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.

 

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S&P 500 Trapped in Range – Why and How Long?

  • S&P 500 in 2012: up 13.4%
  • S&P 500 in 2013: up 29.6%
  • S&P 500 in 2014: up 11.3%

S&P 500 YTD in 2015: up 1.6%

If there were such a thing as an investment time machine, we would skip the last five months or simply fast-forward over November, December, January, February, March and what we’ve seen thus far of April.

We could have taken a dirtnap in the spirit of: ‘the bear was hibernating, the bull too, and so could have been me and you.’

I guess after six years of gains (five of them double-digit), it’s kind of normal to see a period of stagnation. In fact, it probably should have been expected.

The voice of the bears has been nagging for years and bulls are ever-present. It’s about time bulls and bears share the limelight with whichever animal represents the boring middle (how about the sloth?).

According to chewed-out Wall Street wisdom, the market almost never goes up in a straight line … and that’s exactly what we’re getting right now.

The Profit Radar Report has been mentioning for months that the forces of supply and demand are basically in balance. There hasn’t been enough buying power to propel stocks higher, and not enough selling pressure to keep them down.

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For example, the March 29 Profit Radar Report observed that: “S&P 500 today is exactly where it was November 18, and there’s no indication that the up and down zig-zagging is coming to an end. In fact, there’s a real possibility the S&P is forming some sort of triangle.”

Triangle’s are notorious for keeping stocks range bound for weeks, even months. The April 8 Profit Radar Report featured this S&P 500 visual for a possible triangle (triangle boundary lines in purple).

The S&P has reached the upper boundary of the projected triangle, which is the ‘do or die’ level outlined in my prior S&P 500 forecast.

If the S&P is not strongly rejected by the upper triangle boundary, it will probably continue ‘triangling’ around and eventually break higher. Even if stocks break higher though, they may soon come back … perhaps to test the lower end of the range.

Seasonality is pointing higher, but there are two caveats with seasonality right now.

S&P 500 Seasonality – This is Not an Ordinary Year

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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S&P 500 Seasonality – This is Not an Ordinary Year

In terms of seasonality, the S&P 500 is having a ‘bad’ year.

Why bad? Because the S&P has not been following its seasonal path outlined by many decades of historic price action.

Below is a look at the actual 2015 S&P 500 price action (blue line) and S&P 500 seasonality (gray line).

This hand-crafted S&P 500 pre-election year seasonality chart is based on daily closing prices of every pre-election year since 1951 (full seasonality chart for S&P 500 and other asset classes available to Profit Radar Report subscribers).

The general path of pre-election and overall seasonality is very similar (overall S&P 500 seasonality is based on closing prices of every year since 1950).

 

Due to the smaller data set, and a more bullish bias, pre-election year seasonality features stronger rallies, but also deeper pullbacks.

The May rally (green arrow) is one of those moves that’s more pronounced during pre-election years.

Based on seasonality, the S&P 500 (NYSEArca: SPY) is ‘supposed to’ move higher into early May.

Seasonality is one of the four major market-moving forces I use to compose my market forecasts. Technical analysis, supply & demand data, and investor sentiment are the other key forces.

Detailed forecasts based on those four indicators are available to Profit Radar Report subscribers.

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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S&P 500 Seasonality About to Hit Weak Pocket

Seasonality is not the only force to drive stocks, but it’s one of the indicators I follow. The S&P 500 seasonality chart (for pre-election years) shows four notable weak spots (seasonality is based on 64 years of daily closing prices).

One of them, although not very intimidating, is the second half of February (others are in May, July and October – a full year seasonality chart is available via the Profit Radar Report).

The chart below highlights the February weak spot.

Purely based on seasonality, the S&P 500 (NYSEArca: SPY) is unlikely to follow through on its bullish technical break out, at least not in February.

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.

S&P 500: 3 Reasons to Expect the May Blues … But Not Yet

Have you been infected yet by the media’s crash talk? Most major financial media outlets predict a correction or outright crash. There are reasons to be worried about the ‘May Blues’ (sell in May and go away), but there’s also reason not to worry, yet.

According to CNBC, Dr. Doom is worried about a crisis bigger than 2008, and so should you.

There truly are reasons to expect some weakness (aka the ‘May Blues’), but perhaps just not yet.

Why Look for May Blues

1. Seasonality: S&P 500 seasonality for midterm election years is bearish. Click here for S&P 500 seasonality chart.

2. The Nasdaq-100 may be carving out a head-and shoulders pattern.

3. Stock market breadth is deteriorating. A truly rising tide lifts all boats, this rally isn’t. Large caps are in, small caps are out.

