Comprehensive S&P 500 Update

The latest S&P 500 all-time high clocked in at 2,440 as the S&P 500 continues to plow over bearish forecasts

Will the S&P 500 in particular, and stocks in general, continue to slog higher?

Here is our comprehensive forecast based on the “four stock market engines:”

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

Supply & Demand

We first unveiled our favorite liquidity indicator in 2014. This indicator correctly foreshadowed the 1987, 2000 and 2007 market top and – aside from a timely caution signal in 2015 – persistently pointed towards continued bull market gains.

For readers of our free website, we’ve dubbed this indicator ‘secret sauce.’ Why, and how this indicator is used is explained here.

In short, major market tops have been preceded by bearish divergences (S&P 500 rallies to new all-time highs, secret sauce does not).

Throughout 2016 and 2017 however, there’ve only been bullish divergences (secret sauce rallies to new all-time highs, but the S&P 500 lags behind). The last four times this happened was on April 30, and April 9, 2017, September 22, and April 16, 2016 (see green arrows).

Each time the Profit Radar Report stated that: “[Secret sauce] is already at new highs. The S&P 500 will soon follow.”

Secret sauce just confirmed the latest S&P 500 high, which means a major market top is still many months away (this doesn’t mean we can’t see a correction though).

Technical Analysis

The most exotic ‘tool in the technical analysis box’ has also been the most accurate: Elliott Wave Theory. Therefore we will focus on Elliott Wave Theory for this update.

The charts below were initially published in the August 28, 2016, Profit Radar Report, and have been our roadmap ever since as the S&P moves toward 2,500.

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.

We have made some minor adjustments recently, which place the S&P near the beginning of a more pronounced, choppy correction (see ‘we are here’ on top graph). This correction would be labeled as wave 4 (likely intermediate degree).

Despite rising prices, there has been a measure of internal weakness (see chart below). There have been no strong up days (90% days, where 90% or more of volume flows into advancing stocks). The percentage of stocks above their 50-day SMA is also lagging.

This is compatible with a rally that’s nearing a (temporary) point of exhaustion.

Investor Sentiment

The chart below provides a long-term comparison between investor sentiment near the 2007 high and today.

In short, investors are not as euphoric about stocks today as they were in late 2007. Based on investor sentiment, stocks are not at a major market top.

In fact, stocks may still benefit from the pessimistic extremes seen in January/February 2016 (when the S&P traded below 1,900).

The January 29, 2016 Profit Radar Report stated that: “Sentiment turned pessimistic enough to become a bullish tailwind for the coming months.”

Seasonality & Cycles

Cycles project weakness later on in 2017 and seasonality is hitting a soft spot until September/October.

Conclusion

Once the S&P 500 reaches our up side target we will be looking for a more pronounced correction, but not the end of this bull market.

Continuous updates and actual buy sell recommendations (we haven’t had a losing trade since June 2015) are 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.

 

S&P 500 Update

This article was published on June 1, 2017 at 9:00am PST on iSPYETF.com

15 points in 12 weeks. That about sums up the S&P 500 ‘progress’ since March 1.

The March 21 Profit Radar Report warned that: “In terms of Elliott Wave Theory, the March 1 high (2,400.98) is a wave 3 high. This means we are in a wave 4 correction. Waves 4 are the most choppy, and unpredictable of all waves. The coming months will likely test investors patience.”

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.

Predicting a ‘go nowhere’ market is no fun, but it helps set expectations and limits frustration.

Even within trading ranges, there are brief bursts where the market telegraphs its next move.

For example: The May 7 Profit Radar Report featured this chart with 3 projections (based on Elliott Wave Theory).

Each option (green, dark blue, and light blue) projected a pullback around S&P 2,410 in mid-May followed by a renewed rally. The pullback happened on May 16, a day after the S&P hit 2,406.

Although this pullback failed to hit our buy trigger (which was set a bit lower), buyers stepped in as anticipated. The S&P has moved as high as 2,419 and is currently held back by trend channel resistance (see chart below).

The rally from the May 18 low at 2,353 seems to support the green Elliott Wave Theory-based projection. If that’s the case, the S&P will continue to move higher.

Although Elliott Wave Theory has been very accurate in recent years (it projected the February 2016 low and the ‘Trump rally’), there are reasons (i.e. lake of breadth, bearish divergences, ATR – see vertical red lines in chart above) to take this bullish Elliott Wave projection with a grain of salt.

Therefore it’s best to play the next moves step-by-step. A move above black trend channel resistance is required to unlock the next up side target (red trend line resistance around 2,430).

A move below 2,400 and 2,380 on the other hand, would seriously rattle the immediate bullish potential.

The longer-term outlook shared in the August 28 Profit Radar Report remains valid.

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.

 

Comprehensive S&P 500 Analysis Reveals Longevity of this Rally

The S&P 500 has soared almost 10% since Election Day. This move has been dubbed the Trump rally or Trump bump.

The media is quick to slap a label on an event (especially after the fact), but lest we forget that the media, analysts and pundits a) did not see a DJ Trump win and b) expected a market crash in the unlikely event of a DJ Trump win.

Key stock market indicators strongly suggested prior to the election that stocks would rally regardless of the election outcome (the four most powerful stock market indicators are discussed in detail here).

