S&P 500: Surprisingly ‘Normal and Predictable’

Considering the political cross currents, the S&P 500 has been acting surprisingly normal, even predictable.

In terms of support and resistance levels, the S&P has stopped and accelerated pretty much exactly where it ‘was supposed to.’

The weekly S&P 500 chart below highlights 3 different support/resistance levels.

• Triangle with support at 2,800
• January high resistance at 2,873
• Trend channel with current support at 2,878

Past Interaction with Support/Resistance Levels

The daily S&P 500 chart shows that triangle resistance at 2,800 served as resistance (red dots) until mid-July. The July 15 Profit Radar Report highlighted this scenario: “The S&P is about to break out of a multi-month triangle with an up side target above 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.

Following the breakout at 2,800, resistance turned into support, and the S&P tested (now) support at 2,800 multiple times (green dots and ovals) before moving on to the next resistance formed by the blue trend channel and the January high (2,865 – 2,875).

Future Interaction with Support/Resistance Levels

Initially the S&P was rejected by resistance at 2,865 – 2875, this led to a test of support at 2,800. Eventually trade popped above 2,875, and made it as high as 2,916.

As before, prior resistance (2,875 – 2,865) is now support, and the August 29 Profit Radar Report wrote that: “It would be normal for the S&P 500 to test its breakout level around 2,875.”

The S&P tested 2,875 today, and as long as it stays above support, odds favor another rally leg.

Sustained trade below 2,875 will put bullish bets on hold.

The above analysis is based on simple support and resistance levels. The Profit Radar Report enhances basic common sense analysis with other trusted indicators – such as liquidity, sentiment, and seasonality & cycles – to increase the odds of winning trades.

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, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

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Russell 2000 Slices Below Triple Support and Captures First Target

The Russell 2000 chart provides a very unique glimpse at the market’s structure and how past performance may influence future price action. Here’s a closer look at the Russell and its effect on the broader market.

The Russell 2000 chart brings meaning to the term ‘stair-stepping higher.’

The Russell 2000 (NYSEArca: IWM) has been moving higher one leg at a time within a well-defined trend channel for over a year.

As highlighted yesterday in the Profit Radar Report, the Russell 2000 sliced below triple support and continued lower today until it hit support and captured the first down side target.

Unlike the Russell 2000, the S&P 500 closed within its trading range yesterday.

The S&P 500 (SNP: ^GSPC) chart below shows the S&P 500 as of yesterday’s close.

Yesterday’s Profit Radar Report proposed that: “Although the S&P 500 and Dow Jones remain above short-term support, the deterioration of higher beta indexes (Russell 2000 and Nasdaq) hint at more down side also for the S&P and Dow.”

How much more down side?

Here’s where the stair-step ascent makes pinpointing a down side target tricky.

Every prior high and prior low may serve as support and spark a rally.

The Profit Radar Report monitors technicals, seasonality, and sentiment to identify high probability support levels.

A closer look at seasonality is available here:

The Most Bearish Week of Q1 is Almost Over – What about April?

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.

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Insider Trading just Became Legal

Only a small group of Americans is allowed to legally trade based on insider information. Fortunately for the rest of us, there is a perfectly legal trick to get an edge. All that’s needed is a computer, a set of eyes and some study time.

Congressmen are legally permitted to trade based on insider information.

There’ve been cases where even the Federal Reserve leaked information to Wall Street before it hit the newswires and average mortal investors.

High Frequency Trading (HFT) is not considered insider trading, but – like insider trading – HFT is based on information not yet received by ‘the herd.’

Legal ‘Insider Information’ for Everyone

Unbeknownst to many, investors also have access to legal ‘insider information,’ but most don’t take advantage of it. All it takes is a computer and watchful eyes.

Allow me to illustrate the power of legal insider info (do not peek ahead to the second chart). Take a look at the S&P 500  chart below. Do you see anything suspicious?

You should, because all the information you need to pocket a 15%+ profit is right there.

Now take a look at the same S&P 500 chart.

