S&P 500 And Bitcoin Update


Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on October 7, 2021. If you’d like to sign up for the free e-newsletter, you may do so here (we will never share your e-mail with anyone, just as we don’t accept advertising).

I shared the following chart in Sunday’s Profit Radar Report to show that most breadth measures (NY Composite advance/decline lines, new 52-week highs – lows) did not confirm a breakdown (see triangles).

Sunday’s conclusion – based on the above and other facts – was this:

Near-term resistance is around 4,380 – 4,400 followed by 4,440 +/- 10. We are allowing for the open chart gap at 4,436.19 to be filled, but a close above 4,450 – 4,470 would reduce the probabilities of a deeper down turn.”

As the chart below shows, the S&P is within striking distance of the open chart gap (dashed purple line) and now back above the bold trend line (which goes back to 2018) and the 18-day SMA. A close back above the 18-day SMA has ended the last 3 pullbacks.

If bears don’t step up soon, they’ll have fumbled another chance to take control at least for a little while.

On a slightly different note, over the past several weeks, the S&P 500 and VIX have delivered readings that also appeared prior to every major market top over the past 20 years.

Purely mathematically, the ‘meltdown risk’ came out to be 33.75%. A detailed explanation was published here, but, the risk comes with an important ‘but’ and unfortunately not all charts made it.

Bitcoin Futures soared from 41,000 to 56,000 over the past week. The Elliott Wave count first shown in the September 22 Profit Radar Report explains the surge.

Continued updates, out-of-the box analysis and forward performance based on historic precedents are available via the Profit Radar Report

The Profit Radar Report comes with a 30-day money back guarantee, but fair warning: 90% of users stay on beyond 30 days.

Barron’s rates iSPYETF a “trader with a good track record,” and Investor’s Business Daily writes “Simon says and the market is playing along.”

Gotcha! Stocks Did it Again

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on September 23. If you’d like to sign up for the free e-newsletter, you may do so here (we will never share your e-mail with anyone, just as we don’t accept advertising).

The Risk/Reward Heat Map (RRHM), featured in the September 6 Profit Radar Report (and re-posted below), showed an elevated risk level for September, and we saw the biggest pullback in over a year (5.28% peak to trough for the S&P 500).

Monday’s decline, the biggest one-day drop since May 12, moved a couple of big forecasting services to call this bull market ‘confirmed over.’

While the risk was ‘on schedule,’ I didn’t – I couldn’t – call the bull market over or even presume further losses. Here were my three reasons for giving bulls the benefit of the doubt:

– The S&P 500 still closed above key long-term support levels

– The decline unfolded in only 3 waves (wave 3 tagged Fibonacci target at 3,308).

– Stocks left a massive open chart gap

In Monday’s special Profit Radar Report update I stated the following:

The S&P 500 decline is best counted as 3 waves. There is a massive open chart gap at 4,427.78 which is highly likely to be closed. The S&P 500 closed above various support levels and is likely to bounce from here.”

The charts below show two long-term S&P 500 support or ‘ditch levels’ (as in: don’t ditch stocks until support is broken).

The next chart shows the 3-wave decline (this is the original chart published in Monday’s Profit Radar Report) and open chart gap (dashed purple line). Also notice that wave 3 tagged the 1.618 Fibonacci extension level (of wave a green line) at 3,308 and that RSI-2 was over-sold.

As of this morning, the gap has been closed and price already overlapped the wave a low (4,435.36), which means a straight-forward, bearish 5-wave decline is no longer possible.

According to Elliott Wave Theory, a 5-wave decline would have indicated a trend change from up to down, while a 3-wave decline is only a counter trend correction.

To be honest, on Monday I thought there’s at least a 50% chance the 3-wave decline in place at the time would tag on waves 4 and 5 and turn into a more bearish 5-wave decline.

A number of analysts projected just that and already called the bull market over, but such conviction without evidence is just wishful thinking. My analysis is certainly not perfect, but I don’t allow it to be clouded by personal expectations.

Based on Elliott Wave Theory, the decline is likely over unless it turns into a more rare and exotic pattern indicative of a trend change.

Simply based on resistance, stocks still could be rebuffed and I mentioned in Sunday’s Profit Radar Report that:

“Bearish September seasonality seems to have gotten a fair amount of media attention. The market may decide to bounce and flush out premature bears.” I suppose the bounce is accomplishing just that.

