S&P 500 Suffers First 1%+ Drop Since April 10 – Is this Bad News?

Today the S&P 500 lost more than 1% for the first time since April 10, 2014. This sell off comes amidst many predictions for a bull market end or market crash. In reality, how significant is today’s loss?

Streaks exist to be broken. The S&P 500 just broke a 66-day streak of not losing more than 1%. April 10 (blue box) was the last time the S&P 500 lost more than 1%.

Is today’s loss a bad omen?

Nowadays everything seems to be a bad omen, otherwise we wouldn’t read headlines such as:

  • “Two signs a market crash is coming”
  • “Bubble paranoia setting in as S&P 500 surge stirs angst”
  • “The indicator that proves the bull market is ending”

The S&P 500 is still within 1.5% of its all-time highs, so calls for a bull market end or crash are no doubt premature (we all know the odds of catching a falling knife).

Could today’s sell off lead to a deeper correction?

Here are a few facts to consider:

  • Today’s loss happened on elevated trading volume. The S&P 500 ETF (NYSEArca: SPY) chart shows other recent high volume declines (dashed red lines). Some of them were followed by additional selling, but most of them were not.
  • The July 8 Profit Radar Report pointed out that 1,955 is important short-term support (on a closing basis) for the S&P 500. This support has yet to be broken.
  • The July 13 Profit Radar Report highlighted key resistance at 1,980 – 1,985. So far the S&P wasn’t able to break above resistance.

In other words, despite today’s sell off, the S&P 500 remains range bound between support and resistance.

So could today’s decline be the beginning of a larger correction? Yes, but it could just as well be a minor buying opportunity.

Trusted indicators certainly have a better track record distinguishing one from another than attention-grabbing headlines.

In fact, one of those trusted indicators has predicted 6 of the last 8 buying opportunities correctly. If this indicator fails (and it’s at a ‘do or die’ point right now), it will foreshadow lower prices.

Here’s a look at this underrated and underappreciated, but accurate indicator:

S&P 500 Short-Term Forecast

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.

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S&P 500 Short-Term Forecast

The S&P 500 has been without significant correction for over 1,000 days. According to many, a deep correction is ‘just around the corner’ (and has been around the corner since April). Here’s the only thing that actually may trigger a correction.

The S&P 500 is showing some weakness this week. Will this morph into a full-blown sell off?

Here’s a look at an indicator that’s been spot on – percentR. percentR is a momentum indicator that can be used to determine entry and exit points.

Never heard of it? That’s because you won’t read about this indicator on CNBC, MarketWatch or Bloomberg. That’s is a good thing. Just recall how many charts and indicators the media has used in recent months to warn of a major crash (too much media coverage spoils any good indicator).

The chart below shows the recent correlation between percentR and the S&P 500.

There are different ways to use percentR. I like to use it to help confirm a change of trend. Here’s how that works:

Allow me to ease into the explanation with a practical application, an excerpt taken from the June 18 Profit Radar Report:

“percentR doesn’t tell us how far this rally will go, but it may help us determine when it’s over. A failed low-risk entry would signal a change in character of this rally leg, as every low-risk entry since May has been bought.”

An initial percentR dip below 80 is called a ‘bullish low-risk entry’.

The arrows mark all bullish low-risk entries since February. There have been eight bullish low-risk entries.

Six of them (black arrows) marked a short-term low. One (red arrow) was a false alarm and one (dashed area) turned into a failed low-risk entry and (slightly) lower prices.

What is a failed low-risk entry? When the S&P 500 closes below the level (daily low) that triggered the low-risk entry (dashed red box).

In other words, an S&P 500 (NYSEArca: SPY) close below Tuesday’s low at 1,959.46 (bold green line) would be a failed bullish low-risk entry and the initial sign of a change of trend.

The 1,959 area seems significant, because it is compounded by the 20-day SMA (1,959) and a long-term Fibonacci support/resistance level (1,955).

Therefore, a close below 1,959 – 1,955 would be a warning signal.

There are a number of reasons why the S&P 500 should correct, but as long as it doesn’t close below 1,959 – 1955, they don’t matter.

However, one ‘wild card’ needs to be watched carefully, even if the S&P 500 closes below 1,955. This ‘wild card’ is obvious to everyone, but recognized by few. It also predicted the most recent 100+ S&P rally.

Here is more fascinating details about this must watch wild card:

Media Wild Card: The Only Indicator That Foresaw a Rally with No Correction

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.