The chart below plots the S&P 500 (SNP: ^GSPC) against the IWM:IWB ratio. The IWM ETF represents the small cap Russell 2000, the IWB ETF represents the large cap Russell 1000.

The IWM:IWB ratio shows small caps quickly erasing an 11-months performance advantage.

Although this is a reflection of fragmentation, it should be said that, historically, this disparity does not foreshadow major immediate weakness.

Why Look for May Blues … Later

Simply because the media is looking for a crash right now.

CNBC: “I’m worried about a crisis bigger than 2008: Dr Doom”
MarketWatch: “Risk of 20% correction highest until October”
Investors Business Daily: “Why investors expect to ‘sell in May and go away’”
CNBC: “Wells Fargo strategist presents scary chart”

Based on various cycles, technical indicators and seasonal patterns, the Profit Radar Report proposed a May high back in January when it published the 2014 Forecast.

This outlook continues to be valid, however, it has now become the crowded trade.

The market will likely find a way to shake out the weak and premature bears, and fool the herd (the May 4 Profit Radar Report outlined the most likely route of this head fake).

In terms of technicals, the S&P 500 (NYSEArca: SPY) remains above important support and still within a chopping zone, obviously designed to hurt impatient investors. As long as this support holds, it’s dangerous to go short.

Even the weak Russell 2000 remains above an important support cluster (yes, more important than the 200-day SMA).

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.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Will 2014 Be a Lost Year?

The major U.S. indexes have made no net progress since the beginning of the year. A lot of energy has been wasted on aimless up and down and sideways trading. Will 2014 be a lost year?

“Never give someone the opportunity to waste your time twice”

Most people don’t like wasting energy on stuff without getting results.

So far, 2014 has been a lost year for most investors.

The chart below shows the year-to-date performance of the S&P 500, Dow Jones, Nasdaq Composite, and Russell 2000 (blue line = 2013 close).

There’s been a lot of up and down and a lot of sideways trading, but at the end of April the indexes are basically stuck in stalemate.

Will the entire year be like the first four months?

Quite possibly. The Profit Radar Report’s 2014 Forecast (published January 15, 2014) featured a full-year S&P 500 projection, which pegged the S&P 500 in April at the same level as its 2013 close.

Despite an exciting summer (more details below), the Profit Radar Report’s 2014 projection also puts the S&P 500 at year-end close to where it started the year.

Bulls Can’t Break Out, Because …

Right now the S&P 500 and Dow Jones are held back by strong technical resistance.

The Dow Jones chart below shows some of the long-term resistance levels (made up of trend lines and Fibonacci projections).

Bears Can’t Peel Away, Because …

Too many cooks spoil the broth … and too many bears spoil a potential crash.

CNBC reported this morning that: “Bubble talk catches fire among big-money pros.”

It’s this kind of ‘preemptive bearishness’ that’s kept stocks buoyant for well over a year.

This combination of overhead resistance and the ‘bear put’ is likely to keep stocks in a trading range.

However, I expect this trading range to expand soon.

Bearish S&P 500 seasonality should soon drag stocks lower. The old ‘Sell in May and go away’ adage has received a lot of play this year, so the stock market is likely to ‘flush out’ the now crowded trade with another head fake.

More details here: Expecting ‘Sell in May and Go Away’ Pattern? – Prepare for Surprise

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.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Best Day of the Week Captures 75x S&P 500 YTD Gains

Mirror mirror on the wall, which is the fairest day of all? A curious statistic shows that the strongest day of the week captured 75x the 2014 S&P 500 gain. While this may be a nuisance stat, there’s also a more helpful one.

Here’s an interesting off the wall factoid:

Trading at 1,850, the S&P 500 is up 0.09% year-to-date (YTD).

If Wall Street were only open on Tuesdays, the YTD S&P 500 (NYSEArca: SPY) gain would be 6.80%. In 2014, Tuesday is the only profitable day of the year.

The first chart shows the S&P 500’s YTD performance in daily bars and percentage.

The second chart shows the S&P 500’s performance by day of week.

Why do Tuesdays hog all of the gains? Who knows?

We do know that this is a 2014 phenomenon. Historically, Wednesday is the best day of the week (by a small margin) and Monday by far the worst day of the week (based on data going back to 1952).

I would categorize this anomaly as curious, not predictive.

But there are other incredibly helpful patterns.

For example, historical price action shows strong bearish seasonal forces arriving in April.

Here’s an S&P 500 seasonality chart that shows seasonality dropping off a cliff:

Historic S&P 500 Seasonality is About to Turn Ugly (hint: look at date of article)

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.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.