New Bitcoin ETF, Eating Crow, 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 October 21, 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).

Stock market bears seem to enjoy sitting in their echo chamber shielding themselves from objective analysis. Below are just a couple of works produced by the bears’ echo chamber:

8/21/21 – Elliott Wave International: “The top is in.”

9/20/21 – Glenn Neely, NEoWave: “The bull market is over!”

9/20/21 – Fox Business: “Stocks could drop 20% or more.”

9/28/21 – Kitco: “Bear market is imminent.”

9/30/21 – Barron’s: “3 Reasons the stock market will keep falling.”

Bears are back to eating crow (for international readers, eating crow is an idiom for admitting to being wrong after taking a strong stand).

Although my Risk/Reward Heat Map projected weakness for September/October, the weight of evidence suggested only a limited pullback.

In fact, I quoted some of the above bear claims and stated in the September 23 Free Market Outlook that:

“While the risk was ‘on schedule,’ I didn’t – I couldn’t – call the bull market over or even presume further losses. Here are my 3 reasons for giving bulls the benefit of the doubt.”

You may review the 3 reasons and the Risk/Reward Heat Map here.

Another reason not to count out bulls was shared in the October 7, Free Market Outlook, which pointed out that market breadth did not confirm a breakdown (chart below).

It may sound like I’m plugging my own research (and I kinda am), but more importantly I’m plugging the truth. There’s never been a time with as much information and as little truth.

iSPYETF is a place where you will always find honest analysis.

The S&P 500 is butting against its prior ATH while over-bought (based on RSI-2). This is a place where I’d allow for some weakness (chance for bears) but the path of least resistance is up as long as the S&P doesn’t drop below 4,429.

ProShares launched the first Bitcoin ETF (BITO) on Monday, and it hit the $1 billion asset mark faster than any other ETF ever.

Below is the bullish Elliott Wave count published in the September 23 Profit Radar Report.

New trading vehicles for hot markets often put a damper on price (BITO is down 5.5% today). Does anyone remember what happened to bitcoin when Coinbase (a crypto currency exchange) launched? Hint, look at the top left of the chart below. I wrote about this in more detail here.

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.”

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 September 16. 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).

This is the S&P 500 Futures chart we’ve been looking at. The September 6, Profit Radar Report stated that: “Initial support is at 4,510 and a break below will increase short-term risk.”

The S&P has drifted lower since falling below 4,510 and, unlike all other pullbacks since April (blue boxes), the S&P has not bounced right back. Perhaps this means that the character of this rally has changed. Next support is in the low 4,400s. A sustained break below would further increase risk.

AAPL peeled away from double resistance, and the decline from last week’s high looks like 5 waves, which suggests 2 things:

1) a bounce (wave b or 2)

2) followed by a relapse and at least one more leg down (wave c or 3)

Last week’s Market Outlook mentioned that August highs tend to make investors cry (if you haven’t read it, the full article is available here). Here is another study that suggests to be cautious.

The chart below plots the S&P 500 (red graph, since 12/1/20) against the 10 most similar time periods. For this study we only focus on the average forward performance, which is illustrated by the bold black graph to the right of the dashed red line.

On average, the S&P has hit a rough spot right about now … and that rough spot can last several months.

The Risk/Reward Heat Map projected risk for September and we are starting to see some of that risk. To kick up the risk level further, the indexes need to stay below resistance for the next few days and start heading south again thereafter (which seems like a real possibility).

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.”

Inflation, Gold, 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 26. 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).

Stocks actually pulled back a bit last week, but last Wednesday’s Profit Radar Report showed the chart below (price has been updated) and stated the following (the chart was also included in last week’s Market Outlook):

On Monday, the S&P made it as high as 4,480.26 and has fallen below some minor support levels since. RSI-2 is now over-sold, which has marked the end of any pullback since May (dashed gray lines). Since the 4,485 target was not fully met, the market has still the option to reach and perhaps briefly exceed it.

