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.

 

Are Stocks Quietly Deteriorating or Revving up for More Gains?

Every major market index has been marching to the beat of their own drum.

The Nasdaq-100 just slid to the lowest level since May 18, while the Dow Jones Industrial Average (DJIA) set a new all-time (intraday) high just on Monday. The S&P 500 is about a percent below its all-time high.

Some reason that there’s no longer enough liquidity to buoy the whole market.

This begs the question, if all this range bound churning is a sign of internal deterioration (and the ‘inevitable’ drop) or if stocks are just taking a breather and revving up for the next spurt higher?

KISS – Bottom Line

The May 29, 2017 Profit Radar Report already observed this: “There are times when indicators line up and we discuss (high) probabilities, and there are times when indicators conflict, and we are forced to discuss possibilities. Unfortunately the later is the case right now.

Each of the major indexes is tracing out a different EWT pattern, breadth measures, seasonality and investor sentiment do not offer a clear message. Therefore we are reduced to dealing with possibilities.

The weight of evidence suggests that in the not so distant future stocks will run into some trouble. The up side target for the S&P 500 is 2,450 – 2,530. The S&P 500, Russell 2000, DJIA and Nasdaq-100 are all overbought, but above short-term support. As long as this support holds, more gains are likely.”

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.

Not Exciting, but Effective

Ever since we’ve been watching support (which has been at 2,420 for the S&P 500) as stocks have gone nowhere. It should be noted that the 2,420 support level is becoming too obvious and therefore less important. The June 25 Profit Radar Report stated that: “A move below 2,420 (especially 2,400) would increase the odds that a multi-week/month top is in.”

Watching support (and resistance) is not the most exciting approach to market forecasting, but there are times where it’s best to realize there are no clear signals (such as in May), and simply wait for the market to offer the next actionable clue.

This approach protects against overtrading or the anxiety associated with a non-performing (or worse, losing) trade. In short, it provides a measure of peace of mind, a rare commodity in this market.

Summary

Mid-and long-term, our comprehensive S&P 500 forecast remains on track.

Short-term, we are waiting if the S&P pushes deeper into the 2,450 – 2,530 target zone, or if the June 19 high at 2,454 was the beginning of a more protracted (but temporary correction).

Whichever direction the market breaks, it will eventually be reversed. Ideally, we are looking to sell the rips (above 2,454 if we get it) and buy the eventual dip (although this dip may last longer than many expect).

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.

September is Here, Could it Make Sense to Buy Stocks in Worst Month of Year?

The July 4, 2016 Profit Radar Report featured the following S&P 500 projection.

Based on this projection, the S&P was to rally to about 2,195 followed by a pullback to about 2,155.

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

Despite a prolonged trading range, the S&P followed this projection very closely. It rallied as high as 2,193.81 and subsequently slid as low as 2,157.09 (see ‘are we here’ arrow).

Does that mean that the next leg higher us about to launch?

The Big Question

It could be. The question is whether stocks will correct further before the next rally or not.

Under normal condition, stocks should pull back further. However, we’ve seen one of the longest and tightest trading ranges in history (July 14 until today).

This trading range was enough to digest over bought readings caused by the post-Brexit spike. We may have just seen a correction in time rather than price.

However, in terms of seasonality, September is the worst month of the year. Buying in September is less than ideal.

October, on the other hand, has often served as launching pad, most recently in 2014 and 2015.

Best Setup

Further weakness with targets around 2,150 – 2,130 and 2,130 – 2,070 reached later in September or in October would certainly set up a much better buying opportunity than chasing price around 2,200 in September.

We consider any pullback into the above ranges a gift. Life is always more pleasant if you receive a present. If we’ll get it, we’ll certainly accept it (buy stocks), but we can’t bank on it.

If the market moves higher soon without noteworthy pullback, we’ll have to deal with it, and determine whether it’s a temporary or a sustainable move higher.

Short-term, the S&P has broken outside of the descending black trend channel and butting against minor resistance (see chart above). Based on the put/call ratio and short-term RSI, the S&P is nearing overbought, but as long as trade remains above the black trend channel, the S&P may venture higher.

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.

 

How Stocks Escaped from 3 ‘Unavoidable’ Bear Markets

This bull market has been counted out many times. Just over the past few years, stocks faced three – allegedly – unavoidable bear markets … and escaped all of them.

Here are the three ‘unavoidable’ bear markets, and why stocks escaped:

Unavoidable Rate Hike Bear Market

Starting in 2015, the Federal Reserve let it be known that interest rates will be rising.

According to the pros, rising rates would sink stocks. After all, that’s why the Fed kept them near zero for so long.

However, history simply doesn’t agree with this conclusion. The April 26, 2015 Profit Radar Report used the chart below to illustrated that rising rates are not bearish.

In fact, 9 of the 13 periods of falling rates (since 1954) saw stocks rally. That’s why the Profit Radar Report concluded that: “A rate hike disclosed at the April, June, July or even September or October FOMC meetings is unlikely to coincide with a major S&P 500 top.”

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

Unavoidable Oil Slump Bear Market

Falling oil prices were the hot topic as prices dropped 50% from June – December 2014.

The general opinion was that falling oil prices would send stocks lower, like in 2008.

The December 14, 2014 Profit Radar Report ousted this bogus reasoning with the chart and commentary below:

This year’s oil price collapse differs from the 2008 collapse relative to the S&P 500. In 2008, the S&P 500 topped before oil did. In fact, the S&P 500 recorded its all-time high in October 2007 and was already down 21% by the time oil topped on July 11, 2008. In 2014, the S&P 500 recorded new all-time highs five months after oil started to decline.

The chart below plots oil against the S&P 500 and shows that falling oil prices are not consistently bearish for stocks. If history can be used as a guide, stocks are likely to hold up despite the oil meltdown.”

