.”

The ‘not so distant future’ became reality five trading days later.

Buoyed by the breadth thrust, the S&P 500 gained the escape velocity needed to break above the glass ceiling near 2,130, which now serves as initial support (horizontal green bar).

Stocks may pull back due to short-term overbought conditions, but with or without pullback, higher highs are likely. It’s a buy the dip market.

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 Forecast for Remainder of 2016

The full year S&P 500 forecast is my biggest project of the year, and quite frankly it’s kind of a thankless job. Why? It gives every critic a documented, black and white foundation for criticism.

It is impossible to predict a full year of stock market future, that’s why market forecasts are loaded with ‘ifs,’ “buts,’ and other ambiguities. Anyone attempting to predict the unpredictable is doomed to miss the mark.

That’s why no other newsletter (at least not that I’m aware of) publishes an actual full year S&P 500 chart projection. Accountability is an underrated (if not entirely ignored) concept on Wall Street. But, what’s the purpose of following many time-tested indicators if we don’t put them to work?

The 2016 S&P 500 Forecast was published on January 31, 2016 and is available to subscribers of the Profit Radar Report. Below is an excerpt of the 2016 S&P 500 Forecast (with some minor edits in consideration of paying subscribers).

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

At the time of publication, the S&P 500 traded in the mid 1,800s. One of the key questions addressed by the forecast was whether the May 2015 all-time high at S&P 2,134 marked the end of the bull market.

The S&P 500 Forecast is based on the four most powerful market-moving forces:

  • Supply & Demand
  • Technical Analysis
  • Investor Sentiment
  • Seasonality & Cycles

Supply & Demand

Technical Analysis – Support/Resistance Levels

There is Fibonacci support at 1,855 (Fibonacci projection level going back to 2002).

There is an open chart gap at 2,043.62 (just above Fibonacci resistance at 2,041). This is the bare minimum target for a Q1/Q2 rally.

Technical Analysis – Elliott Wave Theory

Investor Sentiment

Bull markets die of starvation. Just as a fire needs wood to burn, the stock market needs fresh buyers to move higher. Fully invested investors can only do one of two things: hold or sell. Neither action buoys price any higher.

Excessive optimism is an indication that buyers have become rare (because everyone who wants to buy has already bought). That’s why excessive optimism usually precedes a new bear market or sizeable correction. However, investor sentiment near the May 2015 all-time highs was not as euphoric as at prior tops.

Historically, sentiment around May 2015 was not bullish enough for a major market top.

What about current sentiment? Sentiment dropped towards extreme pessimism in January (some indicators triggered panic readings), which should provide a bullish tailwind for the weeks/months ahead.

Summary

The 2016 S&P 500 Forecast did not expect much down side following the January meltdown, but anticipated a market comeback with a ‘bare minimum up side target of 2,043.’

This target was already captured. What’s next? A short-term outlook is available here.

Continued updates are available via the Profit Radar Report. Barron’s graded iSPYETF (and the Profit Radar Report) a “trader with a good track record.”

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.