S&P 500 Update – Refocus on What Matters

Brexit! What Brexit? The Brexit reaction doesn’t even register on the monthly S&P 500 chart. ‘A tempest in the teapot’ as the British would say. This is yet another example why we do not focus (and sometimes ignore) news events.

The Brexit vote did cause undeniable ripple effects, but only temporarily. It’s time to tune out the noise and stop using Brexit as excuse or cause for everything that happens.

As the headlines below show, Brexit can’t be savior and scapegoat at the same time:

  • Morningstar: Stocks Climb as Investors Shake off Brexit Concerns
  • MarketWatch: US Stocks Open Lower as Brexit-Inspired Selloff Continues
  • MarketWatch: Dow Ends up 270 Points as Brexit Fears Abate
  • Morningstar: Stocks fall as Brexit Worries Resurface

Chart Analysis

The June 19 Profit Radar Report expected a temporary drop to 2,002 – 1,928 followed by a resumption of the rally. The ideal down side target was 1,970 – 1,925 (original chart is available here).

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

The structure of the post-Brexit selloff confirmed that the decline would turn out to be temporary. In a section titled “Chart Gaps and Major Market Tops” the June 26 Profit Radar Report noted open chart gaps and stated the following:

Following a tumultuous night, the SPDR S&P 500 ETF (SPY) opened Friday 3.42% lower than Thursday’s close (see chart). Since the inception of SPY (1/22/1993), there’ve only been 7 bigger gap down opens, and a total of 11 opening gaps with losses in excess of 3%. Five days later, the S&P traded higher 10 out of 11 times with an average post gap gain of 4.96%.

One of the reasons we continuously anticipated new all-time highs in recent years were open chart gaps left near the top. This is again the case now. There are open gaps at 2,104.57 and 2,117.96”

On June 27, the S&P fell as low as 1,991.68. This was in the general target zone, but short of our ideal target zone at 1,970 – 1,925. Nevertheless, the June 27 Profit Radar Report stated that: “two separate price patterns suggest a bounce is brewing.”

Initially, we anticipated this bounce to be choppy and relapse into the ideal 1,970 – 1,925 zone, but as the June 29 Profit Radar Report brought out, “this bounce has been stronger (in terms of breadth) than it was ‘supposed’ to be. Preliminary data suggests that the S&P may be experiencing a breadth thrust similar to what we saw in mid-February (see February 21 PRR). Based on the strong kick off from Monday’s low, we must consider the possibility that a more lasting low is already in.”

The February kickoff analysis, originally published in the February 21 Profit Radar Report, is available here: 2016 Bear Market Risk is Zero Based on this Rare but Consistent Pattern

Summary

Last week’s kickoff rally suggested a short-term digestive lull (with initial support near 2,070) followed by higher prices eventually. However, we never put all our eggs in our basket. No matter how compelling last week’s breadth thrust is, we are waiting for price to meet our parameters (buy triggers) before going long.

Until this happens, we may see more choppiness, and even more down side (although unlikely). 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.

 

Time is Ripe to Get Dirty with This Out-of-Favor Sector ETF

The energy sector has been hammered by a 31% drop in crude oil prices. OPEC is a mere shadow of its prior glory days and analysts project further declines, as much as another 60%. Ironically, now might be the time to get dirty with oil/energy.

Baron Rothschild’s famous words encourage investors to buy when there’s blood on the streets. What about when there’s oil on the street?

Pull up the Hummer and Suburban, because oil (and gasoline) is the cheapest it’s been in well over four years.

According to many analysts, oil is doomed to fall much further. One price target pegged oil at $30/barrel, another 60% lower than today.

Unless you’re Russia, Saudi Arabia or perhaps a hardcore Prius driver, there’s nothing wrong with low prices, but some charts suggest that the oil/energy sector may be getting ready for a comeback.

The Energy Select Sector SPDR ETF (NYSEArca: XLE) has traversed within a defined trend channel from 2009 until today. As the weekly XLE bar chart shows, XLE recently dropped towards the lower end of the channel.

Essentially the same is true for the SPDR S&P 500 Oil & Gas Exploration & Production ETF (NYSEArca: XOP). XOP more deliberately tested channel support and is trading just above it.

Technical support areas, such as the ones shown above, don’t guarantee a change of trend, but they do highlight price levels where a change of trend is more probable.

The third chart shows the XLE:S&P 500 ratio. XLE underperformed the S&P 500 since April 2011. The gray trend channel suggests that the days of XLE’s underperformance may be numbered.

The November 5 Profit Radar Report wrote that: “We are looking for potential opportunities to buy large caps (Dow Jones, S&P 500) and possibly materials (XLB) and Energy (XLE).”

We got to pick up XLB, which has had a very nice run, and are waiting for a low-risk buy trigger for XLE. It looks like we’re getting close. Continued coverage will be provided 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.

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

Can Yellen Shatter This Bearish S&P 500 Pattern?

Janet Yellen’s first public remarks since succeeding Ben Bernanke will be carefully scrutinized. This opens another round of technical analysis vs Fed talk. Will Yellen’s remarks be strong enough to negate or even shatter this bearish S&P 500 pattern?

Here’s a look at the most basic component of technical analysis: Trading volume.

In mid-January the S&P 500 hit a rough patch that actually caused some seriously red candles.

