S&P 500 Update

On March 26, the Profit Radar Report published the projection below and stated: “We anticipate a recovery towards 3,000 (for the S&P 500) over the next couple months and quite possibly new all-time highs in 2020.”

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.

Less then two month later, the S&P 500 reached and exceeded 3,000. Are new all-time highs next?

To answer this question, we will take a chronological look at many indicators and studies published (in the Profit Radar Report) over the past couple of months.

April 6, 2020 Profit Radar Report

90.43% of NYSE-traded stocks closed higher for the day. We have seen large clusters of 80% or 90% ‘all or nothing’ days (where 80% or 90% of NYSE-traded stocks and/or volume occur to the up or down side). This too is rare, and has been longer-term bullish (S&P 500 traded higher 6 and 12 months later 90% of the time).”

April 7, 2020 Profit Radar Report

It took the S&P 500 just 11 days to retrace more than a Fibonacci 38.2% of the previous losses. This is a very quick retracement. Since 1970, there were only 5 other times where the S&P retraced more than 34% that quickly. The chart below shows the forward performance of those 5 times along with the average. As you can see, returns were rock solid.” Note: Chart below was updated to include price action until May 27.

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April 12, 2020 Profit Radar Report

More than 90% of volume went into advancing stocks on 2 days last week (April 6: 91.87%, April 8: 93.13%). This is rare and usually significant. The chart below plots the forward performance of the 6 other times when there were more than 2 90% up volume days in a 3-day period within 1 month of a 52-week low.

April 19, 2020 Profit Radar Report

Historically, rising stocks despite falling earnings are not unusual. Since 1970, there were 8 other earnings seasons following a 30% drop in the S&P 500. The chart below shows the 1-year forward performance of every instance along with the average forward performance.

April 19, 2020 Profit Radar Report 

The March and April PRRs included a ton of data points and studies analyzing the market from all sorts of different angles. Most of the studies and projections pointed to a signifiant rally with a minimum target of 2,900 – 3,000 … and potentially new all-time highs later in 2020.

The S&P 500 has almost reached the ‘first phase’ of our forecast (2,900 – 3,000). While the up side has become more risky, price may continue to move higher as long as the S&P does not fall below support at 2,730 – 2,700.”

May 3, 2020 Profit Radar Report

The April 11 Profit Radar Report fiirst remarked on the strength of this rally, which implied further gains. Below is an updated look at the same chart, which shows that even the strongest rallies from a 52-week low started to take a pause right about 29 days after the low was struck.”

Summary

In late April the S&P 500 got very close to our up side target and I was looking for a pullback. This pullback was more shallow than expected. Instead of providing a better buying opportunity at even lower prices, it sparked another rally leg.

The S&P 500 is now trading above the upper Bollinger Band with RSI-2 nearing short-term over-bought. RSI-35 on the other hand continues to confirm new price highs.

Short-term, this leaves the S&P 500 in ‘melt up’ mode. Usually it does not pay to chase an over-bought market (in fact the risk of a nasty pullback is high), but this could be one of those rare times where stocks defy the odds and grind higher.

At some point, however, there should be a pullback. The weight of evidence suggests that any pullback will be a buying opportunity (minimum target: open chart gap at 3,328.45).

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.

S&P 500 Update – What Will Follow the Fasted Drop and Pop Ever?

It’s been kind of quiet the last 2 weeks, but lets not forget stocks distinctive performance prior to this relative calm.

For some perspective, the chart below compares the first 48 days of the 2020 bear market with the first 48 days of the 1929, 1987 and 2007 bear markets. By day 12, the Dow Jones Industrial Average (DJIA) showed it was intent on carving out its own path. By day 29, it was down 37.09% an destroyed any correlation to prior crashes.

It was around the crash low, on March 26, when the Profit Radar Report stated that: “We anticipate a recovery towards 3,000 for the S&P 500 over the next couple months,” which implied a 36% rally from the low.

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.

Such a strong rally would be quite unusual. How unusual?

The April 7 Profit Radar Report pointed out that: “It took the S&P 500 just 11 days to retrace more than a Fibonacci 38.2% of the previous losses. This is a very quick retracement. Since 1970, there were only 5 other times where the S&P retraced more than 34% that quickly. The chart below shows the forward performance of those 5 times along with the average. As you can see, returns were rock solid.”