Continued updates, out-of-the box analysis and forward performance based on historic precedents are available via the Profit Radar Report.

S&P 500: August Highs Make Investors Cry


Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on September 9. If you’d like to sign up for the free e-newsletter, you may do so here (we will never share your e-mail with anyone, just as we don’t accept advertising).

The S&P 500 finished August perched on an all-time high (ATH). In the past, August highs have often made investors cry.

Since 1970, the S&P carved out 12 other August ATHs (it set a 6-year high in 1979 and missed a new ATH by a few tics in 1984). All 14 signal dates (starting with the first day of September) are shown and highlighted below.

It’s tough to cram 50 years of history into one chart, but we can still see that August ATHs preceded some challenging times (i. e. 1972, 1987, 2000, 2014). Let’s drill a bit deeper.

The chart below shows the S&P 500 forward performance starting with the first day of September. The 5 instances since 2000 are shown in yellow, the 9 instances prior to 2000 are shown in gray. 2020 (in red) shattered all precedents with the exception of 1986.

As the performance tracker (bottom table) shows, returns for the next 1 – 3 months have been dismal.

The above study was just 1 of 3 studies published in Monday’s Profit Radar Report, which also featured the latest Risk/Reward Heat Map (a visual tool that shows risk based on 100s of studies).

Stocks have been immune to any kind of risk projection so we need price to verify risk with a drop below support.

Below are some basic levels to help judge risk and reward. The Nasdaq QQQ ETF is up against resistance. It will take a break above resistance to unlock higher prices (perhaps a blow off top).

DJIA is stuck in a potential wedge. A move above and back below upper wedge resistance would be a warning signal, as would be a good close below the lower wedge line.

Monday’s Profit Radar Report showed the below Bitcoin Futures chart and pointed out that price is against resistance while over-bought, which meant short-term risk was elevated. Within hours, Bitcoin dropped 10,000 points, nearly 20%. This general bias is likely positive as long black trend channel support holds.

Continued updates, out-of-the box analysis and forward performance based on historic precedents are available via the

Continued updates and factual out-of-the box analysis are available via the Profit Radar Report

The Profit Radar Report comes with a 30-day money back guarantee, but fair warning: 90% of users stay on beyond 30 days.

Barron’s rates iSPYETF a “trader with a good track record,” and Investor’s Business Daily writes “Simon says and the market is playing along.”

S&P 500 Update

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on August 5. If you’d like to sign up for the free e-newsletter, you may do so here (we will never share your e-mail with anyone, just as we don’t accept advertising).

Please accept my apologies for the lengthy newsletter pause. My brother and I had to go to Germany to take care of some property-related issues.

Thank you for the concern many have shown about the devastating floods. Fortunately those occurred north of where we were, but we feel for many who have lost their homes and lives. This is the view from our balcony after it stopped raining.

I always work remotely and have never skipped a scheduled Profit Radar Report update, but since I didn’t expect any big moves (and nothing changed) there was no absolute need for Market Outlook updates. I hope you are enjoying a good summer (up until today uninterrupted by my e-mails :).

From a timing perspective, the S&P 500 encountered an interesting 114-day turning cycle that’s been working since 4/26/2019. Thus far, the cycles has not been validated nor has it been invalidated, but if the cycle is going to show its teeth it should do so soon.

Two developments I always monitor, especially with the S&P 500 at or near all-time highs, are breadth and sentiment.

The chart below plots the S&P 500 against a variety of breadth gauges, all of which have failed to confirm the latest S&P highs. The bearish divergence between the S&P and the cumulative NY Composite advance/decline lines are considered highly bearish by many analysts.

While the 1987, 2000 and 2007 market tops were preceded by S&P 500 / NYC a/d line divergences, not every divergence causes a major top.

The Profit Radar Report looks at the big picture and now consistently identifies how the market reacted in the past to conditions we see today.

For example, in addition to the bearish divergence, at the July 26 all-time high:

– only 43.62% of volume flowed into advancing stocks

– only 45.75% of NYSE stocks advanced

– NYSE highs outpaced lows by only 1.85%

– 56.31% of stocks traded above their 50-day SMA

– 87.98% of stocks traded above their 200-day SMA

The first 3 data points are based on 10-day SMAs to smooth out outliers. Aside from the 200-day SMA figure, that’s some seriously ‘bad breadth.’

