What Are the Implications of Rare Stock Market Phenomena?

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

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

Here are a couple examples of what I mean:

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

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

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

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

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

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

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

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

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

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

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

1) Returns for the first few months were rocky

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

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

Are new all-time highs on low volume bearish?

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

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

But:

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

 – Volume of advancing stocks less than 56%

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

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

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

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

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

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

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

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s evaluation of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. 

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

What Do Those Rare Stock Market Anomalies Mean?

Relentless is one way to describe the stock market rally from the March low. Unusual is another, and recently it’s gotten plain odd.

Relentless & Unusual

The chart below shows the relentless and unusual nature. I first published the chart on April 7, when it became clear that this rally was going to be strong. The various graphs below show the trajectory of the fastest rallies from a 52-week low.

As the performance tracker shows (based on forward performance as of April 7), initial strength always continued, but this rally has broken all record.

Odd – Exhibit #1

Here is where things get odd. On July 20, the S&P 500 closed 0.84% higher, but 57% of all NYSE-traded stocks ended lower. This anomaly occurred 7 more times since.

The chart below plots the S&P 500 against the daily percentage change and percentage of declining stocks. The red arrows highlight days when the S&P closed higher despite a majority of stocks closing lower.

S&P 500 rallies despite more declining than advancing stocks have only occurred in two other distinct periods over the past 50 years.

Odd – Exhibit #2

Yesterday (August 26), the S&P 500 ended the day with a 1.02% gain, but the VIX rose 5.63%. Since there is an inverse relationship between the S&P 500 and the VIX, this is a very unusual reading.

In fact, since 1997, there’s been only one other time when the S&P 500 gained more than 1% and the VIX gained more than 5%. It was on June 8, 2020 (see chart below).

If we relax the parameters to include every instance where the S&P gained more than 1% and the VIX more than 3%, we get 10 other instances over the past 20 years.

Do Oddities Matter

The March 26 Profit Radar Report looked at a number of indicators (including liquidity) and concluded that: “We anticipate a recovery towards 3,000 (for the S&P 500) over the next couple months and quite possibly new all-time highs in 2020.”

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

New all-time highs are no surprise to subscribers of the Profit Radar Report, but that stocks got there without any significant pullback is unusual, even unprecedented.

But we are here now, and I’ve found that most investors approach the market in one of three ways:

1. Get out of the market because it doesn’t make sense anymore
2. Buy because the Federal Reserve will keep stocks afloat
3. Stay informed and look at indicators that work most of the time (the kind of indicators that sniffed out the March low and projected a powerful rally) and put the odds in your favor.

If option #3 sounds most appealing to you, and if you would like to find out the other rare and unique times in history when 1) S&P 500 and VIX went up at the same time and 2) S&P 500 rallied with more declining than advancing stocks, you will find the Profit Radar Report of interest.

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. 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 e-Newsletter to get actionable ETF trade ideas delivered for free.

Stock Market Update: This is the Clearest Chart Right Now

There’s never been a time when articles on iSPYETF.com have been posted at the snail-pace of about one per month … until now.

Unless you are a stock picker, there’s simply been nothing worthwhile to write about.

The October 1 Profit Radar Report warned of just such a period of inactivity:

“The bullish Elliott Wave Theory count would see stocks grind higher for a number of weeks in a 2 steps forward, 1 step back pattern. A real unexciting, unstimulating and uninspiring grind higher to 2,600+/-. Unless the S&P drops below 2,500, this is now the most likely outcome.”

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Bussines Daily says “When Simon says, the market listens.” Find out why Barron’s and IBD endorse Simon Maierhofer’s Profit Radar Report.

This ‘real unexciting, unstimulating and uninspiring grind higher to 2,600+/-‘ has already lasted more than 7 weeks.

The Clearest Chart Right Now

One of the best tell-tale since during this 7-week period came from the Russell 2000. The chart and commentary below were published in the November 15 Profit Radar Report:

“The Russell 2000 is leaking lower. RSI-2 is now oversold with support around 1,452. The correction since the October 5 high looks like a wave 4. The 38.2% Fibonacci retracement level (a common target for waves 4) is at 1,451.35 (just 3 points below today’s low). The R2K appears to be nearing a bounce, there’s even a possibility today’s low was a more sizeable low.”