While the bounce to tag our target around 4,485 was not unexpected, I was surprised to see such oomph behind that move.

On Friday, Monday, Tuesday (3 consecutive days), more than 68% of NYSE-traded stocks advanced and, more noteworthy, more than 75% of volume flowed into advancing stocks all 3 days.

The chart below highlights the 10 other days (since 2003) when the S&P 500 rallied into an all-time high, while a bearish NY Composite advance/decline divergence exists, with the 3-day SMA of up volume and advancers >77% and >70%. This has been bullish since the 2020 low, but a bit more mixed prior to that.

In my opinion, this mini breadth trust neutralizes some of the bearish divergences reported recently.

Nevertheless, my Risk/Reward Heat Map still projects risk for August/September, the up side target has been met, a small 5-wave rally may have concluded. At minimum a brief pullback is likely (such as today), but it still will take a break below support to dent the bull market.

Below is just a quick glance at some inflation metrics. What they mean for consumers and investors and how to hedge against inflation is discussed here: How Bad is Inflation?

The August 8 Profit Radar Report featured the gold chart above and stated that:

If gold reaches the green target box, the decline from the August high could be counted as 5 waves, which would clarify the longer-term picture and set up some better trading opportunities (i.e. buy in the target range).”

Within hours of that update, gold tumbled 5%, touched the upper end of the target box, and bounced back. It all happened overnight. The rally from the low appears to have traced out 5 waves, which suggests another (brief) pullback before a more sustainable advance.

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.

Stocks are Tired but Fighting


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 19, 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).

The stock market has coughed up some epic divergences and curious internals lately. First we’ll look at what we’re seeing and then at what it means.

– At the last 3 S&P 500 all-time highs (Aug. 12, 13, 16), less than 50% of NYSE-traded stocks advanced and less than 50% of trading volume went into advancing stocks. This happened 11 other times (since 2009).

– The cumulative NYSE advance/decline line has failed to confirm S&P highs since July 6. With 32 consecutive days, that’s the longest divergence since July 2014 (see chart below).

– There’s never been a bigger spread between Nasdaq-100 and Nasdaq Composite components trading above their 50-day SMA (in August, as high as 73% for the Nasdaq-100 and as low as 31% for the Nasdaq Composite).

– Yesterday, the VIX soared 20.44% even though the S&P dipped only 1.07%. This happened only 6 other times since 2009. 

Usually when there’s a big VIX spike knee-jerk reaction, it’s a positive for stocks (almost like a flush out the weak hands event). This time, the figures tell a different story.

The chart below shows every time the VIX spiked more than 20% on a day the S&P dipped less than 1.10% (there were 7 total signal dates). A quick glance reveals that 5 of 6 signals preceded some pretty rough markets.

Yesterday, the VIX soared 20.44% even though the S&P dipped only 1.07%. This happened only 6 other times since 2009.

The chart below shows S&P 500 forward performance after each signal date. Two things jump out:

– Forward returns were anemic.

– Odds of positive returns were only 50% for the first 6 months.

Those are dismal return figures considering that the signals occurred during one of the strongest bull markets in history.

Needless to say, there’s a lot of activity under the stock market hood and I’ve seen the media coming to misleading conclusions without checking the facts.

The Profit Radar Report always looks at the facts. Recent updates identify other times when similar conditions existed (i.e. 3 consecutive all-time highs with less than 50% participation, NYSE a/d line divergences lasting longer than 9 days, Nasdaq-100 vs Nasdaq Composite spread) and how the S&P 500 performed thereafter.

The stock market is unprecedented as it is, but there is no excuse for at least getting our facts straight and make fact-based decisions.

Short-term, as brought out in last night’s Profit Radar Report, the S&P 500 ended yesterday over-sold (dashed gray lines, chart above), which marked the last 3 pullback lows.

Failure to get above resistance (red lines) and progress to the down side would suggest this pullback has more bite than prior ones.

My Risk/Reward Heat Map (more info available here if you are not familiar) shows elevated risk for August/September.

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.”

