Simple, Common Sense S&P 500 Update

For almost two years, investors were spoiled with low volatility and high returns, but recent market action has rattled the cage.

Will there be more ‘cage rattling!’ If so, how much?

Sometimes a simple common sense analysis is the best one. KISS.

KISS

The February 11 Profit Radar Report stated that: “For well over a year stocks have almost exclusively gone up, slow but steady. For the past two weeks, stocks have gone down quickly. What’s next? The temptation and trap is to think two dimensional – up or down – since that’s most of what we’ve experienced lately. However, stocks could also go sideways for a period of time.”

On March 27, the S&P 500 was less than 7 points away from its February 9 close. Sideways indeed.

The February 11 Profit Radar Report also provided common sense long-term context via the chart and commentary below:

1 – 2 – 3 is how we label the rally from the February 2016 low (according to Elliott Wave Theory – EWT). Wave 3 (wave 5 of wave 3 to be exact) extended much higher than normal (blue box).

Based on EWT, wave 3 is followed by wave 4, which is where we are currently at. Waves 4 are generally choppy, range-bound, long-winded, unpredictable corrections that retrace ideally 38.2% of the preceding wave 3. The 38.2% Fibonacci retracement level is at 2,536.

In terms of price, wave 4 has already reached its down side target. In terms of time, wave 4 would be unusually short.”

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.

Wave 3 lasted almost 15 month (November 4, 2016 – January 26, 2018). The February ‘mini meltdown’ inflicted an 11.8% loss in only 10 days. Is a 10-day pullback commensurate to a 15-month rally? Not really!

The Conclusion (and Solution)

After looking at dozens of different indicators and patterns, the February 11 Profit Radar Report concluded as follows:

We’ve been looking to buy the dip. Is this the dip to buy? When boiling down all our indicators to a few sentences, we find that a bounce from Friday’s (February 9) low is probable. The bounce however may turn into a period of range-bound up-and-down market action, not an immediate directional up move. A path similar to 2011 (retest of original panic low). Hopefully volatility in coming days/weeks will provide a better (lower) entry.”

Find out which low-risk sector ETF the Profit Radar Report recommended on February 11.

The chart below compares the 2011 correction with the 2018 pullback (blue box). In 2011, it took 25 days before the S&P tested (and briefly exceeded) the initial panic low. A similar pattern is developing now.

Here are 3 factors to keep in mind:

  1. This wave 4 correction does not have to exceed the February low to be complete
  2. Due to the duration of the preceding rally, this wave 4 correction could last longer than in 2011
  3. In 2011, it took almost 5 months for the S&P to rally from the its low to a new high

The March 24 Profit Radar Report outlined the ideal path going forward along with target levels and an actual price projection.

Naturally we will be alert for curveballs (one of which is over the top bearish), but if the S&P 500 follows our ideal path reasonably close, it should set up a solid buying opportunity.

Continued updates and 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.

 

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Comprehensive S&P 500 Update

The latest S&P 500 all-time high clocked in at 2,440 as the S&P 500 continues to plow over bearish forecasts

Will the S&P 500 in particular, and stocks in general, continue to slog higher?

Here is our comprehensive forecast based on the “four stock market engines:”

  • Supply & demand (liquidity)
  • Technical analysis
  • Investor sentiment
  • Seasonalities and cycles

Supply & Demand

We first unveiled our favorite liquidity indicator in 2014. This indicator correctly foreshadowed the 1987, 2000 and 2007 market top and – aside from a timely caution signal in 2015 – persistently pointed towards continued bull market gains.

For readers of our free website, we’ve dubbed this indicator ‘secret sauce.’ Why, and how this indicator is used is explained here.

In short, major market tops have been preceded by bearish divergences (S&P 500 rallies to new all-time highs, secret sauce does not).

Throughout 2016 and 2017 however, there’ve only been bullish divergences (secret sauce rallies to new all-time highs, but the S&P 500 lags behind). The last four times this happened was on April 30, and April 9, 2017, September 22, and April 16, 2016 (see green arrows).

Each time the Profit Radar Report stated that: “[Secret sauce] is already at new highs. The S&P 500 will soon follow.”

Secret sauce just confirmed the latest S&P 500 high, which means a major market top is still many months away (this doesn’t mean we can’t see a correction though).

Technical Analysis

The most exotic ‘tool in the technical analysis box’ has also been the most accurate: Elliott Wave Theory. Therefore we will focus on Elliott Wave Theory for this update.

The charts below were initially published in the August 28, 2016, Profit Radar Report, and have been our roadmap ever since as the S&P moves toward 2,500.

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.

We have made some minor adjustments recently, which place the S&P near the beginning of a more pronounced, choppy correction (see ‘we are here’ on top graph). This correction would be labeled as wave 4 (likely intermediate degree).