Unavoidable QE Bear Market

In 2008, the Federal Reserve unleashed it’s first round of Quantitative Easing (QE). A couple trillion dollars later, QE came to an end in October 2014.

Investors feared the withdrawal of QE would sink stocks (just like a junkie will crash without new fix).

The simplified logic (QE started this bull market, the end of QE will finish the bull market) seemed logical, but it wasn’t factual.

The October 5, 2015 Profit Radar Report plotted the QE money flow against the S&P 500 and concluded that: “We expect new bull market highs in 2015.”

Why?

The correlation between QE and stocks (at least in 2013/2014) did not support the notion of a bull market end. More importantly, our major market top indicator said the bull market is not over.

2016 Bear Market?

At the beginning of the year, when the S&P traded near 1,900, the media found countless of reasons why the bear market is finally here (many of them are listed here).

About six months and a 15% rally later, it’s obvious that the bull market is alive and well.

Short-term, the S&P has reached the lower end of our up side target range, so a pullback becomes more likely (more details here). However, any pullback should serve as a buying opportunity.

If you are looking for common sense, out-of-the-box analysis, check out the Profit Radar Report. It may just make you the best-informed investor you know.

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 – 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.

 

My Worst ‘Mistake’ of the Year

Allow me to tell the painful tale of a perfectly timed short S&P 500 trade. This is a classic example of where doing what is right feels so wrong.

The Short Entry

Via the June 8, Profit Radar Report, I recommended to short the S&P 500. We called this the most promising setup since we bought the S&P at 1,828 on February 11.

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

The short entry turned out to be perfectly timed as the market sold off right afterwards.

Ignoring Brexit

Unlike many pundits and analysts, I didn’t participate in the Brexit/Bremain speculation. Why? Trying to predict the unpredictable is a fool’s errand, as the headlines below show:

  • MarketWatch: Bollinger Bands Suggest Stocks Could Break Out in a Big Way
  • Wall Street Journal: U.S. Stocks Rally as Markets Bet on ‘Bremain’
  • Forbes: Stocks Rally with Brexit Looking Unlikely
  • MarketWatch: Stocks close higher as Wall Street bets U.K. Will Vote to Stay in EU

The market proved the above headlines wrong just one day after they were written.

Indictor Toolbox Correctly Foresees Brexit Reaction

In hindsight, it becomes clear that our indicators accurately predicted what was to happen last week (the week of the Brexit vote). Here is outlook published via the June 19 Profit Radar Report:

In terms of seasonality, the week after June Triple Witching has been dismal, down 10 of the past 11 years. Based on Elliott Wave Theor,y the S&P finished 5-waves up to complete wave 1 on June 8 at 2,120.55. Next should be a wave 2 decline. Waves 2 tend to retrace a Fibonacci 50% – 61.8% of the prior move. The ideal target range for a wave 2 correction is 1,970 – 1,925.

However, prior to resuming the down trend, the S&P may bounce to 2,090 – 2,110. It would take a move above 2,121 to unlock a much more bullish wave structure.

Summary: The positive market breadth divergence at Friday’s close suggests the market wants to bounce. Similar bouts of selling in the past have usually led to relief rallies. However, seasonality is bearish for next week. Perhaps we will get a little of both, an early week bounce to 2,090 – 2,110, followed by a late week sell off.”

The chart below (published along with the June 19 Profit Radar Report) highlights the mentioned down side targets.

As it turns out, the market followed the ‘script’ almost perfectly. It rallied the first part of the week, and sold of the last part of the week. However, … there was one big problem.

Only Mention of Brexit

The first and only time the Profit Radar Report mentioned the Brexit vote was on June 22, when it provided a timelime for when the UK vote results would be released.

In short, vote results would be available Friday around 7am GMT, which is 3am EST, which means Wall Street would be closed and subject to massive gap up or down open.

That was the biggest risk for investors and our S&P 500 short position.

The June 12 Profit Radar Report warned of this risk (in correlation with out short position) as follows:

Our biggest worry is finding the best stop-loss level. The S&P is already nearing an oversold condition as it’s approaching the first support zone, which increases the odds of a bounce. Based on the open chart gaps, a bounce above 2,110 (our entry level is possible).

Worst-case scenario (assuming a stop-loss at 2,110) would be a bounce above 2,110, followed by another leg lower. Based on Elliott Wave Theory, that’ possible. However, raising the stop-loss would increase risk.”

On Wednesday before the vote, two VIX-based indicators registered sentiment extremes that have led to rallies on the past.

On Thursday before the vote, the S&P 500 moved above 2,110. This stopped us out of our short S&P 500 position at breakeven … at the worst possible time.

The next day, the S&P gapped lower and dropped to 2,054 within the first hour of trading. Unfortunately we weren’t on that bus.

Better Safe than Sorry

A couple of decades of managing other’s people money have taught me to always err on the side of caution. Although much of the evidence suggested a resolution to the down side, holding on to the short position overnight would have been closer to gambling than prudent risk management.

Due to the time difference between the UK and the US, and the associated gap up or gap down open, prudent risk management was impossible. Although we’d love to have made money of the post-Brexit meltdown, fortunately the worst-case scenario for us is to be out of the market while many other investors are suffering a big hit on their portfolio.

Still, never has doing the right (the prudent) thing felt so wrong.

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.

If you enjoy quality, hand-crafted research, >> Sign up for the FREE iSPYETF Newsletter

Bears Get Another Shot at Taking Stocks Down

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

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

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

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

The chart below shows a number of interesting developments:

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

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

Misconceptions

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

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

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

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

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

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

Summary

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

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

Continued S&P 500 analysis is available via the Profit Radar Report.

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

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