One single line changes the complexion of the entire chart. More than that, trading based on the red line break down resulted in a gain of 200+ S&P 500 (NYSEArca: SPY) points to the upside (green ovals) and 200+ S&P 500 points on the down side (red oval).

The red line provided strong support on several instances (green ovals) and a break below support (red oval) was an obvious sell signal. In my actual July 28, 2011 (one day before the red oval break down) note to subscribers, I warned that: “A break below the red trend line may trigger panic selling”.

The legal ‘insider information’ available to everybody is support/resistance (S/R) levels.

S/R levels work like subway stations. Imagine a New York subway, it can stop anywhere but is most likely to stop at the next station. S/R levels are the most likely place for the market to turn around and reverse trend.

When the market moves beyond one S/R level, it is likely to move on to the next “station.” Once resistance has been broken, it becomes support and once support has been broken it becomes resistance.

The Biggest Benefit of S/R Levels

S/R levels allow us to pinpoint low-risk buy, sell, and stop-loss levels.

The real beauty of S/R levels is that they let us know exactly when we are wrong. There is nearly no guesswork and we can enter any trade with confidence that even the worst-case scenario would be only a small loss. Nearly every trade against S/R levels is a low-risk trade.

Here’s a very recent example.

The Dow Jones  chart below shows the recent collision of the Dow Jones with long-term trend line resistance.

The initial attempt to move above resistance was met with selling. After re-grouping, the Dow Jones was able to move above resistance and accelerated from there. Prior resistance is now support for the Dow Jones (NYSEArca: DIA).

The Profit Radar report went short at Dow Jones 16,100, covered the short position at 15,745 and noted that a move above the trend line means that the rally is ready to resume and quite possibly accelerate (unfortunately we didn’t get to go long the Dow or S&P 500 as the reversal after the Dec. 18 Fed meeting was just too quick).

This strategy doesn’t just work on paper. The worst trade (in terms of performance) recommended by the Profit Radar Report in 2013 is a 1.02% loss.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (stocks, 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. We are accountable for our work, because we track every recommendation (see track record below).

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XLF Financial ETF is Teetering Above Key Support

The average investor may not be aware of this, but the SPDR Financial ETF (XLF) is sitting right above major support. This in itself is noteworthy, but its message is further emphasized by the fact that the S&P 500 and Nasdaq are struggling to overcome major resistance.

The Financial Select Sector SPDR (NYSEArca: XLF) chart below features exactly the same support/resistance levels highlighted in my September 12 article about XLF.

It is interesting to note that XLF has come back to test support made up of prior support/resistance levels at 20.30 – 20.50.

We also note that XLF peeled away from resistance at 21.15, which was the September 2001 monthly candle low.

I’ve kept past trend lines on the chart to illustrate that XLF tends to respect support/resistance trend lines created by prior price action.

The green bubble, for example, marks a technical breakout in August 2012. This breakout was foretold by the August 5, 2012 Profit Radar Report, which stated that: “Financials are currently underloved. With such negative sentiment, a breakout above 14.90 could cause a quick spike in prices.”

The gray bubble highlights a fakeout trend line break, which can also be seen on the S&P 500 chart.

In fact, the October 7 Profit Radar Report expected the fakeout trend line break for the S&P 500 (at the time the S&P 500 trend line was at 1,668) and stated that: “A dip below 1,668 followed by a close above 1,671 would most likely be a buy signal.”

The fakeout dip below support was expected based on prior fakeout breakdowns that led to new highs (see chart below, originally published in the October 7 Profit Radar Report).

The S&P 500 (NYSEArca: SPY) and Nasdaq Composite (Nasdaq: ^IXIC) are currently bouncing against major long-term resistance. Failure to overcome resistance may cause a correction.

That’s why this support shelf for XLF gains additional importance. A drop below support for XLF will likely indicate more down side, while the ability to stay above would be net bullish for the broad market. The chart for the Vanguard Financial ETF (NYSEArca: VFH) looks similar.

Summary

Investors should keep a close eye on whether support for XLF and resistance for the S&P 500 and Nasdaq holds.

