As mentioned in part I of “How to Outsmart a Choppy, Range-bound Market” (published on March 27), we anticipated a rollercoaster-like stock market.

Our strategy was to look for low-risk opportunities in certain industry sectors.

The April 24 Profit Radar Report stated the following:

The S&P 500 has reached a point where a bounce is likely. It’s possible that the bounce may morph into the next bigger rally. We would prefer to see even lower prices (the lower, the better the risk/reward), but we’re not certain if our wish will become reality.

We’ve been here before (February 8, April 2). Both times the S&P rallied … and eventually pulled back again. In February we bought XLU as a lower-risk bet on equities. Now XLP sports an interesting setup.”

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.

Low-Risk Sector Trades

The Utility Select Sector SPDR ETF (XLU) and Consumer Staples Select Sector SPDR ETF (XLP) were over-sold and over-hated at the time. In addition they were trading against support with bullish divergences. And, paying some of the best dividends in the business didn’t hurt.

We bought XLU on February 12, and sold XLU on April 6 for a 6.16% gain.

We bought XLP on April 25, and sold XLP on May 1 at breakeven.

We again bought XLP on May 31, and sold XLP on July 10 for a 5.50% gain (yes, sometimes it may take two attempts to get it right).

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At no time did XLU or XLP fall below our purchase price, and both trades offered a 11.66% (including dividends) absolutely no risk, no stress return.

The Profit Radar Report continuously looks for low-risk trade opportunities, which includes stocks, gold, silver, oil, currencies. Continued updates and 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, 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 Newsletter to get actionable ETF trade ideas delivered for free.

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S&P 500 Update – Curveball

On June 6, I published a bigger picture S&P 500 outlook. Since this update builds on the June 6 outlook, you may find it helpful to first read the June 6 bigger picture S&P 500 outlook.

For the past few months we’ve been looking to buy the S&P 500 on dips. We bought the SPDR S&P 500 ETF (SPY) on April 3 and May 31.

As mentioned in the June 6 outlook, the May 29 shakeout and May 30 recovery (see chart below) increased the odds that either a low is in place or that a more significant rally is developing. Our upside target mentioned in the June 13 PRR was 2,800 – 2,830.

There was one caveat mentioned in the June 6 outlook (and May 30 Profit Radar Report): “Since the S&P still remains in its larger trading range, it is impossible to confirm for certain that wave 4 is indeed complete. Nevertheless, unless the S&P drops back below 2,700 (and the May 29 low), we will assume that a low is in. Additional support worth watching is around 2,740.”

This week support at 2,740 failed, and the S&P swiftly dropped to 2,700.

Not profitable, but Successful

Our SPY sell limit was waiting at 280.50 (S&P 2,810), but SPY reversed before, and Profit Radar Report subscribers got stopped out of SPY at breakeven (271.25, which correlates to 2,710 for the S&P 500). Although the SPY trade was not profitable, it was a success! Why?

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Business Daily says: “When Simon says, the market listens.”

When the S&P 500 rallied more than 100 points from the May 31 low, we did not feel the need to chase price, because we bought near the low, and had skin in the game. Based on various sentiment readings, many investors suffered from FOMO (= fear of missing out) and bought near the high.

Back to square one. Pause and reset.

The break below 2,740 opens various short-term (and longer-term) possibilities, many of which point to a choppy market.

Evaluate and Cross-check

The chart below outlines 5 possible scenarios based on Elliott Wave Theory (the chart below makes more sense when read in context with the bigger picture S&P 500 outlook). They range from immediately bullish (dark green) to short- and long-term bearish (blue, orange and red).

The Profit Radar Report tends to monitor multiple scenarios and cross-checks them against other indicators (technicals, sentiment, liquidity, seasonality/cycles, etc.) to assess each scenarios viability and probability.

For example, our trusted liquidity indictor already eliminated 2 of the 5 scenarios illustrated above.

In short, we remain in “buy the dip mode,” the question is just how big of a dip we’ll get. For someone who just got stopped out at 2,710, worst case scenario would be a strong, immediate rally (dark green scenario above).

