S&P 500 Update – Big Fake or Little Fake?

As mentioned in the last S&P 500 update we were looking for stocks to continue lower into the next target/inflection zone, which was around 2,740 (May 29 Profit Radar Report: “We expect 2,740 – 2,720 to be reached. From there, a larger bounce may develop.”).

Sunday’s (June 2) Profit Radar Report featured the chart below and stated that: “S&P 500 Futures are down some 15 points in Sunday night’s session and already reached their first target. Aggressive investors afraid of missing out on a bounce (which could turn into something more) may put some money to work.”

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.

This bounce happened, and it happened quickly and honestly stronger than I expected.

Big Fake or Little Fake?

Now the question is: Will stocks relapse or continue to new all-time highs?

The chart below shows that the S&P 500 fell as low as 2,728.81 on Monday. This drop closed the open chart gap at 2,744.13 and tagged Fibonacci target at 2,739.45, where wave c = wave a (a common target for waves c). The open chart gap at 2,851.11 is the next up side target (I wrote about the power of chart gaps here last week).

In terms of breadth, this week’s market action was bullish. Despite Monday’s 6-point drop, 65.03% of NYSE stocks advanced (strength ‘under the hood’), and on Tuesday, 81.48% of NYSE stocks advanced.

The horizontal blue line helps us determine other times when more than 80% of stocks advanced. In general it’s been a positive (green lines), but there’ve been false signals as well (May 16, red line and October 16, 2018, not shown).

So Tuesday’s strong up day is positive, but not an infallible buy signal.

I still prefer for this rally to relapse. The question is how high it will rally and relapse (big fake, or little fake). The June 2 Profit Radar Report outlined the 4 most likely paths going forward. One was already eliminated by this week’s action. That leaves three. Continued updates, projections, and buy/sell recommendations are available via the Profit Radar Report.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s 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.

 

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Finding an Edge in a Dull Stock Market

How to gain an edge:

A bear jumps out of a bush and starts chasing two hikers. They both start running for their lives, but then one of them stops to put on his running shoes. “What are you doing? You can’t outrun a bear!” says one hiker, the other one replies: “True, but I don’t have to outrun the bear; I only have to outrun you!”

What’s the point? The market is the composite opinion of all other investors. In essence, you beat ‘the market’ (aka the ‘bear’) by knowing more than your fellow investors (aka the other ‘hiker’). Knowledge is the edge.

I consistently follow dozes of different indicators, which fall into one of these four categories:

  • Supply & demand (liquidity)
  • Technical analysis
  • Investor sentiment
  • Seasonalities & cycles

When all or most indicators point in the same direction, there’s a good chance stocks will move in that very direction. I call this a high probability trade.

The last such signal occurred in December, when liquidity, sentiment, technicals and seasonality pointed higher. The bullish weight of evidence, at that time, was discussed in this article: Is the Bear Market Over?

Since then, the S&P 500 has gained more than 20%. How much further can stocks rally?

Investor Sentiment

Some sentiment gauges show elevated optimism, but considering the strong Q1 2019 performance, overall sentiment is surprisingly subdued. Shown below is a selection of six different sentiment indicators. None of them shows an extreme reading. Without extremes, sentiment doesn’t provide an edge. It is possible for stocks to move higher.

Technical analysis

Short-term: The S&P 500 is nearing over-bought and is facing mild resistance. The chart below highlights trend line resistance and horizontal volume resitance (volume by price not date) for the S&P 500 futures. Now doesn’t appear to be the time to chase price.

Longer-term: The trend is your friend, but the risk of being ‘un-friended’ exists, and it’s difficult to find low-risk entries in an market that’s driven by momentum, but on the edge of being over-extended.

Elliott Wave Theory, the most exotic tool in the technical analysis tool box, is up to interpretation and of little help (more details here).

Supply & demand

Liquidity continues to flow into US stocks. Uncertainty in the European Union and money on the sidelines in the US are a likely cause for the continued inflows. My favorite liquidity indicator suggested throughout 2016, 2017, and 2018 that new all-time highs will be reached, and that message continues to be the same.

Seasonality & cycles

Bullish mid-term election year seasonal forces, discussed here, appeared late, but they did show up.

Based on mid-term seasonality, more gains are likely, but general S&P 500 seasonality is entering a higher risk window.

Cycles are conflicting.