As long as both hold, the broad market is ‘trapped’ in a sideways range (as we’ve seen over the last two weeks).

Where is key resistance for the S&P 500 and Nasdaq? Detailed charts and commentary are available here: Nasdaq and S&P 500 Held Back by ‘Magic’ Resistance.

Simon Maierhofer is the publisher of the Profit Radar Report.

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Has the Year-end Rally Already Started?

Isn’t it too early to start talking about a year-end rally? It might well be, but the S&P 500 just started a pattern that led to extended rallies and new highs in 2012 and 2013. Just as important as identifying pattern, is  knowing exactly when it becomes void.

Ok, it may be a bit too premature to talk about the year-end rally, but retailers plan early for Halloween and Christmas, why shouldn’t investors look a few months ahead?

There actually is one strong technical indication that stocks have put in a bottom and are getting ready to move higher for a while.

First off, the S&P 500 (NYSEArca: SPY) and Nasdaq-100 (Nasdaq: QQQ) have not yet reached their ideal up side target (target levels available to subscribers of the Profit Radar Report).

That’s unfinished business on their to-do list and based on Thursday’s strong bounce, the Nasdaq and S&P seem intent to put a check mark behind those to-do items.

The short-term key to a bullish outcome is the green trend line shown in the S&P 500 chart below.

At first glance, the green trend line seems like a natural border between the bull and bear case. There used to be a time when trend lines like this worked like a charm. But the market’s character changed in 2011. Since then the S&P 500 has broken similar trend lines various times and recovered every time.

The green trend line just got violated, is it still valid? Yes, especially so.

Allow me to use this excerpt from the October 7 Profit Radar Report to explain why this is good news for bulls (this is one of the rare times we publish a large section of the Profit Radar Report for free):

Why We Were Looking for a ‘Broken’ Trend Line

“At first glance, the green trend line seems like a natural border between the bull and bear case. There used to be a time when trend lines like this worked like a charm. But the market’s character changed in 2011. Since then the S&P 500 has broken similar trend lines various times and recovered every time.

In 2012 and earlier in 2013 we successfully adjusted our strategy and waited for a drop below trend line support followed by a move back above to go long. The longer-term chart with additional trend lines shows that prior trend line breaks weren’t fatal (gray ovals).

Therefore going short against trend line resistance bears risks, especially since there are still unfulfilled up side targets (discussed in yesterday’s PRR) and an open chart gap (1,688) left by this mornings down open.

The main reason to search for a short entry point is that we do not want to miss out on a potentially sizeable decline. Bold green trend line support is at 1,668 tomorrow. A drop below 1,668 is not necessarily a sell signal. However, due to the potential for a larger decline, we will go short if the S&P drops below 1,665 (a 3-point seesaw buffer zone) and a stop-loss at 1,675.

The scenario that appears to make most sense is a quick trip into the 1,660s or 1,650s followed by another rally to new all-time highs. We will therefore lower our stop-loss to virtually guarantee a winning trade.”

The S&P 500 (NYSEArca: IVV) followed our script pretty closely and based on similar technical patterns in 2012 and 2013, odds favor higher prices. Any trade below the green trend line and the trade is off. The up side target for this rally is available to subscribers of the Profit Radar Report.

There are two other variables that help assess the viability and longevity of an upcoming rally.

1) Viability of the rally: The VIX (Chicago Options: ^VIX) is about to a major seasonal turning point. Fore more information about VIX seasonality and the most unique VIX seasonality chart click here: VIX Seasonality Near Best Turning Point of the Year

2) Longevity of the rally: The S&P 500 has been closely following a 13-year and 7-year top and bottom cycle since the 1970. Both cycles will meet this and next year for a potent signal. For a detailed analysis of the S&P 500 cycles click here: S&P 500 Cycle Analysis

Simon Maierhofer is the publisher of the Profit Radar Report.

Follow Simon on Twitter @ iSPYETF

 

Where Will the Nasdaq and S&P 500 Mini Crash Stop?