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, 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 Newsletter to get actionable ETF trade ideas delivered for free.

 

S&P 500 Outlook – The Bigger Picture

From the very beginning, we considered the pullback from the January 26 high to be a temporary correction (wave 4 according to Elliott Wave Theory), not the beginning of a new bear market.

The chart below describes the concept of Elliott Wave Theory in simple terms. Here is how the Profit Radar Report describes wave 4 corrections in general:

Wave 4 is the most boring and frustrating of all Elliott Waves. It tends to move sideways with a corrective bias. The market appears to be churning aimlessly, investors lose interest, and trading volume declines. Wave 4 tends to retrace around 38.2% of wave 3.”

The S&P 500 retraced 38.2% of its preceding wave 3 at 2,536 on February 9. Detailed analysis provided by the Profit Radar Report at the time is available here.

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 4 corrections come in many shapes and patterns, that’s why they are so difficult to predict.

‘Buy the dip’ is the most effective approach during a wave 4 correction. The April 2 Profit Radar Report stated that: “The S&P 500 has met the minimum criteria to consider this correction complete,” and offered specific buy recommendations (free reprint of the Profit Radar Reports surrounding the April 2 low is available here).

One of the patterns the Profit Radar Report has been tracking since April is the triangle. The chart below, published in the April 15 Profit Radar Report, showed potential paths inside a triangle. The common denominator among all three options was an eventual rally.

It looks like the S&P 500 chose the blue path.

On May 9, the S&P 500 broke above purple triangle resistance, and successfully back-tested the triangle line (now support) on May 29 (green circles).

The May 30 Profit Radar Report stated that: “Today’s bounce erased all of yesterday’s losses and then some. Although today didn’t qualify as a 90% up day (where 90%+ of NYC stocks advance – a breadth thrust), it displayed the strongest up side breadth we’ve seen in a while. The S&P 500 performance of the last two days increases the odds that a low is in, or at least a more significant rally is developing. Why? Yesterday’s drop may have shaken out ‘weak hands,’ and today’s rally showed internal strength. We will leg into the S&P 500 on a drop to 2,710. Buy SPY if it drops below 271.25.”

It looks like the S&P 500 completed its wave 4 correction, and is now in the early stages of wave 5 to new all-time highs.

At Wednesday’s close, the S&P 500 was near overbought, with the CBOE equity put/call ratio unusually low. This generally translates into a pullback (which may be shallow this time around).

Since the S&P still remains in its larger trading range, it is impossible to confirm for certain that wave 4 is indeed complete. Nevertheless, unless the S&P drops back below 2,700 (and the May 29 low), we will assume that a low is in. Additional support worth watching is around 2,740.

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.

What’s Next: New Highs or Lows?

Even just a quick glance at the S&P 500 chart reveals a tug-of-war between bulls and bears, buyers and sellers. Although there’ve been many – at time violent – swings, there’s been no net progress.

What will we see first, new highs or new lows? Here’s a look at various pieces of market research:

Long-term:

Hypervolatility – April 11, 2018 Profit Radar Report:

What a contrast: In 2017, the S&P 500 swung more than 1% on only 10 days. That’s measured from daily high to low, not open to close. In 2018, the S&P 500 had already 41 daily swings of more than 1%.

Below is a closer look at actual volatility, not the VIX. The first chart plots the S&P 500 against the daily percentage change measured from high to low (gray graph) along with a 20-day SMA of the daily percentage change (blue graph).

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.

In February, the daily swing range was nearly as big as in September 2015 and January 2016, which is when stocks bottomed. Back then, volatility came and went quickly (like the shape of a ‘V’). This time around, volatility is lingering longer.

The second chart provides a long-term perspective, which includes the 1974, 1987, 2002, 2007, and 2011 market lows. Back then, daily swings (20-day SMA) peaked around 4%, twice the current average of around 2%.

Based on positive liquidity (NYC a/d line) and the parallels to 2011, it’s unlikely that the daily swing range will double from 2% to 4% as stocks melt lower.