Below is an updated Russell 2000 chart. Trade touched support around 1,450 on November 15, and rallied strongly. The minimum requirement for wave 5 is to reach new highs (which it already did), but the convergence of resistance levels around 1,542 (red oval) is the next most logical up side target (higher is also possible).

S&P 500 Update

The S&P 500 has basically reached our up side target around 2,600. The post-Thanksgiving week is seasonally weak, but as long as trade stays above 2,590, the S&P is likely to move towards the next resistance cluster around 2,650.

Continued analysis for the S&P 500, Russell 2000, gold, silver, euro, dollar and other equity indexes is provided 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 to Expect from the Post Election Stock Market

Were you able to get one of the special edition “Madam President” Newsweek issues?

That’s right, Newsweek printed and delivered newspapers featuring Hillary Clinton as president elect.

News-based Approach

“Like everybody else, we got it wrong,” said the CEO in charge of this mishap.

Indeed, the media did get it wrong. According to the media:

1) Donald Trump was ‘supposed to’ be only second best

2) The stock market ‘was supposed’ to sell off if Trump wins

This is the second time in 2016 that media and market pundits got blind sighted and fooled by a big event.

In June it was the Brexit vote, which 1) went different than expected 2) the stock market rallied instead of crashing like it was ‘supposed to.’

The news-based approach requires two accurate guesses:

1) How the vote (or any event) will go

2) How the market will react to a certain outcome

As the above two examples show, the market rarely follows the expected path.

Indicator-based Approach

The indicator-based approach has proven to be much more accurate than relying on news. The last free S&P 500 Forecast pointed out a number of sentiment extremes and stated that:

“The best opportunities are born in times of panic. The more panic, the better the opportunity. It’s risky to short such a market, and much more promising to look for a low-risk buying opportunity.”

Stock futures suffered a brief panic selloff on Tuesday night (S&P 500 futures were down as much as 120 points), but quickly recovered.

This was in line with this observation shared in the November 6 Profit Radar Report:

“The VIX is stretched to the up side, with various bullish sentiment extremes and bearish seasonality. Excessive fear shown going into an event causing uncertainty (election) usually results in a quick retreat of fear once results are in and digested.”

The VIX has lost over 50% in the past few days.

It’s hard to believe that the S&P 500 cash index (unlike the S&P 500 futures) remainded above support identified last week and reacted immediately to the oversold condition and bullish divergences.

Back to Basics

With election uncertainty out of the way, we can refocus on the basics:

Short-term, the S&P 500 is butting against triple resistance while overbought. In addition, the days following the election tend to show some weakness.

Longer-term, there are a number of bullish forces which should push stocks through resistance.

1. The correction we expected last month reached our down side target (reason for correction and down side targets are shown here).
2. The tailwind of two breadth thrust in 2016 bodes well for stocks (detailed breadth thrust analysis with implications is available here).
3. S&P 500 seasonality is bullish for the remainder of 2016
4. VIX seasonality is bearish for the coming weeks. XIV is up 8% since we last recommended it (after closing a 14% XIV gain in September). Here is why we like the XIV trade.

The Profit Radar Reports up side target may be surprising to many, but it is strictly indicator based. At this point, only one ingredient is missing to unlock higher price targets.

Up side targets, the missing ingredient, and continuous indicator-based S&P 500 analysis 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.

 

Is the Stock Market Rigged? … and a More Important Question

Is the stock market rigged? Many believe it is … and rightfully so.

However, there are more interesting and pertinent questions, such as:

• To what extent is the market rigged, and how does it affect me?
• Why do allegations of a rigged market sprout up right now?

Different Ways to Rig the Market

There are different ways to ‘rig’ the market, and there are different entities to do so.

• High frequency traders attempt to gain a time advantage.
• Inside traders try to get information ahead of the crowd.
• The Federal Reserve and central banks around the globe aim to prop up equity markets via various types of quantitative easing or low interest rates. The chart below plots the S&P 500 against the actual QE liquidity flow to illustrate the correlation (or lack thereof, may the reader judge) between stocks and QE.