For most of the year stocks – in particular the Nasdaq – have been on fire. Now investors are getting burnt. The most asked question is whether this is just a flash in the pan type correction or the beginning of something bigger.

The Nasdaq has gone from hero to zero in about three days.

There are probably many explanations for the Nasdaq’s temper tantrum. Technical analysis offers the most logical (and duplicatable) reason.

A number of my prior articles encouraged investors to watch upcoming resistance and immediate support. Why?

Just last week the Nasdaq-100 (Nasdaq: QQQ) was trading within striking distance of serious double Fibonacci resistance at 3,266 – 3,280 (the October 2 high was 3,256).

In addition, two long-term cycles are projecting a market top for 2013/2014 (more below).

Resistance levels for stocks are like traffic lights for cars. Resistance levels don’t guarantee that stocks will stop and take a u-turn, but – like a traffic light – they are the most likely place for a stop and/or u-turn.

The Nasdaq-100 chart below shows the key Fibonacci resistance and other trend lines we’ve been watching.

Yesterday the Nasdaq dropped below the upper black trend channel line and the longer-term red trend line just below.

The October 6 Profit Radar Report warned that: “We may be dealing with a bearish rising wedge and a deeper fall. We will go short with a drop below 3,185.”

The corresponding trigger level to go short the S&P 500 was 1,665.

As the Nasdaq chart above shows, there is no real support near current trade, so lower prices are still likely.

VIX seasonality suggests that stocks will rebound soon, but a 13 and 7-year S&P 500 (NYSEArca: SPY) cycle suggests that the coming year will be very tough for stocks. A much more detailed forecast is available to subscribers of the Profit Radar Report.

For more details on VIX seasonality click here: VIX Seasonality Near Best Turning Point of the Year

To read the full article about the 13 and 7-year cycles click here: 13-Year S&P 500 Cycles Project Market Top

Simon Maierhofer is the publisher of the Profit Radar Report.

Follow Simon on Twitter @ iSPYETF

The XLF Financial ETF Chart Looks Ominously Bearish

Uncertainty is one of the annoying staples of investing, but there are times when risk and uncertainty can be reduced to an absolute minimum. The Financial Select Sector SPDR ETF (XLF) is at such a low-risk inflection point right now.

Technical analysis is not infallible, but sometimes it allows you to pinpoint key inflection areas.

The Financial Select Sector SPDR ETF (NYSEArca: XLF) is at such a key inflection point right now.

The financial ETF (XLF) chart below offers a wealth of information:

1) XLF is butting against resistance created by the May 22 high.
2) The rally from the August 28 low has almost exactly retraced a Fibonacci 61.8%.
3) The current rally high could almost be considered the right shoulder of a head-and shoulders top (although there’s no real neckline).
4) Key resistance is at 20.32 – 20.60.
5) Key support is at 19.50 and 19.30.
6) There is a bearish RSI divergence at the July 23 high.

What Does All This Mean?

As long as trade stays below 20.60, odds favor lower prices ahead for XLF, potentially a sizeable decline.

How to Trade

There are two low-risk ways to trade XLF:

1) Go short now with a stop-loss above resistance or
2) Go short once support is broken.

Those are low-risk trades, not no risk trades.

Why Low Risk

Support/resistance levels act like traffic lights. A car driving down the street is most likely to stop (and reverse) at a traffic light. It doesn’t have to, but if the light is red it has to stop.

The XLF resistance level acts like a traffic light. XLF doesn’t have to stop there (in fact, a bullish case can be made if XLF breaks above resistance), but if XLF is going to stop and reverse, it will be at this ‘light.’

Overhead XLF resistance provides a stop-loss level, which exactly defines the risk of the trade. The potential gain is significantly larger than the potential loss, putting the risk reward ratio in favor of the short trade.

Only trading low-risk setups like this one results in about 60% winning trades, but the gains of the winning trades are 3-4 times bigger than the losses of the losing trades. The Profit Radar Report specializes in spotting such trade setups. The green bubble (August 5, 2012), marks when the Profit Radar Report stated: “Financials are currently underloved. With such negative sentiment, a breakout above 14.90 could cause a quick spike in prices.”