The main takeaway is that volatility extremes are usually seen towards market lows.”

Elliott Wave Theory (EWT) – February 11, 2018 Profit Radar Report:

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.

The weekly S&P 500 chart provides some long-term perspective. 1 – 2 – 3 is how we label the rally from the February 2016 low. Wave 3 (wave 5 of wave 3 to be exact) extended much higher than normal.

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 (reached on Friday).

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

Liquidity – April 18, 2018 Profit Radar Report:

On the bullish side of the ledger, we find that the NY Composite advance/decline line (and NYC OCO a/d line) made new all time highs. This follows the bullish divergence noted in the April 4 PRR.

Long-term summary:The weight of evidence suggests that this correction will be temporary and followed by new all-time highs. But how much longer will this correction last and how low can it go?

Short/Mid-term:

Breadth – May 2, 2018 Profit Radar Report:

As early as February 11, the Profit Radar Report expected a frustrating, drawn out correction like in 2011. There are many parallels between the 2011 and 2018 correction, but here is one difference:

In 2011, there were multiple strong up days (where more than 80% or 90% of stocks advanced – green lines), and strong down days (where more than 90% of stocks declined – red lines).

The strong down days exhausted sellers, and the strong up days indicated internal strength not yet reflected in price.

The 2018 correction is much different. There’ve been only two days that come close to be considered a 90% down day, and only one 80% up day.

To end this sideways range, it appears that either more 90% down days or 80%-90% up days (like in October 2011, see green arrow) are needed. Ideally we’d like to see both, first a bout of strong down days followed by strong up days.”

Seasonality, cycles, pattern – May 6, 9, 2018 Profit Radar Report:

Based on mid-term seasonality (blue graph, chart below), the S&P has a tendency to bottom between late June and late September. Cycles are fairly similar to seasonality at this time.

Year-to-date the S&P is down 0.38%. Since 1950, the S&P 500 showed at loss of 1% (but no more than 5% below 200-day SMA) after the first 4 months 17 other times.. 6 of those 17 instances occurred in mid-term election years (like 2018). The average full-year performance is shown below (average bottom: trading day #193).”

Summary:

The April 2 Profit Radar Report (when the S&P 500 closed at 2,582) stated that: “The S&P 500 has met the minimum criteria to consider this correction complete. There is, however, a difference between minimum and ideal.”

The S&P continues to be stuck in the ‘twilight zone between minimum and ideal.’

Short-term, the May 13 Profit Radar Report probably defined it best: “The S&P 500 broke above triangle resistance. Although we view this breakout with a fair amount of skepticism, we need to allow for higher prices while trade remains above 2,700. Due to the overbought condition, it is unlikely for the S&P to move above 2,750 early this week.”

Continued updates will be 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 – Know What to Expect

It’s said that we shouldn’t blame others for disappointing us, but to blame ourselves for expecting too much. The same is true for the stock market.

Expect the Unexpected

Many investors have become disenchanted as stocks are stuck in a rut. But the market always does what it does, it’s our job to manage what we have control over; our expectations. Thanks to the media and their sensationalistic headlines, investors have been waiting for either a crash or the next rally. For example:

CNBC: Market volatility is reminiscent of the 1987 crash – April 5
CNBC: Stock market looks ‘pretty fantastic’ – April 23

Headlines like: “Correction will continue,” simply don’t capture eyeballs or sell newspapers. The Profit Radar Report’s job is to give subscribers an idea of what’s ahead, not to wow them with catchy (but unrealistic) predictions.

Boring Truth

Back on February 11, the Profit Radar Report warned of extended sideways action. In fact, a multi-month range-bound chop fest was the most logical scenario (why was explained in detail here). This turned out to be the boring truth.

In early April, the S&P 500 got close to our ideal requirements for a sustainable low. Although the Profit Radar Report recommended to buy the SPDR S&P 500 ETF (SPY) on April 3 (when the S&P traded around 2,580), we didn’t fully trust that low (the actual Profit Radar Report updates surrounding the April 2 low have been made available for review here).