Regardless of the exact correlation between QE and stocks, even the Federal Reserve’s own research admitted that FOMC meetings drove the S&P 55% above fair value (more details here).

But none of the above is new or shocking.

Why Now?

Perhaps more interesting than who and how is why now?

Isn’t it curious that articles and charts (like below) about central bank liquidity driving up stocks are popping up just as the S&P 500 is breaking to new all-time highs?

There were no such claims last August or early this year when the S&P traded below 1,900. Seems like investors (and fund mangers) are fishing for excuses.

As the chart below shows, investors and fund managers were clearly under-invested at the recent lows. 3 out of 4 large cap fund managers got beaten by the S&P 500 in 2015. How to explain such dismal performance?

Central bank liquidity is a welcome scapegoat. Fund managers could (and do) essential argue: “Our research suggested lower prices, but central banks stepped in and unexpectedly buoyed stocks.”

Boycotting Yourself Out of Profits

This is the most hated stock market rally ever, that’s why it’s gone on for so long.

Today’s market hater is tomorrow’s buyer (disgruntled, but ‘better late than never’). As long as this cycle perpetuates, there’s more up side. We observed this back in 2013: QE Haters are Driving Stocks Higher

Boycotting the market by avoiding stocks may feel like the ethical thing to do, but it hurts the portfolio.

There is no question the market is rigged to some degree, but that’s not necessarily a disadvantage for open-minded investors.

Rigged or not, the stock market has responded reasonably well to time-tested indicators. A number of them pointed to a strong stock market rally.

The key question is not whether the market is rigged, it’s how do you handle a rigged market? Now is the time to be the best informed investor you know.

The latest indicator-based S&P 500 forecast is available here: Stock Market Melt-Up Alert?

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.

 

Stock Market Melt-Up Alert?

The S&P 500 is at new all-time highs, so it may be appropriate to call to mind – and then discgard – all the bear market chatter of recent months.

Here is just a small selection of bear market headlines:

• Barron’s: “Bracing for a Bear Market” – February 19, 2016
• Forbes: “Investor Alert: We’re Firmly in a Bear Market” – January 25, 2016
• MarketWatch: “If it Looks Like a Bear and Feels Like a Bear, it Probably is a Bear” – January 14, 2016
• Benzinga: “The Bear Market is not Over Yet” – September 30, 2015
• Forbes: “Here Comes the Recession and Bear Market” – January 6, 2016
• Kiplinger: “Best Funds for Riding out a Bear Market” – September 15, 2016
• Time: “The Next Bear Market Won’t Roar a Warning Just for You” – September 12, 2015
• Motley Fool: “3 Timeless Tips for Surviving a Bear Market” – September 11, 2015
• Investorplace: “Why the Bears will Keep Winning” – February 9, 2016

We never bought into the bear market idea.

The Profit Radar Report’s 2016 S&P 500 Forecast expected new all-time highs in 2016, as illustrated by this projection published at the beginning of the year.

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

Double Kickoff

Our bullish outlook was confirmed by the February ‘Kickoff’ rally, which was discussed in this article: 2016 Bear Market Risk is Zero Based on this Rare but Consistent Pattern

The April 17 Profit Radar Report featured another liquidity study and a more detailed S&P 500 projection (see chart below) along with the following commentary: “The most likely longer-term implications of our liquidity study remain in harmony with our 2016 S&P 500 Forecast: New all-time highs.”

Another breadth thrust, or kickoff rally, launched in late June, two trading days after the Brexit vote (see chart below).

The post-Brexit kickoff rally sported three bullish developments:

• Up volume surge
• Advancing stocks surge
• New NY Composite a/d highs

The July 4 Profit Radar Report included a detailed analysis of this triple breadth thrust and concluded: “The NY Composite a/d lines are already at new highs, although the S&P 500 is not yet. This, along with the breadth thrust, strongly suggests that the S&P will follow in the not so distant future.”

The ‘not so distant future’ became reality five trading days later.

Buoyed by the breadth thrust, the S&P 500 gained the escape velocity needed to break above the glass ceiling near 2,130, which now serves as initial support (horizontal green bar).