Two down days in particular (January 24 and February 3 – see black arrows) rattled the market as sellers flooded Wall Street and trading volume picked up.

In fact, January 24 trading volume was the highest since July 31 (with the exception of September and December triple witching).

To provide a visual, I’ve plotted the S&P 500 against NYSE trading volume (chart 1) and the SPDR S&P 500 ETF (NYSEArca: SPY) along with SPY shares traded (chart 2).

Both charts show the same pattern. High volume on down days, and low volume on up days.

Under normal circumstances this would suggest that investors are more eager to sell than to buy. However, a QE market doesn’t qualify for ‘normal circumstances status.’

We’ve seen this pattern fail many times since 2009. Will this time be different? Will Yellen’s reassuring remarks to Congress negate the bearish volume pattern?

A number of indicators suggest that stocks will make another trip to lower lows.

The second SPY chart shows the 20-day and 50-day SMA not far above current prices. Equivalent resistance for the S&P 500 is at 1,802 – 1,810, with 1810 being more important resistance.

Sustained trade above 1,810 would unlock the next up side target.

A more detailed S&P 500 forecast and the next key resistance is available here:

S&P 500 Forecast: Short-Term Gain vs Long-Term Pain

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.

Technical Analysis – The Most Unique S&P Candle Stick Pattern Ever?

Candle formations are one of the more comical technical indicators, but comical doesn’t mean ineffective. Here are two takeaways from one of the most unique SPY candle formations ever.

Market analysts and market forecasters can’t be picky or biased. You can’t cherry pick data to support a bias. The tail doesn’t wag the dog and any forecast needs to be data driven.

A ton of data and indicators go into each Profit Radar Report update. There are different sentiment measures, various seasonalities and cycles and a wide variety of technical indicators.

Candle formations are one of the technical indicators I look at. I don’t follow them religiously, but they often add weight to the message conveyed by other indicators.

Anatomy of a Candle

Let’s review the anatomy of a candle before we look at a never before seen candle formation for the SPDR S&P 500 ETF (SPY).

The image below shows the main components of a candle: Open/close price, body, upper/lower shadow (also called wig) and the trading range (green or yellow, depending on up or down day).

The Only SPY Triple Outside Day

On Wednesday, the SPDR S&P 500 ETF or SPY opened below the low of the past three days and closed above the high of the past three days. This is called a triple outside day and has never happened before (see chart below).

That’s a curious factoid, but has it any directional implications? It just might. There have been seven double outside days. Each of them led to positive performance of the next couple of weeks.

Trading volume also picked up on Wednesday. Elevated volume increases the message of any candle formation, which suggests that this rally is not yet over.

A recent article here on iSPYETF.com (Nov. 19: Is it Time to Buy Apple Again?) referred to a reversal candle for AAPL at 506 and concluded that: “Prices are likely to move higher” (Apple traded as high as 595 since).

The November 18 Profit Radar Report spotted a similar reversal candle in combination with a bullish engulfing pattern (see image above) in the S&P 500 and stated that: “the immediate down trend is exhausted and stocks are ready to bounce.” The S&P is up as much as 80 points since. This bounce will continue and quite possible morph into a sizeable rally as long as prices remain above support.

Before we snub our noses at funny sounding candle formations, we should remember that they just called an 80-point (S&P 500) turn around.

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.

Apple Becomes Second Most Valuable Brand in the World, But Traders Get Scared

Apple is the most valuable company in the world. Now it is also the second most valuable brand in the world. Nevertheless, traders are concerned about Apple stocks which is reflected in the price of options.

According to brand consultancy firm Interbrand, Apple’s brand value increased 129% to $76.57 billion last year. This makes Apple the new #2 on Interbrand’s list of the top 100 brands.

Apple is followed by IBM ($75.53 b), Google ($69.72 b) and Microsoft ($57.85 b). #1 and the only non-tech company in the top 5 is Coca Cola with a brand value of $77.83 billion. The chart below shows the top 28 brands.

Apple’s growth outpaced even Google’s steep growth trajectory. Apple and Google surpassed Microsoft for the first time ever.

Interbrand’s key valuation aspects are the financial performance of the branded products or services, the role of the band in the purchase decision process and the strength of the brand.

Traders Become Skeptic

As of recent Apple has hit some speed bumps. It didn’t sell as many iPhones as expected and basically had to admit that Apple maps is inferior to Google maps.

More importantly, Apple’s stock (AAPL) became too overbought. Even before the iPhone went live and Apple maps draw criticism, the September 12 Profit Radar Report recommended to: “Short Apple (or buy puts or sell calls) above 700.”

With Apple trading about $35 below its all-time high, option traders have become unusual bearish. Bloomberg reports that bearish Apple options are the most expensive relative to bullish options since late 2011. This seems like an overreaction considering a moderate drop of only 5%.

Newsletter writers that cover major stock market indexes like the S&P 500 saw a similar sentiment movement. The percentage of bullish advisors polled by Investors Intelligence dropped from 54.20% on September 18 to 46.80% on October 2. The SPDR S&P 500 ETF (SPY) lost less than 2% during that time.

The S&P 500 continues to trade within a parallel trend channel and support for Apple is at 660, 650 and around 635. It seems that the immediate down side for stocks and Apple is limited.