Below is an updated version of the chart first published on April 7. The red graph represents the 2020 rally, which has been even more ‘fast and furious’ than the previous set of ‘most furious rallies from a 52-week low.’

In a nutshell, we just witnessed the fastest ever drop and pop in history. What’s next?

The S&P 500 is nearing 3,000, the up side target mentioned in the March 26 Profit Radar Report, and the April 15 Profit Radar Report warned that: “The S&P 500 has almost reached our target and up side potential has become less attractive.”

Here is one reason why: At 2,885, wave C equaled wave A, which is natural resistance. There are many different ways to interpret the structure (according to Elliott Wave Theory), but at this point the rally from the March low appears to be 3 waves.

We’ll have to see if it stays at 3 waves (usually indicative of a counter trend move) or turns into 5 waves (usually indicative of a directional change, in this instance from down to up).

Regardless, a break below support shown at 2,730 – 2,700 is needed to unlock more down side risk.

A break above 2,900 could lead to 3,000+, but such a rally may not stick.

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.

S&P 500 Update

Before we get to the short-term S&P 500 update, here is a big picture look at the Dow Jones, going all the way back to 1896.

As of Friday, March 20, the Dow Jones lost an average of 9.56% every week for the past 4 weeks. The biggest 4-week loss ever. The only 2 times that come close to this losing record are 1914 (WWII) and 1929.

Shorter-term, the Dow Jones retraced 35% of the points lost since its February 12 high.

The first real bounce during the 1929 crash phase (red box) retraced 36%, but relapsed once more before delivering a 5-month, 50% bounce.

S&P 500 Update

The Sunday March 22 Profit Radar Report featured the chart below and stated that: “It is quite possible that the S&P 500 will jolt higher from the 2,190 – 2,130 range, and aggressive traders may act accordingly.

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.

On Monday, March 23, the S&P dipped as low as 2,191.86 and soared more than 400 points.

There was a lot of oomph behind the 400+ point rally as 85.79% of NYSE-traded stocks closed higher for the past 3 days. This is a new record, as the chart below shows, and has been a solid buy signal.

Does this mean the low is in?

The March 24 Profit Radar Report featured the following chart and two Elliott Wave Theory interpretations:

“Black: A 3-wave decline (potentially even 5-wave decline) completed at yesterday’s low. A large rally, possibly even to new highs, is under way.

Yellow: A 3-wave decline completed at yesterday’s low. A wave 4 rally is underway. Waves 4 tend to be very choppy and ultimately retrace around 38.2% of the prior wave 3 (2,542, see Fibonacci ruler), but could also go as far as the 50% level (2,655).”

Short-term, another new low (yellow projection) is still possible, but has become less likely.

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.

S&P 500 Update – Was Risk Flushed Out?

The last S&P 500 update introduced the risk/reward heat map (RRHM), which projected increased risk in January/February (see image below). How exactly the RRHM is produced is discussed here: Risk Reward Heat Map Methodology

The January 15 Profit Radar Report warned that: “Based on our risk/reward heat map, we are approaching a period of increased risk with an initial emphasis on late January.”

Just 4 days later, stocks suffered the biggest pullback since October 2019.

The pullback stopped on February 3, which makes the analysis from the February 2 Profit Radar Report (republished below) all the more interesting:

                                        * * * * *  February 3, Profit Radar Report * * * * *

“Based on preliminary data, 82.85% of NYSE-traded stocks ended Friday lower, the biggest down day since August 8, 2019. The chart below shows various breadth gauges. The bottom graph reflects down days. A cluster of down days (80% or 90%) tends to reflect selling exhaustion and is usually seen near bottoms, so we’ll be keeping an eye on that.

We’ve seen two 80%+/- down days already, so one could argue there’s already a measure of exhaustion.

Almost all of our short-term sentiment gauges perked up nicely and are already showing minor extremes. In times past, readings of similar degree have been enough to mark a bottom. Since we’ve seen some significant optimism extremes at the top, it is quite possible we need some more significant pessimism extremes. This, however, is not required.