Despite rising prices, there has been a measure of internal weakness (see chart below). There have been no strong up days (90% days, where 90% or more of volume flows into advancing stocks). The percentage of stocks above their 50-day SMA is also lagging.

This is compatible with a rally that’s nearing a (temporary) point of exhaustion.

Investor Sentiment

The chart below provides a long-term comparison between investor sentiment near the 2007 high and today.

In short, investors are not as euphoric about stocks today as they were in late 2007. Based on investor sentiment, stocks are not at a major market top.

In fact, stocks may still benefit from the pessimistic extremes seen in January/February 2016 (when the S&P traded below 1,900).

The January 29, 2016 Profit Radar Report stated that: “Sentiment turned pessimistic enough to become a bullish tailwind for the coming months.”

Seasonality & Cycles

Cycles project weakness later on in 2017 and seasonality is hitting a soft spot until September/October.

Conclusion

Once the S&P 500 reaches our up side target we will be looking for a more pronounced correction, but not the end of this bull market.

Continuous updates and actual buy sell recommendations (we haven’t had a losing trade since June 2015) are provided 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 Update

This article was published on June 1, 2017 at 9:00am PST on iSPYETF.com

15 points in 12 weeks. That about sums up the S&P 500 ‘progress’ since March 1.

The March 21 Profit Radar Report warned that: “In terms of Elliott Wave Theory, the March 1 high (2,400.98) is a wave 3 high. This means we are in a wave 4 correction. Waves 4 are the most choppy, and unpredictable of all waves. The coming months will likely test investors patience.”

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.

Predicting a ‘go nowhere’ market is no fun, but it helps set expectations and limits frustration.

Even within trading ranges, there are brief bursts where the market telegraphs its next move.

For example: The May 7 Profit Radar Report featured this chart with 3 projections (based on Elliott Wave Theory).

Each option (green, dark blue, and light blue) projected a pullback around S&P 2,410 in mid-May followed by a renewed rally. The pullback happened on May 16, a day after the S&P hit 2,406.

Although this pullback failed to hit our buy trigger (which was set a bit lower), buyers stepped in as anticipated. The S&P has moved as high as 2,419 and is currently held back by trend channel resistance (see chart below).

The rally from the May 18 low at 2,353 seems to support the green Elliott Wave Theory-based projection. If that’s the case, the S&P will continue to move higher.

Although Elliott Wave Theory has been very accurate in recent years (it projected the February 2016 low and the ‘Trump rally’), there are reasons (i.e. lake of breadth, bearish divergences, ATR – see vertical red lines in chart above) to take this bullish Elliott Wave projection with a grain of salt.

Therefore it’s best to play the next moves step-by-step. A move above black trend channel resistance is required to unlock the next up side target (red trend line resistance around 2,430).

A move below 2,400 and 2,380 on the other hand, would seriously rattle the immediate bullish potential.

The longer-term outlook shared in the August 28 Profit Radar Report remains valid.

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.

 

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.

 

S&P 500 Update

Although we are longer-term bullish, we expected lower prices prior to a buying opportunity. The last S&P 500 update highlighted lacking up side momentum and bearish divergences … which caught up with stocks this week.

The Profit Radar Report has been anticipating a ‘flush out’ move below obvious support at 2,120 and stated on October 30 that: “The next possible target for a low is 2,100.”

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.

Why 2,100? An open chart gap at 2,098.70 has been waiting to get filled (dashed purple line).

The October 30 Profit Radar Report stated that: “The preferred scenario would be a quick (perhaps even intraday) washout (to 2,100) that flushes out weak hands and clears the air for a more sustainable rally.”

The emphasis is on quick. On Wednesday the S&P failed to build on the initial recovery from Monday’s lows (right after the open chart gap was closed). While the S&P maintains below resistance (prior support), it’s at risk to fall further.

As green lines in the first chart show, the S&P 500 is oversold (based on RSI-2). Oversold conditions have led to bounces 3 out of 4 times in 2016 (the one failure is highlighted in blue).

Oversold and Overhated

The market is not only oversold, it is also overhated.

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The second chart shows that various sentiment metrics are nearing noteable extremes.

VIX traders believe that longer-term volatility (90 days, VXV) will be higher than shorter-term volatility (30 days, VIX). The VIX/VXV ratio is above 1 for the first time since the Brexit vote.

Also for the first time since the Brexit vote, option traders are nearly buying as many puts as calls The CBOE put/call ratio is one of the highest we’ve seen in the past few years.

Opportunities are Born in Panic

History says that the best opportunities are born in times of panic. Where is maximum panic?