XLF echoes the current position of the S&P 500 (NYSEArca: SPY), which trades at a similar inflection point. The Nasdaq (Nasdaq: QQQ) has rallied much further than the S&P 500, the Dow Jones on the other hand (NYSEArca: DIA) has yet to catch up to the S&P 500.

Regardless of the short-term outlook for XLF, the financial sector is still plagued by serious issues.

Out of all people, it’s Hank Paulson – former Treasury Secretary (during the 2008 financial crisis) – who is addressing the vulnerability of the financial sector and actually warns of another financial ‘firestorm.’

More details here: Hank Paulson Warns of Another Financial Crisis

Simon Maierhofer is the publisher of the Profit Radar Report.

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The S&P 500 is Revealing Must Hold Support

Investing is about buying low and selling high, but it’s also about knowing when to simply wait. Don’t let a month of sideways trading lure you into making short-sighted decisions. Take a look at key technical support and wait for the trade to come to you.

The S&P is trading today where it was on May 22. In other words, no net progress in 2 ½ months.

For the last 30 days the S&P 500 has been stuck in a 37-point trading range.

Investing and trading is about knowing when to buy, sell and simply do nothing. Previously back on July 17, the Profit Radar Report said that: “the immediate down side is limited, the up side is limited as well.”

Sitting on the sideline doesn’t make you money, but it doesn’t lose you money either. Furthermore, not expecting any big moves allows you to wait without being on the edge about missing the next big move.

Like a fisherman waiting for the next big catch, investors and traders are waiting for the next big move. It may take patience, but the next big move always comes and nobody wants to miss it.

Key support helps identify the next big move, because once support is broken, prices generally move to the down side.

The 1-hour S&P 500 (SNP: ^GSPC) chart below reveals important support created by all the seemingly aimless churning of 20+ long trading days.

There is a trend line convergence in the low 1,680s along with the neckline of a possible head-and shoulders pattern.

There is also an open chart gap at 1,706. Chart gaps have been acting like a magnet for the S&P 500 (NYSEArca: SPY) and Nasdaq-100 (NYSEArca: QQQ). Fibonacci resistance is at 1,700 and 1,704 (could ultimately be trumped by the open chart gap).

I’m not ashamed to admit that I don’t know where the next short-term move will take stocks. In fact, in my Profit Radar Report I’ve declared 1,684 – 1,709 a trade-neutral zone.

But, a drop below the support cluster and head-and shoulders trend line should unlock a move to about 1,650 with more bearish potential thereafter.

What about the up side? The S&P 500 (NYSEArca: IVV) hasn’t hit our up side target yet, so new highs (now or after a correction) are still possible. Regardless, the up side is limited and becoming more and more risky.

Specific trades along with entry and exit levels are available via the Profit Radar Report.

Nasdaq-100 is Approaching Massive Resistance

The Nasdaq-100 has been a stock market trailblazer ever since the 2009 low. Despite its 210% gain, the Nasdaq is lagging well behind many other major indexes. This makes it an ideal target for technical analysis and long-term resistance studies.

Right now the Nasdaq-100 (QQQ) is better suited for technical analysis than almost any other broad market index.

That’s a bold statement, but there’s a good reason. Unlike the S&P 500, Dow Jones and many other indexes, the Nasdaq-100 is well below its all-time high.

Any index, stock or ETF at or near an all-time high has little up side resistance. Theoretically, the sky is the limit. Not so for the Nasdaq-100.

The chart below shows just two trend lines that have capped all of the Nasdaq’s recent advances and offered the same great trade setups (more below).

Right now the Nasdaq is butting up against red trend line resistance. The up side is obviously limited as long as prices stay below the red trend line.

Going short against the red trend line would be a low-risk trade setup simply because the risk is limited and well defined. However, I’m not inclined to short this market (yet).

