The Most Promising S&P 500 Setup Since February 11 (when it was at 1,810)

In terms of actual trading recommendations, 2016 has been a fairly quite year for the Profit Radar Report. We’ve had only seven actual trade recommendations (only one losing trade).

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

Until last week, the only stock-related trade was the S&P 500 buy at 1,828 on February 11 (closed on March 17 for a 11.6% gain).

Based on hindsight, not trading the choppy range from March 20 to June 8 has been the right decision.

Stalking Pays Off

Starting on May 24, the Profit Radar Report was looking for a false S&P 500 breakout and subsequent reversal.

After stalking the S&P 500 for two weeks for a low-risk entry, our carefully selected short trigger was met at 2,110 on June 9 (click here for more details on how we ‘stalked’ the S&P and avoided shorting prematurely). The corresponding ETF trade was to buy the ProShares Short S&P 500 ETF (SH) at 19.80.

This became the first S&P 500 trade since February 11, 2016. What’s special about this trade?

The FOMO (Fear of Missing Out) Trade

The chart below (published in the June 8 Profit Radar Report) shows that the ATR (average true range) dropped to the lowest level since June 29, 2015. ATR is a measure of volatility, and it showed a dangerous level of complacency (dotted red arrows).

As the horizontal red lines indicate, there was a cluster of resistance levels at 2,110 – 2,139. There was also an obvious bearish divergence on the hourly chart (not shown).

In short, the S&P was ripe for a reversal in a strong resistance range. The ingredients for a pullback where in place. The fact that the S&P 500 was near its all-time high (which means considerable down side potential) added to the intrigue.

Therefore, the June 8 Profit Radar Report stated the following:

“At this point, we can’t quantify the maximum down side risk, but we know there’s potential for a deeper pullback once this rally is complete. We are attempting to carefully short so we have some skin in the game should there be a sizeable decline. This is an insurance trade against missing out. We will go short if the S&P 500 drops below 2,110.”

The decline since the June 8 high has been kind of odd. The S&P 500 has been down for six consecutive days, the VIX went soaring (click here for recent VIX anomalies), but the S&P loss has been relatively small (2.8%).

At this point, the S&P is oversold, by may have entered a powerful wave 3 down (according to Elliott Wave Theory). There are a number of open chart gaps, which suggest that the S&P will recover once this correction is done.

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.

 

Bears Get Another Shot at Taking Stocks Down

The last S&P 500 updates highlighted support around 2,040 and why the S&P is likely to seesaw across this support to fool investors (S&P 500 Abuses Popular Pattern to Fool Investors).

Following the faux break below 2,040, the May 22 Profit Radar Report observed that: “Stocks delivered the fakeout move we anticipated. The recovery from Thursday’s low was strong enough to lead to further gains. A move beyond 2,066 could lead to 2,085+/-.”

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

The S&P obviously surpassed the initial up side target, and is now near the next resistance cluster, which gives the bears another shot at taking control.

The chart below shows a number of interesting developments:

1. The S&P is following a pattern similar to May – July, and November – December, 2015 (blue boxes).
2. The S&P reached the upper Bollinger Band for the first time since its April high.
3. The S&P is overbought based on 2-day RSI (see vertical red lines).
4. The CBOE Equity Put/Call Ratio dropped to 0.51, the lowest reading since July 30, 2015 (not shown).

None of the above patterns guarantee a break down, but they show that risk is rising. Rising risk translates into opportunity for bears.

Misconceptions

According to two CNBC headlines, June is a dangerous month for stocks:

• May 31, 2016: “June is the worst month for markets” – CNBC
• June 1, 2016: “This should have you worried about stocks in June” – CNBC

This is only half the truth however. June is also the S&P’s best month during election years.

The percentage of bullish investors polled by Investors Intelligence (II) jumped from 35.40% to 45.40%, one of the biggest one-week increases in 30 years.

At first glance, this appears to be bearish from a contrarian point of view, but history says it isn’t.

Similar optimism surges (as long as the percentage of bullish investors stayed below 50%) led to positive returns two months later 12 of 14 times (according to SentimenTrader).