Following the April 2 low, the S&P 500 rallied more than 250 points, but there were still doubts about the rally’s longevity. The April 15 Profit Radar Report stated that:

Price continues to grind higher, but it’s doing so without real conviction. The chart below shows the 3 most likely scenarios going forward:
1) Drop towards (and below) 2,533, followed by the next rally leg (red).
2) Blue diagonal: Grind above S&P 2,700 followed by another pullback and next rally leg.
3) Purple triangle: Continued range racing and eventually the next rally leg.”

Although the exact path was unknown, all 3 scenarios had one thing in common:

S&P 500 pullback into a (hopefully) more sustainable low. That’s why the Profit Radar Report stated: “We want to buy into weakness rather than chasing stocks.”

The weakness materialized. The question is how much more weakness we’ll see.

At this point we are assessing the odds of each scenario, but one thing is for certain:

The lower the S&P drops, the better the risk/reward potential investors going into the next rally leg.

Short-term, the S&P 500 is nearing trend channel support while oversold.

Continuous S&P 500 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.

 

Free Access to the Profit Radar Report

For the first time ever, anyone can get FREE ACCESS to the Profit Radar Report. The last 6 complete Profit Radar Report updates covering the S&P 500, Dow Jones, Nasdaq, XLU, US dollar, EUR/USD, gold, silver, and 30-year Treasuries, TLT are available here. Enjoy!

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.

April 4, 2018 (6:00pm PST)

Yesterday’s PRR stated that: “We will set our stop-loss at breakeven. If SPY gaps below 258.87 in the morning, we will keep our stop-loss at 256.”

Since SPY gapped lower and opened at 256.75, we set our stop-loss at 256. After another 200-day SMA seesaw, SPY closed at 263.56. We will now raise our stop-loss back to breakeven (258.87).

Monday’s PRR mentioned that the NY Composite a/d line is still above its February and March lows. The chart below provides more details. From March 23 – April 2, the S&P 500 drifted lower, while the NYC a/d line inched higher. This bullish divergence suggests that selling pressure is abating.

This fact, in addition to the S&P 500, DJIA and Nasdaq-100 hitting our down side targets and/or support (March 28 PRR) contributed to the SPY buy signal.

However, bullish outlooks are rare. In fact, some Elliott Wave Theory analysts are vehemently bearish, which is reminiscent of early March, when the March 7 PRR published the chart below and stated:

This is one of those times where it’s dangerous to rely solely on Elliott Wave Theory (EWT). Some EWT analysts currently advocate a 1 – 2 constellation to the up side (green labels), others a 1 – 2 to the down side (red labels). “1 – 2” meaning waves 1 and 2 are complete (or nearly so), with a powerful wave 3 (up or down) to follow, essentially EWT analysts expect either a melt-up or melt-down. We know at least one group will be wrong.

The path that would make most sense (in terms of fulfilling more indicators/patterns than the other paths) is continued range racing, an eventual re-test of the February panic low (blue box), and subsequent rally to 3,000 +/- (blue labels, or scenario #2 shown in the February 28 PRR).”

Our indicators supported the blue path weeks ago, and continue to do so (with or without another drop to 2,530 – 2,460).

However, we wanted to let subscribers know that we always monitor various developments, and if our indictors change (i.e. an increase in selling pressure or emergence of bearish divergences) we will have to adjust accordingly.

Currently we want to have some ‘skin in the game’ if stocks continue higher, but will continue to manage risk.

The DJIA may have finished the 5-waves lower shown in the March 28 PRR. The chart below shows some short-term resistance levels: Red line: 24,300. Trend channel: 24,700.

XLU continues to gnaw on resistance around 51. The pattern of this rally is not exactly bullish, but nevertheless continues to make higher highs and higher lows. RSI-35 is positive, on balance volume not (yet?). The near overbought RSI-2 condition has been digested. We will still close XLU if it moves above 51. XLU could be tracing out a messy triangle with support around 50 or 49 and resistance at 50.80 – 51. Our entry was on February 12 at 48.40.