One could (and many do it every day) cherry pick one of the above indicators, look at past precedents, and paint a bearish picture (the percentage of stocks above their 50-day SMA is particularly ominous). But, and that’s a big but, if you you look at all of the above indicators, you get the signal dates below.

Unfortunately those signals dates are neither bullish nor bearish and are not very actionable, so what’s the point?

This knowledge protects us against falling prey to biased, ignorant or fear-mongering analysis.

The latest Sentiment Picture features the same kind of analysis for investor sentiment and shows at what other times the 9 sentiment gauges we monitor stood at levels most similar to today.

In short, based on cycles we are watching if there’s enough weakness to draw the S&P 500 below important support. As long as there isn’t, stocks can continue to grind higher.

Continued updates, out-of-the box analysis and forward performance based on historic precedents are available via the Profit Radar Report

The Profit Radar Report comes with a 30-day money back guarantee, but fair warning: 90% of users stay on beyond 30 days.

Barron’s rates iSPYETF a “trader with a good track record,” and Investor’s Business Daily writes “Simon says and the market is playing along.”

What a 613-Indicator-Based Risk/Reward Tool Says About Stocks in May


The Risk/Reward Heat Map (RRHM) is a complex tool I created to identify whether risk or reward will dominate in any of the upcoming 12 months. I made the Risk/Reward Heat Map available to subscribers of the Profit Radar Report in December 2019. 

As of right now, the Risk/Reward Heat Map is the compound message of 613 individual studies, indicators and signals.

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

Turning individual studies into a forward-looking Risk/Reward Heat Map is a 2-step process:

1) Develop each individual study. Here is how it’s done:

– Identify a unique market development. Example: Last Friday, the S&P 500 and 32% of its component stocks closed at a 52-week (or all-time) high.

– Identify past precedents that meet the same (or similar) criteria. Example: Since 2000, the S&P 500 and >31% of its component stocks closed at 52-week high 7 other times (total of 8 signal dates). The orange line in the chart below highlight all the signal dates.

2) Turn individual study into a forward-looking component of the Risk/Reward Heat Map. Here is how it’s done:

– Calculate the S&P 500 returns and odds of positive returns for 1, 2, 3, 6, 9, 12 months after past precedents (signal dates). Example: After the above-mentioned signal dates, the S&P 500 was down 1 month later 6 times (86%) with an average loss of 2.2% (using only 1st signal in 30 days). 12 month later, the S&P 500 was up 5 times (71%) with an average gain of 10.5%.

– When the odds of positive returns are 80% or higher for a certain month, it is counted as bullish study for that month (+1 is added for that month).

– When the odds of positive returns are 50% or lower for a certain month, it is counted as bearish study for that month (-1 is added for that month). Example: The above study is bearish for June.

The proof is in the pudding

Shown below is one of many bullish studies published in April 2020 (others are available for review here). Explanatory annotations are made in yellow.

The unique development at the time was that the S&P 500 delivered two 90% up volume days (when 90% of volume flowing into advancing stocks) in a 3-day period. 

2 out of 3 90% up days happened 7 other times in the past. The colored graphs show returns after the 7 prior signal dates. 

The performance tracker (table at bottom of chart) shows that returns for the next 3, 6, 9, 12 month were wildly bullish with 83% – 100% odds of positive returns. +1 (bullish odds) were added for the months of July 2020, October 2020, January 2021, April 2021.

Repeating the above process of identifying a unique event and its precedents and then cataloguing forward returns 613 times results in the up-to-date Risk/Reward Heat Map. 

Does the Risk/Reward Heat Map work?

The chart below plots the S&P 500 against net signals (bullish – bearish) since inception, which allows us to visually assess if the Risk/Reward Heat Map works. 

The outright bearish implications for January/February/March 2020 (red columns) were echoed by the stock market during the February/March 2020 meltdown.

Starting in March 2020, the vast majority of studies implied significant future reward with little risk (green columns). 

Throughout 2020 and 2021 there were only a few periods of weakness, and all of them occurred when the number of bullish studies was less than 20 (orange bars). 

Sell in May and go away?

For May, the Risk/Reward Heat Map is in caution mode, and the May 3 Profit Radar Report warned that: “May continues to be a pressure point, resistance in terms of time.”