Summary

Courtesy of the latest rally near overhead resistance, bears get another shot at taking control. In fact, there are two possible reversal zones.

Although odds favor (near-term) bearish bets, not all indicators point towards a deep correction. Therefore, precise trade execution and risk management are important to protect against a possible shakeout move.

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.

 

Short-term S&P 500 Forecast

Here is a brief excerpt from Sunday’s (November 15) Profit Radar Report (PRR), which highlighted the key short-term S&P 500 level to watch … and much more:

“The S&P 500 chart is painting a truly fascinating constellation. First we’ll take a look at the two most likely outcomes, than we’ll discuss probabilities.

The S&P couldn’t get off the mat at 2,040, which resulted in a drop to 2,022, as proposed in the November 12 PRR.

2,021 is a special support level. Why? (see blue bubbles)

• It’s the September spike high
• It acted as support/resistance in October
• It is the 38.2% Fibonacci retracement level of the rally from the August 24 low to the November 3 high.

Elliott Wave Theory is another facet adding to the allure of the 2,021 level. The S&P rallied in a discernable 3-wave pattern from the August 24 low (black numbers).

If the rally from the August low is a counter trend move, it likely ended on November 3 at 2,116.48. If that’s the case, the S&P should work its way towards and perhaps beyond the August low (red arrow).

If the rally from the August 24 low wants to turn into a 5-wave move, the rally is likely to continue next week. If that’s the case, the decline from the November 3 high is a wave 4 correction, followed by a wave 5 rally to new highs (green number + green arrow).

Based purely on chart analysis, both scenarios are equally viable.

The CBOE Equity Put/Call Ratio (dark blue – bottom graph) shows that option traders are bearish to an extreme.

S&P 500 seasonality (light blue – top graph) is predominantly bullish for the remainder of the year.

S&P 500 futures are currently down 8 points and were down as much as 20 points in Sunday night’s trade. If weakness continues overnight, the S&P 500 cash index may open below 2,020 in the morning.

Stocks are oversold and a gap down open could easily be reversed. Just as it wasn’t smart to chase the up side in early November, it isn’t prudent to chase the down side at this moment.

We will consider going long the S&P if it drops below 2,020 and subsequently closes above 2,020.”

The green bars show the performance since Sunday. As suggested by the CBOE equity put/call ratio and seasonality, the S&P 500 bounced from key support at 2,020.

The simplified conclusion is that the path of least resistance is up as long as support at 2,020 holds.

A break below 2,020 does not necessarily have to be bearish, but it would complicate the structure and possibly result in a whipsaw across 2,020

Continued updates are available via the Profit Radar Report.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

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

 

Fascinating AAPL Formation Telegraphed Bullish Breakout

The April 22 Profit Radar Report highlighting this fascination AAPL (Nasdaq: AAPL) formation with the following commentary:

“AAPL, the most important stock in the world, hasn’t been able to nudge the S&P, Dow Jones or Nasdaq in either direction. That’s because AAPL is stuck in its own trading range/triangle. The consolidation pattern is similar to that of Q3 2014. AAPL closed at 128.62 today. This mini-breakout increases the odds of more upside.”

 

Below is an update AAPL chart. The next meaningful resistance cluster is around 140, but the open chart gap (and various breadth divergences) allows for a ‘digestive pullback’ at any time. In terms of Elliott Wave Theory, any new high could complete a 5-wave move and result in a larger-scale reversal.

AAPL’s pop also propelled the Nasdaq-100 and PowerShares QQQ ETF (Nasdaq: QQQ) out of a formation called a bull flag. More details here: Nasdaq QQQ ETF Break out of Bull Flag

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

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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Beware of This S&P 500 Booby Trap Danger Zone

Snap! That’s the sound of investors stepping into the two most recent, ingeniously set S&P 500 booby traps. Buy high, sell low. Here’s a short-term outlook for the S&P 500 along with the next likely booby trap.

2015 has been exciting. Not a stale moment. 1%+ daily S&P 500 moves have become the norm. Very unlike 2014, where we had months without moves greater than 1%.