Summary

There are times when most indicators point in the same direction (as in December), making a directional forecast easy.

And there are also times when indicators are in conflict, such as now.

That doesn’t mean we are left entirely clueless. Based on the market’s pattern in early March, we expected the S&P 500 to see-saw across obvious resistance at 2,815 and secondary resistance at 2,830. The S&P spent two weeks doing just that. But in order to unlock lower targets, it would have had to break below 2,785, which it didn’t.

Periods of relative uncertainty are always frustrating, but two things should be kept in mind:

  1. It’s good to know when visibility is limited and act accordingly. Would you trust on Uber driver who’s speeding in the fog? Can you trust an analysts who’s ignorant of ,or over confident in periods of uncertainty? Knowing there is no edge, is an edge in itself.
  2. Periods of uncertainty always end!

And when certainty returns, the Profit Radar Report will be there.

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.

Will Momentum Continue to Push Stocks Higher?

From December 3 – December 26, 2018, the S&P 500 lost 453 points. Since then, the S&P rallied 400 points.

Who would have thought that the worst December since 1931 would be followed by the best January since 1987?

Extremes Everywhere

We are truly living in a world of extremes. The rich are getting richer, the poor are getting poorer while historic heat waves and polar vortexes ravage the globe. Stock market extremes fit into the picture.

Although the relentlessness of this rally was unexpected (at least for me), the Profit Radar Report highlighted a tell tale sign of the latest buying extreme when 90% of NYSE-traded stocks advanced on January 4 (blue columns).

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.

As the table and thumbnail charts below shows (originally published in the January 9 Profit Radar Report), this kind of breadth and momentum thrust is rare and almost always long-term bullish.

Confirmation?

The initial thrust is thus far confirmed by my favorite liquidity indicator (blue graph, first chart), which has already retraced 88.82% of its prior losses, significantly more than the 63% S&P 500 retracement.

A new high of the liquidity indicator prior to a S&P 500 high will be additional confirmation of further gains.

Momentum vs Over-bought

The S&P 500 ended Tuesday overbought (based on RSI-2 – bottom graph, first chart). This is not the first time the S&P has become over-bought, but in 2019 it’s been a ‘mind of matter’ pattern; As long as the market doesn’t mind, it doesn’t matter.

Red line resistance, the next potential speed bump, is around 2,745.

The Elliott Wave pattern for almost every major index is up to interpretation, but the Nasdaq-100 QQQ ETF pattern offers slightly more clarity than others.

As the chart above shows, QQQ could be completing a 5-wave move. Upon completion, a 5-wave move is followed by a correction (quite commonly a nasty one), and further gains.

One anomaly that also cautions against chasing stocks at this stage is the VIX. As the chart above shows, the VIX has fallen back to support around 15, in fact, it’s at the lowest level since October. At the same time, the S&P 500 is still below its 200-day SMA.

It’s unusual for the VIX to drop to a 3-4 month low while the S&P is still below its 200-day SMA. In fact, over the past 20 years it only happened during the 2001/02 and 2008 bear markets. Forward returns were consistently negative.

In summary, chasing stocks at this stage does not seem prudent. There should be a pullback … and who knows, perhaps the pullback also gathers momentum. We’ll evaluate when we get there.

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 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.

US Stocks: 5 Intriguing Charts, 1 Conclusion

Here is a look at the 5 (in my humble opinion) most intriguing and important charts right now. As you will notice, not all charts point in the same direction. Nevertheless, I will conclude with a weight of evidence-based conclusion.

1) S&P 500 Tug of War

The July 15 Profit Radar Report introduced subscribers to a massively bullish S&P 500 chart pattern with an up side target of 3,000+.

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.

The chart insert shows price since July 15. Thus far, triangle support has held, the pattern has not been invalidated, but also not confirmed.

Short-term, as brought out by the August 8 Profit Radar Report, sellers have a window of opportunity due to triple resistance around 2,860.

2) Nasdaq Resistance

The Nasdaq-100 QQQ is up against double resistance comprised of the red trend line and a Fibonacci projection level going back to its 2002 low. As long as resistance holds, bears have a window of opportunity to take QQQ lower.

3) Bear’s Best Friend

All major indexes (S&P 500, Dow Jones, Nasdaq, Russell 2000) have been dancing to the beat of their own drum.