The S&P 500 closed right on the green support trend line, which could be considered the minimum down side target for this pullback. Due to the sentiment extremes at the top and our RRHM, we would like to see lower prices, with 3,190 being the next and 3,130 +/- a more ideal down side target.”

                                      * * * * *  End February 3, Profit Radar Report * * * * *

The S&P 500 spiked 110 point this week. The chart below shows the resistance (red) and support (green) levels mentioned in the February 3 Profit Radar Report.

The S&P tagged the minimum down side target, which was based on a trend line going back to 2016. The S&P failed to reach the ideal target, which was based on a trend line going back to 2007, and would have reflected a more proportional correction.

Resistance is still at 3,336. A break above 3,336 would allow for a move to next resistance, but the CBOE equity put/call ratio is getting dangerously low once again, and the RRHM suggests we may not be out of the woods yet.

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.

S&P 500 Update: Epic Tug-of-War

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.”

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.

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 continuously updated heat map is available via the Profit Radar Report.

Technical Analysis

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.

Comprehensive S&P 500 Update

The S&P 500 has arrived at major trend line resistance (see chart). Will it relapse lower or climb above?

To answer this question, we’ll look at various indicators:

  • Investor sentiment
  • Market breadth & liquidity
  • Seasonality & cycles
  • Technical analysis

Investor sentiment – Obsession with Recession

The August 25 Profit Radar Report pointed out various bearish sentiment extremes – including that google searches for ‘recession’ spiked to the highest level since 2008 – and warned that stocks are likely to rally to flush out investors’ obsession with recession (for more details and chart go here: “Today’s stock market pessimism is a reliable sign of a stock market rebound“).

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.

The >150-point rally since certainly alleviated recession fears and turned investors more bullish.

The chart below plots the S&P 500 against 6 longer-term sentiment gauges.

The second chart plots the S&P 500 against 4 shorter-term sentiment gauges.

Sentiment summary: Sentiment is not frothy enough where it eliminates the possibility of further gains, but it now is more of a headwind than tailwind and more likely to curb gains and cause a pullback.

Market Breadth & Liquidity

The S&P 500 reached new all-time highs on four of the last eight trading days (November 5 – 14). But, on six of the eight days, more stocks declined then advanced.

There’s weakness ’under the hood,’ and it caused a number of bearish divergences shown on the chart below.

Bearish divergences can be erased quickly, but while they exist, they reveal a measure of weakness often seen prior to pullbacks.

Seasonality & Cycles

In terms of seasonality, the S&P 500 has passed the riskiest period of the year. However, cycles do not agree with the bullish year-end seasonality.

Technical analysis

The chart below highlights all the levels highlighted by the recent Profit Radar Reports:

  • Blue trend line: Potential resistance, but move above will lead to test of purple trend line
  • Purple trend line: Potential resistance, but move above will unlock higher targets
  • Red trend line: Potential resistance, but move above allows for further gains.
    Although the yellow triangle formation cautions that a move above red trend line resistance will not last.

Initial target for any pullback will be the purple trend line. A break below the purple trend line is needed to get lower targets.

Summary

The S&P 500 is at red trend line resistance. A temporary move above (post triangle spike) seems likely, but the risk of a relapse and test of purple trend line support (at minimum) is high. A break back below red trend line resistance (assuming there will be a spike above it) is needed to signal a reversal.

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.

S&P 500 Update – Trading Range Breaks

Sunday’s (September 29) Profit Radar Report concluded that: “If 2,938 breaks, the S&P 500 may quickly drop to 2,890 and potentially 2,820.” On Tuesday the S&P closed at 2,938 and yesterday/today fell as low as 2,855.

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.

This was one of the easier short-term setups, but how does this breakdown fit into the bigger picture?

Bigger Picture

The September 15 Profit Radar Report featured the chart below, which showed that S&P 500, Russell 2000 and Dow Jones Transportation Average were at key resistance.

One major financial news website declined to publish the chart and story because “it doesn’t say much.” I politely disagreed, because the message – although not sensational – was profoundly simple and important:

Don’t buy stocks while three major indexes are below resistance and still have to prove themselves. Or, as the September 15 Profit Radar Report put it:

While below 3,045, we allow seasonality and cycles to pull stocks back down. A move below 2,945 is needed for lower targets though.”

Down-turn Confirmed?