Stocks may pull back due to short-term overbought conditions, but with or without pullback, higher highs are likely. It’s a buy the dip market.

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.

 

S&P 500 Abuses Popular Pattern to Fool Investors

It is rare that a particular stock market support level becomes as obvious as 2,040 for the S&P 500.

Since March 18, the S&P touched 2,040 +/- 13 times, and bounced every time.

As of 2,040 wasn’t already obvious enough, it also became the neckline of a head-and shoulders topping pattern that got a fair amount of attention.

You know something is suspiciously obvious when you read about it everywhere. As the small selection of headlines below shows, S&P 2,040 become a popular ‘make it or break it level.’

• Investorplace: “S&P 500 Teetering on the Edge of a Breakdown” – The index closed just a fraction of a point from a serious technical violation. The importance of this line (2,040) can’t be overstated. – May 18
• MarketWatch: “S&P 500 Nails the 2,040 Support ahead of the Fed” – May 18
• Barron’s: “You shall not Pass: Stocks Gain as S&P 500 Holds 2,040” – May 18
• TheStreet.com – “S&P Below 2,040 – Looks Like there’s more Selling to Come” – May 19
• CNBC: “There’s been a lot of talk about the 2,040 level in the S&P 500, that is our key support.” – May 20

If It’s Too Obvious …

If it’s too obvious, it’s obviously wrong, at least this was the Profit Radar Report’s take. Below are brief excerpts from the May 15 and May 18 Profit Radar Report:

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

May 15: “Support around 2,040 has become pretty obvious, perhaps too obvious. There is two ways the market may deal with a too obvious setup: 1) By-pass support via a gap down open 2) Seesaw across support and take out stop loss orders before embarking upon the real move. The market may deliver some fakeout moves (or gaps) near the 2,040 zone, but once the fakeout moves/gaps are out of the way, we may get a setup.”

May 18: “Based on the importance of 2,040, we wouldn’t be surprise to see more ‘market shenanigans’ around 2,040.”

Technical analysis supported the notion of a seesaw across 2,040.

On one hand, there was a bearish divergence between the S&P 500 and two different breadth gauges shown below.

On the other hand, there was the potential for a bullish RSI divergence on the hourly chart.

The Profit Radar Report anticipated a break below 2,040 (due to the bearish divergence), but did not recommend to chase the down side, due to the propensity for a seesaw and the bounce-back potential suggested by the bullish RSI divergence.

Sometimes it’s just best to stand aside while the market tries to fool the crowded trade(s). Now, that the market has punished bulls with a stop-loss near 2,040 and bears who went short on a break below 2,040, it may be ready for its next move.

Resistance (and an open chart gap) is just around 2,065, and we know for sure where the next support is, or do we?

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.

Is Big Tech Underperformance Bearish for Stocks?

Large cap technology stocks – the notorious US stock market ‘alpha male’ – is trailing behind.

The chart below plots the Nasdaq-100 (represented by the QQQ ETF – right graph) against the S&P 500 and NYSE Composite.

QQQ has been stuck in neutral, while the S&P 500 and NYSE move ahead in second and third gear.

What does this mean for the stock market in general?

We’ve probably been conditioned to believe that large tech underperformance is bad for the broad market. And over the short-term (1-4 weeks), historical performance numbers support this conclusion.

Over the long-term (3-12 months) however, large tech underperformance is actually positive for the overall market. How come?

There are probably several plausible explanations, here is mine:

‘Bullish Ointment’

Since the very beginning of this rally, the Profit Radar Report pointed out the remarkable strength of the post February 11 meltup:

February 17 PRR: “The rally of last Thursday’s low at 1,810 has been very strong. Historically, this kind of ‘escape velocity’ can potentially carry stocks higher for months.”

February 21 PRR: “From February 12 – 17, the S&P 500 gained more than 1.5% a day for three days in a row. Since 1970, this has happened only eight other times. One year later, the S&P 500 traded higher every time, with an average gain of 19.16%.”

March 20, PRR: “Although the S&P 500 is still 3.16% below its November 3, 2015 intraday high at 2,116.48 (and 4% below its all-time high), the NY Composite a/d line already surpassed its November 3, 2015 high. While the S&P retraced only 78.6% of its prior losses, the NYC a/d line already retraced 117.83%. This data suggests that the rally from the February 11, 2016 low is stronger than the rallies from the September 2015 and October 2014 lows.”