For a market forecaster and commentator like myself, this has been exciting, but it may have been a frustrating trip through seesaw booby traps for many investors.

As soon as investors feel like they may have gotten a handle on things, the S&P 500 changes direction.

The blue box highlights the next potential S&P 500 (NYSEArca: SPY) trap, conveniently located and ready to snap right around 2,065+.

The S&P 500 hit 2,065 on January 22 (blue line); the very day MACD triggered a buy signal.

We were looking to short that bounce, as mentioned in the January 21 Profit Radar Report: “Stocks are moving in the right direction for our short setup. The S&P 500 is close to the 2,040 – 2,070 zone mentioned Sunday.”

After losing 80 points, the S&P visited the lower end of the trading range, with obvious support at 1,980 (green bar).

On Sunday (February 1), the Profit Radar Report warned that: “Near-term support around 1,990 is becoming quite obvious. When support is too obvious, the market may want to fool investors with a seesaw.”

On Monday the S&P sliced below 1,990, took out tons of stops, and reversed strongly.

The push of the low showed good internal strength and is likely to lift the S&P higher. The open chart gap at 2,057 should act as initial target.

Any move to and above 2,065 increases the odds of another leg down. Perhaps the S&P will even close above 2,065 for a day or two. It would be an even better booby trap.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

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

This Chart Should SCARE Every BEAR

Bears finally got 18 days of hope as the S&P 500 lost as much as 9.8% and expectations of the long-awaited market crash seemed to finally pan out. However, this may be just a cruel déjà vu. Here’s a chart that should scare every bear.

People often look for strength in numbers, but on Wall Street, ‘strength in numbers’ – also known as crowd behavior – tends to backfire.

Here is a look at one interesting chart. The chart plots the S&P 500 against the average exposure to US equity markets reported by members of the National Association of Active Investment Managers (NAAIM).

I’m a chart and numbers guy, but the message of this chart is probably more powerful if we emphasize the emotions behind the numbers, rather than just the numbers.

Last week, active money managers slashed their US equity exposure to 9.97%, the lowest reading since September 28, 2011.

In 2011, the S&P 500 fell as much as 21%. Last week money managers bailed before the S&P even lost 10%. They flat out panicked.

Why did money managers panic?

Were they right to panic?

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There may be a myriad of reasons why money managers decided to heavy-handedly hit the sell button, … but here is my interpretation (valued at 2 cents or more):

Obviously money managers were scared. Scared of what? The ‘big one!’

Tucked away in their memory banks were sell in May headlines such as:

• CNBC: “This chart shows the market is a ticking time bomb” – June 11
• Yahoo Finance: “Beware: 2014 is looking a lot like 2007” – May 22
• CNBC: “I’m worried about a crisis bigger than 2008: Dr Doom” – May 8

The S&P 500 rallied as much as 200 points following those doom and gloom headlines. The normal reaction would be to dismiss crash calls as wrong, but money managers simply must have labeled them as ‘premature.’

The level of panic seen at the October 15 low was enough to propel the S&P as much as 140 points.

Was their panic justified? In other words, despite this bounce, did the ‘big bad bear market’ start at the September highs?

Has the “Big Bad Bear Market’ Started?

The easy and straight-forward conclusion based on the fact that money managers appear to have expected this ‘bear market’ is this:

Sure, there are plenty of reasons why stocks should roll over, but a watched pot doesn’t boil. Bear markets are rarely anticipated by the masses.

There are also persuasive reasons why this bull market has more time left. We just discussed one. Another is bullish seasonality and the absence of the most reliable bear market trigger I’m aware of.

After extensive research, I found an indicator that correctly warned of the 1987, 2000 and 2007 tops, and at the same time projected new highs in 2010, 2011, 2012 and 2013. More details here.

It is possible that the October panic lows will be tested once more, but the weight of evidence suggests that the bull market is not yet over. Short-term, the S&P 500 and Dow Jones are bumping against important resistance levels. A move above those levels is needed to unlock higher targets.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

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

Too Many Bears Spoil The Crash (or Correction)

his article takes a look at a non-scientific, but often effective indicator: Media headlines. Investors’ decisions are often based on the media’s take on the market. This makes it a potentially potent contrarian indicator.