In January the S&P continued temporarily lower despite being oversold and overhated, but eventually rebounded strongly. 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.

The Profit Radar Report nailed the February low (buy recommendation at S&P 1,828 on February 11) and we will try to do the same for the up coming low.

Our focus in the coming days/weeks will be to minimize short-term down side risk without missing the lowest possible entry point to buy.

Continued S&P 500 updates 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 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 Update

A lot has happened the last week or two, and it appears like the S&P 500 has entered the ‘post panic’ stage. Before we discuss the typical ‘post panic’ pattern, here is a brief recap.

On June 9, we went short the S&P 500 at 2,110. This was our insurance trade against lower prices (unlike an actual insurance policy, this trade didn’t cost anything).

On June 19, which was five days before the Brexit vote, the Profit Radar Report was looking for “an early week bounce, followed by a late week sell off,” which is pretty much what happened.

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

Somewhere in between the bounce and sell off is an interesting tale about what happened to our short position. This tale is told here.

The question, after the S&P lost 122 points in three days, is: What’s next?

What’s Next?

The chart below, initially published by the June 19 Profit Radar Report, along with the following commentary, may have the answer:

Based on Elliott Wave Theory, the S&P finished 5-waves up to complete wave 1 on June 8 at 2,120.55. Next should be a wave 2 decline. Waves 2 tend to retrace a Fibonacci 50% – 61.8% of the prior move. The ideal target range for a wave 2 correction is 1,970 – 1,925.”

The S&P 500 has not reached the ideal target zone, but odds are decent it will (eventually).

The June 27 Profit Radar Report painted the following picture: “Two separate price patterns suggest a bounce is brewing. Today’s decline didn’t hit any specific support level, but it closed the open chart gap at 1,992.63. The panic decline is nearing its end. Next should be a choppy bounce.”

It appears like the S&P is now tracing out this ‘choppy bounce.’ Tuesday’s strong surge brought the S&P 500 almost back to 2,040, which was prior support, and is now resistance.

Normally we’d say that a move above 2,040 would unlock further up side (and it probably will), but post panic moves tend to be choppy and unpredictable, likely to seesaw across support/resistance levels.

While the daily price action may become irrational, the Profit Radar Report identified a post panic pattern the S&P adheres to about 7 of 10 times. We discussed this pattern after the initial January panic decline here … and it ultimately helped us to buy on February 11 at S&P 1,828.

Most indicators thus far suggest this post panic pattern will be one of the 7. The latest Profit Radar Report update outlines this specific pattern. Of course, we never completely rely on any particular patterns, but use our indicators to either confirm or invalidate, and adjust accordingly. 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 Update

Last week’s update titled “Bears Get Another Shot at Taking Stocks Down” listed four reasons why bears get another shot and two reasons why stocks may continue higher.

This may sound like a contradiction, but it’s actually not. Basically we were looking for a good low-risk opportunity to go short. The higher stocks go, the better the opportunity (as long as you don’t short too early).

The June 1 Profit Radar Report observed some semi-bullish developments and stated that: “Surprises to the up side – to fool the crowded trade – are possible. The market may be tempted to flush out the ‘June pessimists’ first. That’s why we are very careful about initiating our short-trade.”

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

How exactly does being ‘careful about initiating our short-trade’ look like? We use support/resistance levels to our advantage.

The May 24 Profit Radar Report included the following recommendation:

We will go short if the S&P 500 moves above 2,090 (black trend channel) and subsequently drops below 2,084 (May 10 high). Waiting for a break of momentum (drop from 2,090 to 2,084) against resistance increases the odds of a winning trade. The approximate corresponding level for the ProShares S&P 500 Short ETF (SH) is: A drop below 20 followed by a rise above 20.06.”

The hourly chart below shows why 2,084 was important. A drop back below 2,084 would have triggered our sell, but as the green arrows indicate, the S&P 500 never drop that low. It touched the 2,088 – 2,085 zone four times, but bounced every time.

Anticipation of a potential ‘flush the bears spike’ combined with a carefully placed sell trigger kept us in the neutral zone instead of the losing side.

As the S&P 500 continued to rise, we elevated our sell trigger.

The S&P 500 shows a fairly drawn out bearish RSI divergence on the hourly chart, and – unlike the S&P 500 – the Dow Jones has not yet surpassed its April high.

This rally doesn’t have the typical ingredients for a sustained breakout.

Unfortunately there is no particular stopping point. The May 25 Profit Radar Report stated that: “A move to 2,011+/- or 2,034+/- is possible. Due to the market and Elliott Wave Structure at this time, there is no particular ‘make it or break it’ level.”

This trade is not one to be rushed, but unless breadth picks up, odds continue to favor a reversal lower in the not so distant future.

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.