A strong rally is like the proverbial tide that lifts all boats. Unlike other rallies in 2014 and 2015, which were more selective, this rally is actually ‘lifting all boats.’

The NYSE Composite Index consists of some 1,900 stocks (large, mid, small-cap stocks). The Nasdaq-100 of only 100 large cap tech stocks.

The fact that the NYSE Composite started to outperform the QQQs shows that liquidity is penetrating all corners of the market. That’s a good long-term sign.

Fly in the Ointment

However, there is a bearish fly in the bullish ointment. The second chart plots the S&P 500 against the percentage of S&P 500 and NYSE stocks above their 50-day SMA.

The percentage of NYSE stocks above their 50-day SMA has been stronger than the percentage of S&P 500 stocks, which confirms the strength of the broader, more diversified NYSE composite.

As of Wednesday’s close, the percentage of NYSE stocks failed to confirm the new S&P 500 (and NYSE Composite) recovery highs (short red line). The percentage of S&P 500 stocks above their 50-day SMA has been lagging since March 30 (longer red line).

All the strong breadth reading throughout this rally confirmed our February 11 buy signal.

Although we anticipated a temporary pullback, the April 3 Profit Radar Report stated that a break below 2,040 is needed as the first step towards confirming further weakness.

Staying above support, combined with the long-term bullish developments registered in recent weeks/months has buoyed the S&P 500 higher (the rally from the February low looks like a micro copy of the 2013 rally).

Unless the bearish divergences mentioned above are erased, the S&P 500 is nearing another inflection zone that may rebuff stocks for a little while.

Continued updates are available via the Profit Radar Report. Barron’s graded iSPYETF (and the Profit Radar Report) a “trader with a good track record.”

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 at Inflection Point – What’s Next?

Throughout January and February (but especially since going long on February 11), the Profit Radar Report has been harping about the ‘need’ for the open chart gap at 2,043.62 to be closed.

On March 2, for example, the Profit Radar Report stated that: “If the S&P can overcome 1,990, it will probably move on to close the open chart gap at 2,043 next.”

The gap was closed last Thursday. Will the S&P 500 push deeper into the resistance zone that starts at 2,040 (2,040 – 2,080), or will it relapse, or both?

Re-launch or Re-lapse? Volume

About a month ago, we looked at a different kind of trading volume analysis (horizontal instead of vertical). The horizontal columns below show trading volume for the S&P 500 futures, based on price (horizontal) not day (vertical).

This kind of horizontal volume analysis was introduced via the February 15 Profit Radar Report, which stated the following:

“A lot of shares were exchanged right around the 1,900 level. Based on volume, this could be resistance, and if the 1,900 range is overcome it may get easier for price to moved towards 1,950 – 2,000.”

A hindsight look at the chart confirms that volume spikes or clusters acted as natural resistance zones, while volume vacuums (such as 1,935 – 1,995) resulted in quick ‘melt-ups.’

Last week, the S&P entered another volume vacuum, so slightly higher prices are possible before it hits the next volume spike resistance starting at 2,060 – 2,070.

Re-launch or Re-lapse? 2015 vs 2016

The chart below shows that the 2016 decline, double bottom and subsequent rally looks a lot like 2015, a parallel the Profit Radar Report has been pointing out since late January.

2015 – 2015 parallels:

• The August 2015 mini meltdown left an open chart gap at 2,035.73, which we expected to get filled (just as the 2016 chart gap at 2,043.62). The 2015 gap was filled on October 20, the 2016 gap on March 17.
• In 2016, the S&P 500 rallied after the January/February double bottom, in 2015 after the August/September double bottom.
• In 2015, the S&P rallied 13% in 26 days. As of Friday, the S&P rallied 13% in 25 days.
• In 2015 the S&P was 50 points above the 200-day SMA when it ran out of gas. Right now its about 30 points above the 200-day SMA.

If the parallel continues, this rally is ready for a breather.