Does the drop below 2,945 confirm a new down-turn?

We are getting close, but as mentioned in yesterday’s Profit Radar Report, we need another up/down sequence. How come?

The dashed blue lines below highlight recent directional moves. None of them (rallies and declines) unfolded in a discernable 5-wave pattern. According to Elliott Wave Theory, 5 wave moves identify the prevailing trend. The lack of 5-wave moves explains why the market has been range-bound rather then trending.

On a smaller scale, the decline from the September 19 high appears like only 3 waves, thus far. Another up/down sequence (waves 4 and 5) would make for a small 5-wave decline and increase the odds of a trend reversal (a projection of the ideal next move was published in yesterday’s Profit Radar Report).

Until that happens, we note that the S&P 500 is near support, getting over-sold and ready for a bounce (the up portion of the up/down sequence?).

There is another simple reason why I want to see a clear 5-wave move lower before getting more bearish: The August selloff triggered a number of sentiment extremes usually seen near a bottom, and the subsequent rally triggered a number or breadth and momentum signals usually indicative of further gains.

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.

S&P 500 Update – Big Fake or Little Fake?

As mentioned in the last S&P 500 update we were looking for stocks to continue lower into the next target/inflection zone, which was around 2,740 (May 29 Profit Radar Report: “We expect 2,740 – 2,720 to be reached. From there, a larger bounce may develop.”).

Sunday’s (June 2) Profit Radar Report featured the chart below and stated that: “S&P 500 Futures are down some 15 points in Sunday night’s session and already reached their first target. Aggressive investors afraid of missing out on a bounce (which could turn into something more) may put some money to work.”

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.

This bounce happened, and it happened quickly and honestly stronger than I expected.

Big Fake or Little Fake?

Now the question is: Will stocks relapse or continue to new all-time highs?

The chart below shows that the S&P 500 fell as low as 2,728.81 on Monday. This drop closed the open chart gap at 2,744.13 and tagged Fibonacci target at 2,739.45, where wave c = wave a (a common target for waves c). The open chart gap at 2,851.11 is the next up side target (I wrote about the power of chart gaps here last week).

In terms of breadth, this week’s market action was bullish. Despite Monday’s 6-point drop, 65.03% of NYSE stocks advanced (strength ‘under the hood’), and on Tuesday, 81.48% of NYSE stocks advanced.

The horizontal blue line helps us determine other times when more than 80% of stocks advanced. In general it’s been a positive (green lines), but there’ve been false signals as well (May 16, red line and October 16, 2018, not shown).

So Tuesday’s strong up day is positive, but not an infallible buy signal.

I still prefer for this rally to relapse. The question is how high it will rally and relapse (big fake, or little fake). The June 2 Profit Radar Report outlined the 4 most likely paths going forward. One was already eliminated by this week’s action. That leaves three. Continued updates, projections, and 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.

 

S&P 500 Update

Last week, the Profit Radar Report stated that: “We would be interested to buy if the S&P 500 drops below 2,810 and subsequently rallies back above 2,830. Although we don’t know how much the S&P would rally, we want to have some skin in the game.”

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.

Considering that the S&P closed at 2,891.31 last Friday, a buy limit at 2,810 seemed ridiculous, but Monday saw the S&P drop 90 points.

Here is why 2,810 was an important level to watch:

  • Long-term trend channel support (going back to 2009)

  • Short-term trend channel support

On Monday (May 13), S&P 500 Futures briefly dipped below and right away snapped back above the lower trend channel line (at 2,810, green arrow). This price pattern along with the bullish RSI-35 divergence suggested some kind of low was struck.

Based on Elliott Wave Theory, this bounce should run into trouble somewhere around 2,900.

Price and momentum studies are not nearly as bearish as Elliott Wave Theory, so stocks could also move higher than expected.

The elevated CBOE Equity Put/Call Ratio (5-day SMA currently at 0.76, see chart above) certainly allows for further up-side (readings above 0.7 are generally seen near lows).

Regardless of the longevity of this bounce, the reversal at the long-and short-term trend channels at 2,810 provided an opportunity to gain some exposure at low prices (our actual buying price ended up being 2,820.21), which is better than being tempted to chase price at higher and riskier levels.

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 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).”

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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.

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