For a broader assessment of US stock’s health, some look at the NY Composite (NYC), which includes some 2000 stocks.

The NYC thus far only retraced 61.8% of the decline from the January high. 61.8 is a Fibonacci number, in fact, it is the ideal retracement of a counter trend rally, a dead cat bounce. That’s what makes the NYC “bear’s best friend” right now.

A look under the hood however, reveals two important facts:

  • More stocks have been advancing than declining (blue graph)
  • The ratio of advancing stocks has slowed significantly (gray graph)

Based on the NYC advance/decline line and ratio, the most likely outcome is short-term weakness followed by longer-term strength.

4) VIX

The August 1 Profit Radar Report published the chart below, which plots the VIX against hedgers’ (smart money) exposure and seasonality. Based on those factors, a spike to 17 (red trend line) seemed likely.

This week, the VIX spiked from 10.17 to 15.02, a 47% move. Higher readings are still possible.

5) Doom-and-Gloom Hurray

Investors loved doom-and-gloom stories a couple weeks ago. I took a screenshot of most popular MarketWatch articles on July 31. The top two were:

  • Prepare for the biggest stock-market selloff in months, Morgan Stanley warns
  • This ‘prophet of doom’ predicts stock market will plunge more than 50%

Admittedly that’s anecdotal evidence, but heavily bearish investors tend to get burnt first. The early August rally did just that.

Conclusion

If you want to be bullish, there’s plenty of data to support your view.

If you want to be bearish, there’s plenty of data to support your view, too.

Looking at the data objectively, my conclusion (based on the weight of evidence) is that short-term weakness will provide at least one more buying opportunity.

Weakness may not materialize if the S&P 500, Nasdaq, NY Composite move above their respective resistance levels.

Support levels, up side targets and continuous updates are available in the Profit Radar Report.

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.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

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

February Mini Meltdown: Warning Signal or Buying Opportunity

What caused the February meltdown? If you are looking for another strong opinion, sorry, you won’t find it here.

Before we address the more important issue – whether now is the time to buy or sell – here is one tell-tale sign (of what contributed to the ‘meltdown’) brought out by the January 29 Profit Radar Report.

On Friday, the S&P 500 jumped more than 1% to a new all-time high with less than 55% of stocks advancing, another one of those unusual events. The only other times this happened was once in 1987 and thrice in 1999. All four events were followed by minor 2-8% immediate corrections, and eventually big corrections and bear markets.”

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.

The correction sure was immediate, and it didn’t stop at 2-8%.

Buy or Sell?

Since much of the recent market action happened overnight, we’ll first be looking at the S&P 500 futures chart, which includes overnight trading activity.

The February 5 and 6 Profit Radar Reports published the chart below and stated: “Based on the extremely oversold readings, a bounce is becoming highly likely. S&P 500 futures tested the 200-day SMA and 38.2% Fibonacci. From high to low, the S&P 500 futures lost 12.14%. This is already more than the 5-10% correction we anticipated and close to the 14.38% loss (on average based on the last 4 cycles) leading into the mid-term low (see 2018 S&P 500 Forecast).”

The S&P 500 cash index looks a little different, as the pullback was ‘only’ 9.74%.

Here is one reason why we expect eventual all-time highs: RSI-2 was overbought, which suggested risk, but RSI-35 confirmed the January 26 all-time high.

RSI-35 also confirmed the December 2016 and March 2017 highs. As we mentioned many times in recent years, stocks rarely ever carve out a major top at peek momentum.

Conclusion

This clearly is a market that plays by its own rules (the rules are: there are no rules). Nevertheless, nearly all our studies and indicators suggest a resumption of the bull market once this correction is over.

S&P 500 futures already met our down side target, the S&P 500 cash index not yet. Ideally we’ll see a test of the panic low with a bullish divergence for a higher probability buy signal.

Either way, we consider this a buy the dip market. Continued updates and trade recommendation 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 Update

2017 was one of the most unique years ever, not just for the stock market, also in terms of world events and natural catastrophes.

An almost unprecedented phenomenon was that of strong stock market momentum.

The November 19, 2017 Profit Radar Report pointed out that:

The S&P 500 was higher 8 of the first 9 months of 2017. This has only happened 8 other times (1936, 1950, 1954, 1958, 1964, 1995, 1996, 2006). 2, 3, 6, and 12 month later the S&P was higher every time but one (0.7% loss 2 month later in 1964). Such strong momentum readings (and they are seen across all time frames) are extremely rare. As mentioned back in December 2016 and March 2017, stocks rarely ever top at peek momentum. We have to go back to 1995/96 to find similarly strong and persistent up side momentum.”