Even if the Nasdaq-100 (Nasdaq: QQQ) moves above the red trend line, it is very close to massive resistance going back to its all-time high in 2000. The resistance is massive, because it’s made up of two separate Fibonacci levels converging in close proximity of each other (more below).

Support is provided by the green trend line. As long as prices remain above the green trend line, the trend is up.

The Profit Radar Report has been taking advantage of those two trend lines for months. When the Nasdaq double backed the red trend line on May 28, the Profit Radar Report recommended to go short.

A re-test of previously broken resistance is a bearish opportunity 8 out of 10 times.

The open chart gap left on June 20 was a clear signal that the index will come back up to fill this gap. Chart gaps act like magnets for price.

There’s an open chart gap just above 3,000. It too will be closed.

From Small to Big Picture

The red and green trend lines are ‘small fish’ compared to the truly massive resistance not far above current trade.

How the Nasdaq reacts at this key inflection point may well set the stage for the next year of trading. We’ll have to see what happens, but I believe the odds of a major top occurring against this massive resistance are greater than 50%.

The Profit Radar Report has revealed the key resistance level and how to trade the coming weeks.

ETF Trade SPY: Russell 2000 Nearing Danger Zone

The Russell 2000 is one of the top performing indexes this year. It outperformed most broad market and sector indexes, but is nearing resistance that’s kept a lid on every advance. Here’s how to tell if the R2k is ready to top out.

“Are we there yet?” If you are a parent you’ve no doubt heard this question.

Kids can be impatient and don’t read maps or GPSs, so the question makes sense.

Investors often ask themselves a similar question. Instead of “are we there yet?” they ask, “how much up side potential is there?” or is the stock ‘there’ (at its peak) yet.

The closest thing to a GPS for stocks are trend lines. Trend lines outline the path for stocks, indexes or ETFs.

The chart below shows a parallel channel for the Russell 2000 Index (Chicago Options: ^RUT).

At first glance it looks like the Russell is ‘getting there’ or approaching a possible top.

Like a tenacious woodpecker, the Russell 2000 keeps chipping away at parallel channel resistance without out actually penetrating.

This hasn’t hurt performance. Since the channel is ascending, the Russell 2000 can continue higher without ever breaking above the channel. But we see that almost every touch of the upper channel line (red circles) caused a temporary pullback.

The rally from the November 2012 and June 2013 low has been very steep and with all things that are too good to be true, the Russell will eventually give back some (or most?) of its gains.

RSI (gray circle) is already showing signs of fatigue. Although this is a small warning signal, RSI can lag for months and RSI-based sellers may miss a big portion of a rally.

The chart for the iShares Russell 2000 ETF (NYSEArca: IWM) and Vanguard Small Cap ETF (NYSEArca: VB), although not as crisp and clean, look very similar to the R2K index.

Since the Russell 2000 has outperformed the S&P 500 (SNP: ^GSPC) to the up side, it will probably outperform the S&P 500 to the down side. Now don’t go out and short the R2K or S&P right now, but you may mentally prepare for a possible shift from an up to down trend.

How To Spot a Top

Stretched rallies have a tendency to flame out with a trend channel over throw, where prices stage one last hurrah and spike above the channel. A close back below the channel often concludes the rally and kicks off a prolonged decline.

Any decline has to be confirmed by a drop below resistance, which didn’t happen in April and June (green circles).

The ETF Trade SPY is a free weekly feature that identifies ETFs near major inflection points created by support or resistance levels.

Prices near support/resistance levels tend to be great setups for low-risk trades. Why low-risk? Support/resistance is used as stop-loss and is an effective risk management tool.

If you only enter trades where your potential gain is bigger than your potential loss, you win.

To receive future issues of the free ETF SPY follow iSPYETF on Twitter @ iSPYETF.

ETF SPY History

XLK: July 24, 2013, ETF SPY predicted higher prices for XLK. Click here for XLK support and target levels.

Dow Theory: July 19, 2013 ETF SPY predicted higher prices for Dow Jones Industrial and Dow Jones Transportation Averages.

XLF: July 12, 2013 ETF SPY predicted higher prices for XLF along with a price target.