Summary: Some bullish divergences are building, which is positive. The S&P closed today at minor resistance around 2,644. A move above 2,644, followed by 2,695 – 2,700 would increase the odds that a bottom is in.

The US Dollar Index has not moved for the past 4 days. The March 27 low at 88.942 remains key. As long as trade remains above, the US dollar can continue to move higher. The EUR/USD remains still above 1.2240. A move below 1.2240 may well usher in a protracted decline.

Gold bounced from the 61.8% Fibonacci support level, but that bounce has been feeble. On balance volume remains weak.

Silver is trading uninspired between support and resistance.

April 3, 2018 (10:00pm PST)

Our SPY buy order was triggered today at the open (258.87), which was above 258.10 but below 259. SPY closed 260.77, about 0.7% above our entry. The question is whether we want to limit risk and set the stop-loss at breakeven, or give SPY a longer leash.

The March 24 PRR stated: “The 200-day SMA is too popular for its own good, that’s why we rarely talk about it (aside from February 5, because it coincided with important Fibonacci support at 2,536). On February 9, the S&P 500 briefly tested the 200-day SMA, and bounced 269 points. Now the S&P is back at the 200-day SMA. It would almost be too simple if the S&P again bounces 200+ points after hitting the 200-day SMA (as it did in early February). With or without small bounce, a 200-day SMA seesaw seems more likely.”

The S&P 500 (and SPY) closed below the 200-day SMA yesterday and back above today. This seesaw stopped out a large number of 200-day SMA focused investors. We wanted to see a minimum of one seesaw, but more are possible.

Today’s rally gives us the luxury to ‘play with house money.’ Although risk of another seesaw across the 200-day SMA (which is only 0.10 points below our breakeven point) exists, our first consideration is usually safety. We will set the stop-loss for SPY at breakeven. If SPY gaps below 258.87 (S&P 500 futures are down 7 points in after hours trading), we will set the stop-loss at 256.

Investors more afraid of missing out on potential up side than being concerned with down side risk, may keep SPY without stop-loss.

April 2, 2018 (7:30pm PST)

Tonight’s PRR includes an update to the open SPY recommendation.

For the past 7 weeks we’ve frequently referred to our preferred, or ideal path for the S&P 500 going forward. The February 11 PRR suggested a path similar to 2011, and the February 19 PRR reiterated that: “We would like to see a retest of the panic low (W-shaped recovery) like in October 2011 or September 2015.”

The W-shaped recovery (wave 4 correction according to Elliott Wave Theory) was identical to scenario #2 outlined in the February 28 PRR or the blue path featured in the March 7 PRR.

On March 19, the wave 4 scenario (similar to 2011, or scenario #2 or blue path), which required a test of the initial February panic low at 2,533 became our primary focus (March 19, PRR: “The blue wave 4 projection (March 7 PRR) and scenario #2 (February 28 PRR) is now the preferred path.).”

The chart below compares the 2011 correction (and subsequent rally) with the 2018 correction. Today the S&P dropped below 2,590 – 2,575 (March 28 PRR: “We would still like to see a drop below 2,590 – 2,575.”) and came within 21 points of the February panic low.

The S&P dropped below the 200-day SMA (for the first time since June 27, 2016), but closed 0.88 points above the February 9 closing low. Although RSI-35 is stronger than price, it would take a new S&P closing low to call this a bullish divergence. However, the RSI margin is so slim that an immediate S&P drop lower could erase any bullish divergence.

Below is an updated look at short-term sentiment extremes. All VIX-and option-based sentiment gauges had an uptick in bearishness, but not extreme. The green bars highlight the last two W-shaped corrections. Panic readings only occurred on the initial low (left W wing). The same is true this time.

80% of NYSE stocks closed the day lower, but the NY Composite a/d line is still above its February and March lows.