The Risk/Reward Heat Map is unique because it’s actually a predictive forward looking tool. To filter out false signal, I use real time data to validate the Heat Map’s message. Right now, it will take a good close below 4,090 to unlock a deeper pullback.

The Risk/Reward Heat Map is constantly updated and shows riks/reward for each of the next 12 months. The Risk/Reward Heat Map is available to subscribers of 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. 

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

Earnings, and one Famous Wall Street Adage to Ignore

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. This market outlook below was sent out on April 29. If you’d like to sign up for the free e-newsletter, you may do so here (we will never share your e-mail with anyone, just as we don’t accept advertising).

There’s a Wall Street adage that says: “Never short a dull market.”

Boy, has it been a dull market. One way to spot a dull market is when you don’t receive a Thursday e-mail from me (like last Thursday). This may be silly, but I respect people’s inboxes and only send out updates when I feel like there’s something worth writing (or when I didn’t send one out last week).

Anyway, is the adage never to short a dull market true?

First, let’s define dull. From Monday – Wednesday the S&P 500 average maximum daily percentage change (based on closing prices) was 0.09%. Yeah, let’s call that dull.

The yellow lines in the chart below mark every time (since 2014) when the maximum daily % change (3-day SMA) was 0.10% or less (we’ll call this the signal).

Although this week was the first signal since 9/19/2019, it happened many time before. Throughout 2017, it was a good idea not to short a dull market, but shorting a dull market 2014 – 2016 would have yielded positive short-term returns most of the time.

In short, it’s better to know the facts than trust an adage. That’s, by the way, what the Profit Radar Report is all about, getting the facts of what’s really going on.

Talking about facts, the stock market has delivered some rare phenomena recently, like:

– Very bullish breadth readings and all-time highs

– Incredibly low volume

I wanted to find out:

  1. If breadth has gotten so good (too good to be true) that it’s actually a negative
  2. If new all-time highs on record low volume are bearish for stocks.

My findings along with S&P 500 forward returns after similar setups in the past are available here: What are the Implications of Rare Stock Market Phenomena?

The April 15 Free Market Outlook highlighted shorting TSLA as the new FOMO trade. The entire April 15 Market Outlook along with the rationale to short TSLA was posted here.

The chart below shows how TSLA has done since I recommended shorting it on April 14. What’s real ‘curious’ is that TSLA’s decline accelerated after it delivered a solid earnings beat.

This is one reason why I tend to ignore earnings. Two, even better reasons, (one of them being the Buffett Indicator) for ignoring earnings – and perhaps more importantly sky high valuations – are discussed here: 3 Reasons for Ignoring Earnings and Valuations

Continued updates, out-of-the box analysis and forward performance based on historic precedents are available via the Profit Radar Report.

The Profit Radar Report comes with a 30-day money back guarantee, but fair warning: 90% of users stay on beyond 30 days.

Barron’s rates iSPYETF a “trader with a good track record,” and Investor’s Business Daily writes “Simon says and the market is playing along.” 

What Are the Implications of Rare Stock Market Phenomena?


‘Knowledge is power’ is one of my favorite truisms, and I want to empower my subscribers. To do that, I’ve beefed up the research presented via the Profit Radar Report.

‘Beefing up,’ to me, means extracting and presenting facts few investors are aware of.

Here are a couple examples of what I mean:

On April 8, the stock market delivered the following trifecta:

 – >90% of S&P 500 stocks closed above their 50-day SMA

 – >90% of S&P 500 stocks closed above their 200-day SMA 

 – >7% of NYSE stocks set new 52-week high

This is an amazing feat of strength. The question is: How amazing? And is that good for stocks … or too good to be true?

The chart below, published in the April 12 Profit Radar Report, identifies when and how often the above conditions existed before.

Barron’s rates iSPYETF a “trader with a good track record,” and Investor’s Business Daily writes “Simon says and the market is playing along.”

The chart outlines how rare this trifecta is, but it’s hard to discern detailed forward performance on a 20-year chart.

The performance tracker, included in the same update and shown below, graphs S&P 500 forward returns for 1 year after the first signal of each cluster (called the signal date).

The table at the bottom of the chart shows average returns and the percentage of positive returns after 1, 2, 3, 6, 9, 12 months.