Re-launch or Re-lapse? Liquidity

Following the 2015 August/September double bottom, the Profit Radar Report did a detailed liquidity analysis to assess the strength of the rally (free version of this study is available here: Is the Stock Market Running out of Buyers?). An updated version of this liquidity analysis (analyzing the rally from the February 2016 low), was published in the March 20, 2016 Profit Radar Report.

The conclusion? Market breadth (or liquidity) behind the rally off the September 29, 2015 low was the weakest in years and did not inspire confidence in sustainable gains. The early 2016 relapse was therefore no surprise.

Unlike the 2015 rebound (from the September low), the rebound from the February 2016 low has been much stronger. The February breadth thrust is discussed in detail here: 2016 Bear Market Risk is Zero Based on this Rare but Consistent Pattern

Re-launch or Re-lapse? All Things Considered

Indicators aside, down side risk today is obviously greater than it was at S&P 1,810. Chasing stocks after an 11% rally while approaching the upper end of an 18-month trading range doesn’t sound like a bright idea.

The February 28 Profit Radar Report stated that: “A move above 1,990 would unlock higher targets: 2,040 – 2,100.”

So, further up side is possible, but the risk/reward ratio is not attractive, because the odds of a pullback are elevated.

Nevertheless, a fair amount of indicators suggest that any pullback will only be temporary. How temporary?

Fortunately we don’t have to pinpoint the scope of an upcoming correction at this very moment. The market will likely provide enough tell-tale signs to either discern the down side target or the next likely turnaround.

Continued analysis is 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, 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.

 

6 Reasons for a (Deceptive?) Stock Market Rally

On Thursday, February 11, the S&P 500 dropped to new lows, which was our minimum down side target outlined in the January 27 Profit Radar Report: “We are looking for some short-term up side followed by new lows, followed by a more sustainable rally.”

Thursday’s (Feb. 11) special Profit Radar Report update recommended to buy at S&P 1,828 and listed six reasons for a rally. Below is an excerpt from Thursday’s Profit Radar Report.

“Forrest Gump would probably describe this market as a ‘box of chocolate.’ Let’s open the box and look what we’ve got.

Obviously, momentum is to the down side. Betting against momentum is always a risky proposition. Having said that, there are a number or tell-tale signs hinting of a (temporary?) momentum shift.

1) Today’s open left another chart gap (first and second S&P 500 chart, dashed purple lines).

2) There’s a bullish RSI divergence on the hourly chart (first chart).

3) There’s a bullish RSI divergence on the daily chart (second chart).

4) Some investor sentiment gauges are nearing pessimistic extremes (third chart). Longer-term sentiment readings (such as the II and AAII polls shown below) suggest a bullish bias for the coming months. Short-term sentiment readings (such as the CBOE equity/put call ratio – fourth chart) are not yet in nosebleed territory and allow for further losses.

5) Today’s low could be the spring board for the updated projection shown in Wednesday’s PRR.

6) Based on correlations between asset classes, investors are piling into the ‘fear trade’ (buying gold and Treasuries when stocks are down). 30-year Treasury prices and gold are up more than 10% in recent weeks. This combination (gold and Treasuries up more than 10% in a couple of weeks) has only occurred three other times since 1975 (according to SentimenTrader). Chart #5 captures the November 2008 and August 2011 occurrences. In 1982 (not shown), the S&P bottomed closely thereafter, and rallied 44% over the next year.

Summary: Although we anticipate an eventual drop below S&P 1,800, today’s lows increase the odds of at least a temporary rally. The risk/reward ratio is now attractive. Buy S&P 500 around 1,828 or SPY around 183.”

Although this rally may relapse eventually, Thursday’s dip provided a low-risk entry, to get some ‘skin in the game’ in case this turns into a runaway rally with higher than anticipated targets.

The S&P 500 has been tracking our yellow projection (see chart below) – initially published in the January 13 and 24 Profit Radar Report updates – very well, and may continue to do so.

Please keep in mind that the yellow projection was adjusted via the Wednesday, February 10, Profit Radar Report to show only a marginal low followed by a less dynamic bounce.

The updated projection with target levels is available to Profit Radar Report subscribers. Test drive the Profit Radar Report here.

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.