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.

Diametrically Opposed

Strong momentum was in direct contrast to some of the oddest breadth readings ever, also mentioned by the November 19, 2017 PRR:

Despite stocks hovering near all-time highs, there have almost been as many stocks with bearish extremes (new 52-week lows or oversold RSI) as bullish extremes (52-week highs or overbought RSI). This happened on multiple days. For example:

Last week more than 8% of stocks had a RSI reading above 70 (overbought). At the same time more than 8% of stocks had a RSI reading below 30 (oversold).

The week before last week saw a lot of buying and selling climaxes at the same time.

At some point last week, 4% of stocks registered new 52-week lows while 30% of S&P 500 stocks fell below their 200-day SMA. That’s dispite stocks being near their all-time high.

This kind of split market is rare (when it occurs near all-time highs) and historically unhealthy (it triggered a cluster of Hindenburg signals). Similar (bad) breadth readings existed 11 other times since 1998. 1, 2 and 3 month later the S&P 500 was down 76% of the time.”

Reconciling Conflicting Indicators

There was no easy way to reconcile the conflict among indicators, but the November 19 PRR concluded that: “Therefore it seems more likely that momentum (supported by seasonality) will trump breadth and push prices higher in coming weeks.”

At times like these, it’s often best to use simple trend lines as arbitrator. The November 28, 2017 Profit Radar Report pointed out a Dow Jones Industrial Average (DJIA) breakout (see chart) and stated:

The DJIA closed for the first time above the (now) green trend line going back to April 2016 (blue circle). As long as trade remains above the trend line, we’ll allow for further gains.”

On December 15, the S&P 500 closed above its respective trend line, and the Profit Radar Report stated: “The S&P 500 closed above the red trend line for the first time (similar to the DJIA on November 28). While above this trend line, gains may continue (even accelerate).”

An up side target in the low to mid 2,700s was given (and already exceeded).

Outlook

Stocks are now at a position similar to December 13, 2016, and March 2017, when the PRR pointed out that: “Stocks rarely ever top at peak momentum.”

Of course, stocks are now also overbought and have become over-loved. This means there is a fair amount of short-term risk. However, it will take some down side ‘escape velocity’ to break the up side momentum and spook investors.

If and once this happens, we anticipate a 5-10% pullback.

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 profile of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, and 24.52% in 2015.

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

 

S&P 500 Update: End of Growth Spurt?

Since the presidential election (November, 2016), the S&P 500 enjoyed three distinctive ‘growth spurts’ (chart below, green arrows).

The first one ended on December 12, 2016, the second one ended on March 1. What about the third one?

End of Growth Spurt?

The December 14, 2016 PRR and the March 5, 2017 Profit Radar Reports stated that: “Stocks rarely ever top at peak momentum. Any pullback should be temporary in nature. The question is how temporary.”

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

The December 14 and March 5 peak momentum highs were followed by sideways corrections and eventually new highs.

The latest all-time high (July 27), however, did not occur on peak momentum. RSI-35 (momentum indicator) is now obviously lagging. The reverse conclusion is that risk of a top is higher today than it was in December and March.

However, our ‘secret sauce’ liquidity indicator (more details about ‘secret sauce’ is available here) is at new all-time highs.

Several times since the 2016 low, the Profit Radar Report stated that: “Our liquidity indicator is already at new all-time highs, it’s just a matter of time until the S&P 500 will follow.”

Short-term vs Long-term

In general, RSI divergences tend to be more short-term (weeks) in nature, while ‘secret sauce’ is longer-term (months). This would translate into shorter-term risk, but longer-term gains.

Up Side Target

For the past year, the Profit Radar Report’s S&P 500 up side target has been around 2,500 (more details here), and a ‘melt up alert’ was issued in 2016.

Now that the S&P 500 as good as reached our up side target, we are using (ascending) short-term trend lines/channels to help narrow down the final squiggles.

So far, the low end of our target was missed by one point. This may have been enough, but for now we are allowing for another stab higher.

Continued analysis along with up-and down side targets and trading recommendations are available via the Profit Radar Report.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, 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.