A sample size of 4 is not huge, but there are a couple of common themes:

1) Returns for the first few months were rocky

2) Any gains were given back about 5 months later (dashed red line)

But, there is another interesting wrinkle to the ‘trifecta feat of strength.’ April trading volume has fallen off a cliff.

Are new all-time highs on low volume bearish?

To find out what history says, the April 18 Profit Radar Report identified current markers and searched for historic parallels. Here are last week’s markers:

  1. S&P 500 at all-time high
  2. NY Composite a/d line (cumulative) at all-time high
  3. NY Composite OCO a/d line (cumulative) at all-time high

But:

 – NYC trading volume more than 20% below its 200-day SMA

 – Volume of advancing stocks less than 56%

The orange lines in the chart below highlight when the above conditions existed. Again, we are looking at a rare constellation with one common eventuality: Further gains were possible, but given back at some point over the next few months.

Shown above are only two of dozens of studies conducted every month.

My first step is always to find the common theme conveyed by each individual study. The next step is to find the common theme conveyed by all conducted studies.

The Risk/Reward Heat Map (RRHM) is a simple visual aid that identifies future periods of risk or reward conveyed by hundreds of individual studies.

The RRHM is available for free to subscribers of the Profit Radar Report (you can read more about it here).

No amount of knowledge can consistently predict stock market movements, but a fact-based approach assures that every decision is an educated decision, a decision that tilts the odds in your favor.

The world has never been more uncertain. Get the facts you need to make decisions you can feel good about. Get 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. 

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

Is Boring Grind Higher the Calm Before Storm?


S&P 500 and Dow Jones price action has been remarkable in many ways. I wanted to find out just how remarkable when viewed in the context of history. Here is how the recent price action stacks up (information below was published in Tuesday’s Profit Radar Report):

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

Last Friday, the S&P 500: closed at an all-time high, which was 13.4% above its 200-day SMA, which was confirmed by the cumulative NY Composite advance/decline lines (a measure of liquidity). The same may happen again today. The yellow lines in the first chart below show other times that’s happened. Never (aside from the most recent cluster).

We can’t learn much from a sample size of 1, so let’s loosen our filter to see how big of a sample size we get. 

The next chart highlights periods when the S&P 500 closed more than 13% above its 200-day SMA.

Now we have too big of a sample size. If we restrict the criteria to catch only those times when the S&P 500 traded >10% above its 200-day SMA while at an all-time high (confirmed by the cum NYC a/d) we get the following hits.

In an attempt to identify breadth readings and price action comparable to current, we’ll now adjust the parameters to show times when the S&P 500 traded >13% above its 200-day SMA while the cum NYC a/d line was at an all-time high. There are only 3 other clusters in the past half century. The first of the most recent signal cluster triggered on 11/16/20.

Tuesday’s Profit Radar Report shows exactly how the S&P 500 did after the first signal date of each cluster (see above chart). This performance tracker details the S&P 500 forward performance after the signal date via graphs and tables (detailed returns for the next 1, 2, 3, 6, 9, 12 months along with odds of positive returns).

Of course there are other parameters that could be used to assess and compare the current market. Monday’s Profit Radar Report, for example, identified other times when more than 90% of stocks trade above both their 50-and 200-day SMA while more than 7% of stocks trade at a 52-week high.

Obviously history does not repeat itself, but it provides insight on how price (which is a reflection of investors, which is based on crowd behavior) reacts in certain situations. Examining historic precedents often reveals recurring patterns useful in assessing what’s next.

Continuous updates along with the performance tracker of similar precedents 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. 

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: Will Excess Hopium Spark 2020 Replay?


Different year, same path. Below is a S&P 500 comparison between the first 18 trading days of 2020 and 2021.

It’s probably no coincidence that both years started with an epic tug-of-war. The tug-of-war leading into January 2020 was described here and the tug-of-war leading into 2021 was described here.

This seems like a crazy question, but based on the eery January similarity, one worth asking:

What are the odds of 2021 being a 2020 replay?

There are different ways of looking at this. 1) Based on historical precedents and 2) Based on the most recent developments.

Historical Precedents

Shown below is the S&P 500 performance of the years that most closely resemble the path of 2020. No doubt 2020 was more extreme than any other year, but the general trajectory of 1980, 1997, 2003, 2009 was pretty darn close that that of 2020.