‘Black Swan’ Warning Indicator Soars to Record High

Have you even seen a black swan, I mean the actual bird? Probably not, because they are extremely rare.

That’s why the black swan has been used to describe extremely rare outlier stock market events. ‘Event’ is simply a nice way of saying crash or meltdown.

Black swan events are as rare as they are unpredictable, but the CBOE (the same outfit to create the VIX) crafted an index designed to measure the risk of a black swan event. This index is called the SKEW Index.

Here is the main difference between the VIX and SKEW: The VIX is based on implied volatility of S&P 500 at-the-money options while the SKEW is based on implied volatility of far out-of-the-money S&P 500 options.

Here is how the SKEW works: Readings of 100 mean that the risk of a black swan event is low. For every 5-point increase in the SKEW Index, the risk of a black swan event increases 1.4%.

On Friday, the SKEW Index closed at 155.31, which is the second highest reading since 1990 (as far back as SKEW data goes). A reading of 155 also means that the risk of a black swan event is 15.4% higher than usual.

With the theoretical stuff out of the way, let’s see if the SKEW Index actually works.

Does the SKEW work?

The chart below plots the S&P 500 agains the SKEW Index (going back to 1990). The SKEW moved above 150 only on 17 of 12,967 trading days (that’s 0.13% of the time). And none of those 17 days happened before 2015.

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The next chart makes it easier to identify those 17 times. Here are the key takeaways:

13 of the 16 prior signals (81%) saw any gains erased within the next 3 month

3 of the 16 prior signals (19%) saw significant further gains (2 of those gains were erased within 18 months)

Summary

The SKEW Index deserves credit for flashing warning signals prior to the 2016, 2018 and 2020 declines. It needs to be noted though that those signals were about 2 months too early. It will take a break below support to edge the potential black swan risk closer to reality.

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.

S&P 500 – Strong but Ugly

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on May 6. 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).

Let’s face it, S&P 500 performance has been strong but ugly … and downright boring to watch. Despite the yawn environment, I just discovered a historic pattern that played out 90% of the time (see below).

Yes, while markets are grinding I’m running dozens of screens to gain an edge for the next move.

For example, the last S&P 500 all-time high (last Thursday) also saw:

– Cumulative NY Composite a/d lines at all-time highs

– 88% of S&P 500 stocks above their 50-day SMA

– 95% of S&P 500 stocks above their 200-day SMA

– Only 58% of volume flowing in advancing stocks (10-day SMA)

Running a screen based on the above parameters yields no hits, which means it never happened before.

We can’t learn much from a sample size of 1, but lowering the threshold gives as more precedents to work with.

The yellow lines highlight when less restrictive criteria (see chart) were met. Unfortunately the sample size couldn’t be more conflicting (don’t shoot the messenger). We have some signals right before the 2007 and 2020 crash and others during the 2013 and 2020 melt-up.

Let’s take a different approach. Instead of scanning for similar past occurrences based on breadth we’ll look at performance.

Here is our baseline:

  1. From January – April 2021, the S&P 500 was up 11.32%
  2. In 2020 (prior year), the S&P 500 recorded a 16.26% gain
  3. 2021 was a post election year

Going back to 1970, we now identify the following:

– Years S&P 500 was up more than 10% on April 30

It happened 14 other years

– Years S&P 500 gained 16% +/-5% the year before

It happened 5 other years

– Years that were a post election year (like 2021)

It happened 1 other year

– Years with a similar chart trajectory (correlation)

Based on the above criteria, the gray graphs reflect the January – April performance of the 10 years most similar to 2021 (in red).

The logical next step is to chart the forward performance of the 10 most similar years, which is exactly what I did. After doing that, I look for common themes.

This study revealed an interesting commonality: 3 month later (which corresponds to August 1), the S&P 500 had the same directional bias 90% of the time. The full study was published in yesterday’s Profit Radar Report.

Even dull markets can offer clues about future performance … if you look hard enough … or have someone who does the searching for you.

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

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.”SPX