Too many bears spoil the crash (or correction) just as too many cooks spoil the meal.

Investors are expecting a correction. In fact, too many investors are expecting a correction. Below are a few very recent headlines:

The ‘Non-Scientific Headline Indicator’

“This chart says we ‘re in for a 20% correction” – CNBC
“Risk of 20% correction highest until October” – MarketWatch
“Are U.S. markets on brink of an 11% correction?” – Bloomberg
“A deep correction’s on the horizon” – TradingFloor.com
“This chart is ‘ominous’ for S&P” – CNBC
“Wells Fargo strategist presents scary chart” – CNBC

The market rarely does what the masses expect. Quite to the contrary, the market likes to surprise the investing herd. The ‘non-scientific headline indicator’ suggests some kind of a pop is needed to fool the crowd.

After all, if the S&P 500 dropped 11% or 20% right now, where would be the surprise effect?

The Profit Radar Report’s 2014 Forecast (published on January 15) predicted an S&P 500 (NYSEArca: SPY) high sometime in April/May/June (see forecast excerpt below).

Unfortunately, this outlook has now become the crowded trade.

Interestingly, the media has gotten so bearish that it even reports on it’s own gloom-and doom bias. To wit:

“The boys who cried wolf: Crash prophets on the rise” – Yahoo Breakout

Based on the ‘non-scientific headline indicator’ the bear’s best hope for an immediate crash might be that two negatives (the media reporting on its own bearish bias) make a positive.

What’s the message of real tried-and-true sentiment indicators?

Here’s a detailed analysis of five sentiment indicators (plotted against the S&P 500) and their message:

Should We Worry about the 1987 Crash Parallel?

PS: The 1987 crash parallel is in reference to a recent USA Today article that essentially included a countdown to an imminent crash.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

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

3 Bearish Indicators Buck the Avalanche of Bullish Signals

Price is the most pervasive force on Wall Street. Stocks have rallied well over 5% since the recent low and almost all indicators are flashing green buy signals. Now is not the time to buck the trend, but here are 3 indicators that just won’t budge.

Price action trumps every other indicator, and the S&P’s eight-day 100-point rally has turned the dashboard of indicators overwhelmingly green.

There are just a couple of signals that refuse to jump on the bullish bandwagon.

Trading Volume

The chart below plots the S&P 500 (SNP: ^GSPC) against NYSE trading volume.

It’s quite obvious that volume did not confirm the direction of the S&P 500 and stocks in general.

The same can be said with the percentage of stocks trading above their 50-day or 200-day SMAs.

However, despite those bearish divergences, my proprietary indicators of supply and demand and various advance/decline lines have confirmed the S&P’s rally.

Resistance

The weekly Dow Jones (NYSEArca: DIA) chart below shows significant overhead resistance provided by two long-term trend lines/channels.

So far, the Dow Jones remains below this resistance level.

RSI Divergences

The S&P 500 chart below is an updated version of a projection first published in the February 3 and 5 Profit Radar Report.

Based on the assessment that: “There was a bullish RSI divergence. Selling pressure is subsiding. The potential for a roaring rally exists,” the Profit Radar Report expected a strong rally toward S&P 1,830.

Obviously, the S&P 500 (NYSEArca: SPY) has exceeded 1,830, but the general projection is still holding true and we are seeing a bearish RSI divergence on the hourly chart.

Based on the above indicators (albeit lonely, it standouts among the sea of green signals) this could be just a deep retracement rally followed by new lows.

How common are deep retracement rallies. Here’s a look at the most recent ones and how the S&P 500 fared thereafter:

Deep Retracement – The Last Hope for Bears

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

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

Post FOMC Meeting Effect Tends to Kill S&P 500 Mojo

The Federal Reserve announced that the ‘big bad taper’ will stay in the closet. That’s good news. The Fed announced the same thing on September 18, which led to a three-week correction. The same thing happened in late July.