Here is where it gets interesting: The next chart shows the performance of the years that followed: 1981, 1998, 2004, 2010. Here are two key takeaways:

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  • There was no repeat of the prior year’s path
  • Any gains were given up by August

Most Recent Developments

Sunday’s (January 24) Profit Radar Report featured the chart below and warned that: “The S&P 500 is at double trend channel resistance and the 138.2% projection level mentioned in the 2021 S&P 500 Forecast. There are RSI-35 divergences at multiple degrees and the cumulative NY Composite a/d line did not confirm Thursday’s all-time high. Stocks are near an inflection zone that could spark a pullback. For the S&P 500, that inflection/resistance zone is 3,850 – 3,880.”

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

One swallow doesn’t make a summer, and one down day doesn’t make a bear market. Tuesday was a big down down day, one that ‘came just in time’ and erased 3 weeks of gains for the S&P 500, but it wasn’t more then that. Not yet.

Based on the sentiment extremes seen in December and January, the down side potential is much greater, but it will take a break below the two purple wedge lines to do some actual chart damage. 

Yesterday’s Profit Radar Report stated that: “Today’s drop pulled the S&P 500 into a key support zone. RSI-2 is almost over-sold, so a bounce is possible. The weight of evidence, however, suggests more risk ahead, with or without bounce. A break below 3,725 – 3,650 is needed for bears to gain the upper hand.

Summary

Historically, a replay of the 2020 path in 2021 is very unlikely. But the extreme hopium building up in recent weeks makes a bigger correction likely, and the positive breadth readings throughout 2020 suggest a cameback after a correction.

In short, a full 2020 replay is unlikely, but a drop below purple wedge support could spark a nasty drop and subsequent snap back rally, which is the ‘mini-me’ version of what happened in 2020.

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 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. 

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

If you enjoy quality, hand-crafted research, sign up for the FREE iSPYETF e-newsletter & market outlook

S&P 500 Update


Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on January 7. If you’d like to sign up for the free e-newsletter, you may do so here (we will never share your e-mail with anyone, just as we don’t accept advertising).

I enjoy helping people make educated investment decisions. To be educated one needs to have data (=knowledge) and interpret that data without being clouded by emotions or biases.

The Profit Radar Report filters a ton of data in an effort to discern the stock market’s next move. As this newsletter mentioned, there are times when future implications of the examined data are pointing in different directions.

This just happened in December. Almost every study based on stock market breadth projected rising prices and almost every study based on red-hot sentiment projected lower prices (I called this an epic tug-of-war).

Many of those studies were published in this December 1 article: Stock Market Risk is Clashing against Historical Strong Reward Potential.

My data-based conclusion at the time was as follows: “Normally the combination of historic investor optimism while stocks are pressing against long-term resistance is a recipe for disaster. But, as the above studies show, strong stock market internals are likely to over-power other risk factors.”

Since December 1, 2020, the S&P 500 has slowly risen from 3,660 to 3,800 … but internal breadth actually deteriorated.

The chart below (published in the December 30 Profit Radar Report) plots the S&P 500 against the NYSE up volume ratio (5-day SMA, which shows how much volume goes into advancing vs declining stocks).

Throughout December, the S&P moved higher while the up volume ratio declined. About 50% of the time that led to an immediate nasty pullback (red bars) but other times price continued higher (green boxes).

Interestingly, investors lost some of their bullishness the last 2 weeks of December (see gray graph, which is a composite of sentiment gauges). In other words, the tug-of-war tension eased a bit and allowed for further gains.

Even though overall bullish, the Risk/Reward Heat Map just saw an up tick in risk for January and February.

For this risk potential to turn into reality, however, the S&P 500 needs to drop below the green trend line. Price can continue to grind higher as long as it stays above.

Even though 2020 has brought unprecedented stock market action, there are actually a number of years that have shown a very similar general trajectory (see chart below).

The soon to be published 2021 S&P 500 Forecast will show how the S&P performed after years with a similar trajectory.

Continued updates and the new 2021 S&P 500 Forecast are available via the Profit Radar Report

The Profit Radar Report comes with a 30-day money back guarantee, but fair warning: 90% of users stay on beyond 30 days.

Barron’s rates iSPYETF a “trader with a good track record,” and Investor’s Business Daily writes “Simon says and the market is playing along.”