Our two-prong SPY buy recommendation required: 1) a drop below 256.25 and 2) a subsequent rally above 258.10. The chart below shows the 256.25 and 258.10 level. SPY did not meet both qualifications. The SPY buy order was not triggered. See summary section below for update SPY buy levels.

Unlike the S&P 500, SPY closed below its February low and displays a bullish RSI-35 divergence.

The same is true for the DJIA (new closing low, bullish divergence).

As anticipated, double support around QQQ 154.50 acted as magnet. QQQ fell as low as 153.88, but closed at 155.51. Even though QQQ remained above its February low, RSI-35 and on balance volume are at or below February level. Not bullish.

Summary: The S&P 500 has met the minimum criteria to consider this correction complete. There is, however, a difference between minimum and ideal. The ideal target is 2,530 – 2,460 (see chart below published in the March 24 PRR). S&P 500 futures are up 10 points in after hour trading. At current price, the S&P 500 would open above its 200-day SMA. SPY would gap higher an open above 258.10. It would take at least a 130-point rally to get an initial confirmation that the bottom is in. Since there is a chance the S&P won’t drop into our ideal down side target, investors may need to ‘pick their poison.’

1) Be early and risk further losses

2) Be late and risk missing out on gains.

In short, the minimum target has been met, but we would prefer to see the S&P drop into and reverse in the ideal target zone (2,530 – 2,460).

We will buy SPY at the open or during the day (as long as it is above 258.10 but below 259). Our initial allocation is a conservative 5%. Our stop-loss will be at 256.

April 1, 2018 (5:30pm PST)

For the first time since February 2016, the S&P 500 suffered two consecutive montly red candles. Since the beginning of the 2009 bull market, the S&P recorded more than 2 consecutive red candles on 6 occasions (3 x 2 month, 1 x 3 month, 1 x 5 month, current – purple boxes). After the 3 x 2 red candles (Aug/Sep 2015, Apr/May 2012, May/Jun 2010) the S&P briefly broke below the prior low twice (Jun 2012, Jul 2010) and came within 25 points of the prior low once (Oct 2015). In February 2016 (the 1 x 3 month period), the third red candle exceeded the prior low by only 2 points.

The S&P 500 doesn’t have to rhyme with prior consecutive monthly declines, but if it does, it would be in harmony with our ideal path of one more new low followed by rising prices.

As mentioned on Wednesday, “sentiment is bearish enough to spark a bounce.” The bounce happened on Thursday, and may continue on Monday (first trading day of April has a solid bullish bias, S&P 500 up 17 of last 23 years, average gain: 0.49%).

Minor short-term resistance remains around 2,640-ish and 2,690-ish.

Below is a renewed look at our set of short-term sentiment gauges. The extremes seen around the February panic low have been digested. During double-bottoms (W-shaped corrections), investors are almost always more optimistic during the second ‘W’ low. That’s why a new closing low (if it occurs) will probably not cause the same kind of panic seen in early February, and set up a bullish divergence.

Our New York Composite advance/decline liquidity indicator shows a similar pattern. The NYC a/d line has been trending higher (green line) and down side pressure seen in late March was less intense than in early February (in early February nearly 90% of stocks declined, in late March ‘only’ 80% of stocks declined – vertical red bars & green line).

Short-term, the DJIA closed above the trend channel shown on Wednesday. As the purple lines show, DJIA could carve out a triangle (purple lines, S&P shows similar formation). This kind of micro-analysis during larger waves 4 is less reliable than at other times, but it’s about the only thing somewhat worth mentioning right now.

XLU closed (barely) above red trend line resistance. RSI-35 confirmed this move, on balance volume did not. RSI-2 is near overbought. Next resistance is just above 51. The positives we saw near the February low are starting to fade a bit, and XLU will have to overcome 51 to unlock further upside. If XLU rallies to 51 on Monday/Tuesday, RSI-2 will likely be fully overbought. We will lock in gains and sell XLU if it spikes above 51.

Summary: Short-term sentiment and money flow (liquidity) suggest that fear and selling pressure are improving, setting the stage for bullish divergences. For a true bullish divergence, we would have to see a new S&P 500 closing low, which is what we’re waiting for to confirm our ideal path for a more significant bottom.