You know the spiel. When there’s a Federal Reserve meeting on Wednesday, the stock market (NYSEArca: VTI) takes a hiatus until Mr. Bernanke makes his announcement.

There’s a Federal Open Market Committee (FOMC) meeting about every 45 days or eight times a year.

More often than not the S&P 500 has a positive bias going into the FOMC meeting, but the S&P 500 ETF has lost its mojo after each of the last three FOMC meetings.

The S&P 500 chart below illustrates the S&P’s performance after the last 10 FOMC meetings.

This chart covers an incredibly bullish time period, but it’s interesting to note that – since September 2012 – the S&P 500 dropped below the FOMC meeting high every single time within the next few weeks.

More remarkable than the S&P’s post FOMC performance history is the S&P’s pre FOMC performance history.

An official Federal Reserve study shows that the ‘pre FOMC drift’ (optimism leading up to the FOMC announcement) accounts for all S&P 500 gains over the last two decades.

In other words, pre FOMC gains inflated the S&P 500 to an unbelievable degree. A full analysis (with shocking charts) of the Federal Reserve study is available here:

New York Fed Research Reveals That FOMC Drove S&P XX% Above Fair Value

Bi-Polar October Seasonality – Will it Lead to Breakout or Breakdown?

Temperamental, volatile, bi-polar, doesn’t know what it wants and unpredictable are all fitting descriptions for the month of October on Wall Street. Many major turning points happened in October. Will October 2013 lead to a breakout or breakdown?

Seasonally speaking, October is the most bi-polar month of the year.

October hosted the legendary market crashes of 1929, 1987 and 2008. But October has also killed many bear markets.

October 2011 was such a bear market killer. After falling 20% from the 2011 peak to trough, stocks arrived at a true high probability buy signal in October.

Forgive me for this braggagraph (bragging in the paragraph), but my October 2, 2011 buy recommendation was probably one of my best calls (along with the March 2009 and June 2012 buy signal). Here’s the exact description of the buy signal issued on October 2:

“The ideal market bottom would see the S&P 500 dip below 1,088 intraday followed by a strong recovery and a close above 1,088, but technically any new low below 1,102 could mark the end of this bear market leg.”

A quick intraday dip to 1,074 on October 4 knocked out the 2011 bear and the bear has been unconscious ever since.

What About October 2013?

The QE bull market is two years older now than it was in 2011. In fact, at 55-months of age, the QE bull has already lasted 16 months longer than the average bull.

Nevertheless, October is unlikely to enter the history books as a bear market killer.

The unique S&P 500 seasonality chart below shows that stocks tend to do quite well towards the end of the year.

The S&P 500 seasonality chart is created from averaging together 62 years of S&P 500 behavior.

Since the S&P 500 (NYSEArca: SPY) is at a different price level every year, using an average of the S&P’s actual values would inappropriately skew the result by overweighting the years when it was at a higher level and vice versa.

To equally weigh every year, the price history is adjusted (using a divisor) to begin at the same level on the first trading day of every year.  Then each day’s values for the rest of the year reflect the percentage change from that first day of the year.

(Seasonality charts for the S&P 500 during post election years and during post election years with democratic Presidents are available to subscribers of the Profit Radar Report).

Based on generic S&P seasonality, there may be some more weakness in the later part of October followed by smooth sailing ahead.

Dow Jones, Nasdaq (Nasdaq: QQQ) and Russell 2000 (NYSEArca: IWM) seasonality show a similar pattern.

Seasonality Safety Net

I always look at a composite indicator (made up of multiple indicators from these ‘families:’ seasonality & cycles, sentiment & money flow, technical analysis) and never trust any one single indicator.

Technical analysis provides the most helpful and unique perspective right now. Last week the S&P 500 whipsawed over a major trend line. While confusing for most, this is actually the best signal we could have hoped for.

A detailed analysis of this odd but effective technical signal is available here:

Has the Year-end Rally Already Started?

Simon Maierhofer is the publisher of the Profit Radar Report.

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