Although we are looking to buy, our indicators and cycles do not project massive up side, even once a low is in place.

The EUR/USD, US Dollar Index, gold and silver did not move much since Wednesday’s PRR.

March 28, 2018 (6:10pm PST)

The market will be closed on Friday in observance of Good Friday. The next update will be published as usual on Sunday.

The week started with a massive rally (Monday) and was followed by an even bigger drop (Tuesday). Normally pops and drops like Monday/Tuesday would validate a special PRR, but considering the larger context (March 19 PRR: “Waves 4 cause a lot of whipsaw and require patience. There may well be times where it will feel like we missed an opportunity … just before stocks reverse and offer a second [or even third] chance.”) it’s sometimes best not to over-analyze certain moves.

The S&P 500 is stomping around atop the blue support cluster at 2,590 – 2,570. We would still like to see a drop below 2,590 – 2,575 (ideally to around 2,530 or 2,460), but short-term sentiment is bearish enough to spark a bounce.

Pinpointing resistance levels in a wave 4 environment tends to be a fools errand, but 2,645-ish and 2,690-ish may be worth watching. A move above 2,645-ish could lead to 2,690-ish, but such a bounce would not eliminate the potential for a drop below 2,590.

The hourly DJIA chart below outlines a short-term trend channel and potential short-term Elliott Wave Theory count. If that’s correct, DJIA should drop below 23,360, find support (ideally at 23,000 – 22,800) and rally.

Double Nasdaq-100 QQQ support around 154.50 could act as magnet and reversal target. At this point, there is no bullish divergence as RSI-35 is toying with new lows (even though QQQ remains above its February low) and on balance volume is already at new lows.

Summary: This is a difficult environment to trade, which is why we trade only if the S&P follows our ideal path (drop below 2,590 at minimum, followed by a rally). The current constellation of various indicators suggests that carving out a low may be a process that could take a few more days, even weeks. For now we will keep our SPY buy recommendation open.

We will take another close look at investor sentiment and money flow in Sunday’s PRR.

As anticipated, the US Dollar Index tested trend channel support at 88.90 (blue oval). From there it rallied strongly. Yesterday’s low (blue oval) could be important and can be used as a stop-loss level for long positions (like UUP). We may soon be adding to our existing UUP position.

Short-term, the EUR/USD allows for a triangle (purple lines), with a potential bullish breakout. This doesn’t have to happen, but it could. If it does, it would likely lead to a test of the long-term trend channel at 1.2620 (black line) and a great opportunity to short the euro (long dollar). A break below 1.2240 would very likely mean that a EUR/USD top (and dollar bottom) is in and signal a longer-term trend reversal.

Long-term, the EUR/USD shows a bearish RSI divergence, is close to long-term trend channel resistance, with cycles soon turning lower, and sentiment supporting falling euro prices.

Gold validated our suspicion and fell hard, retracing almost exactly 61.8% of the March 20 – 27 rally. If gold started a rally with a target north of 1,382 (wave 3 up next?), it should stay above Fibonacci support at 1,328 or 1,318. For aggressive traders, this is a low-risk opportunity to go long with a stop-loss just below support.

Of course, a strong gold rally is unlikely if the US Dollar Index is also about to rally.

Silver is once again back at support around 16.2.

This is a follow up to the 30-year Treasuries analysis published on March 14 PRR.

TLT closed above the bold (previously red, now) green trend line. According to Elliott Wave Theory, TLT can still relapse to a new low. However, a move above 122.42 as good as eliminates this bearish option. Cycles are pointing higher. In short, the trend is higher as long as TLT stays above ascending trend line support (120.40) and once TLT clears 122.42.

Below is an updated look at the 30-year Treasury Yield trend channel shown on March 14. Since then there’ve been two more trend channel touch points. A sustain yield break below 3% (based on trend channel) and 2.98% (based on Elliott Wave Theory) will point to lower yields/higher prices.

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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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.