Here is what indicators said before the election, and what they are still telling us today:

Money Flow

The stock market is a supply and demand-based market place, that’s why money flow is one of the most important indicators. Falling demand will eventually be followed by falling prices and vice versa.

The September 25 Profit Radar Report published the chart below. The dark and light blue graphs make up our favorite money flow indicator (two versions of the same indicator). This indicator has correctly foreshadowed the 1987, 2000 and 2007 bear markets and projected higher prices since 2009 (except for a brief ‘caution’ signal in 2015). The indicator and its track record is discussed in detail here.

Out of respect for paying subscribers (who know the indicator’s real name), we will call this indicator ‘secret sauce.’

On September 22, the ‘secret sauce’ money flow indicator (blue graphs) rallied to new all-time highs even though the S&P 500 did not. This was to be longer-term bullish, because rising demand was to be followed by rising prices.

The percentage of stocks above their 50-day SMA (purple graphs) did not confirm the new ‘secret sauce’ highs. This suggested short-term weakness.

The September 25 Profit Radar Report concluded the following: “Longer-term: We are still looking for the S&P 500 to reach our long-standing up side target around 2,300. Short-term: We are waiting whether the S&P will break below 2,119 prior to moving higher.”

Investor Sentiment

Investors have been predominantly bearish throughout this bull market. Based on bearish investor sentiment (bullish for stocks), we never wavered from our position that a major market top is not visible.

For example, the Profit Radar Report’s 2016 S&P 500 Forecast stated back in January that: “Investor sentiment near the May 2015 all-time highs was not as euphoric as at prior tops and not bullish enough for a major market top.”

The January 29 Profit Radar Report, however, pointed out bearish sentiment extremes (bullish for stocks) and noted that: “The pessimistic extremes were relieved enough to allow for another drop lower in the coming days. A drop lower is not required, but would be a good buying opportunity if it happens.”

The buying opportunity appeared in February, when the S&P 500 dropped into the low 1,800s.

The most recent comprehensive sentiment update (November 27 Profit Radar Report) compared current sentiment with the 2015 S&P 500 highs (see chart below).

The conclusion: “On average, investors today are still not as bullish as one would expect at a major market top. This allows for, and suggests, further gains in the months to come.”

Technical Analysis

The August 28 Profit Radar Report showed three uber-bullish forward projections (shown here) and stated that: “At this point we don’t know the scope of any pullback, but EWT and the June breadth thrust suggest that any weakness will be bought (perhaps even furiously). We consider the longer-term up side potential to be significantly larger than the down side risk.”

The June breadth thrust is discussed in detail here: 2016 Bear Market Risk is Zero Based on this Rare but Consistent Pattern

A detailed technical analysis and Elliott Wave Theory-based outlook is available here: S&P 500 Update – Expect the Abnormal (the ‘abnormal’ refers to continuous gains despite overbought conditions).

Seasonality

S&P 500 seasonality is bullish for the entire fourth quarter into the New Year.

Conclusion

All important indicators pointed higher before the election. The question was only how much of a pullback and how deep of a shakeout move we’ll get prior to the melt up. “The question therefore is not if stocks will rally, but when they will rally” was the conclusion shared in this MarketWatch article.

An indicator-based investment approach is superior to a news-based approach.

Using multiple credible and time-tested indicators further enhances results, especially when all indicators point in the same direction (such as before the election).

The image below illustrates how the odds of a winning trade are improved by a multi-indicator approach.

This doesn’t guarantee a profitable trade, but Profit Radar Report subscribers rarely ever find themselves on the wrong side of the trade.

Short-term, the market is overbought and over-loved and may pull back, but the bullish longer-term factors present months ago (aside from sentiment) remain valid.

Continuous updates with actual buy/sell 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 – Expect the Abnormal?

Last week the S&P 500 almost reached the year-end target (2,220) given by the Profit Radar Report back in January. What’s next?

The S&P 500 is up 130 points since the beginning of the month, S&P 500 futures soared as much as 183 points.

Stocks are overbought, and under normal circumstances there should be a noteworthy pullback. But there is reason to expect the abnormal.

When Abnormal Becomes Reality

The August 28 Profit Radar Report published an uber-bullish Elliott Wave Theory-based projection. The Profit Radar Report’s forecasts are always built on multiple indicators, and this bullish projection was confirmed by liquidity, long-term investor sentiment and bullish year-end seasonality.

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.

The excerpt below is longer than usual, but it explains why an ‘abnormally’ strong rally was likely to develop. From the August 28 Profit Radar Report:

The two main reasons we want to buy in the foreseeable future is:

1) The breadth thrust off the June low (July 4 PRR)
2) Bullish Elliott Wave Theory potential

We never rely unduly on any one single indicator. It is noteworthy however, that the three most likely Elliott Wave Theory (EWT) interpretations are all bullish. The degree of bullishness varies, but according to EWT, more gains are ahead. The question is not if, but how much and for how long.

The first chart below shows conceptually where the S&P 500 is at relative to the three most likely EWT options along with the odds for each scenario.

The second chart provides a more detailed (yet basic) outline/labeling of EWT counts #1 (45% probability – light green) and #2 (35% probability – dark green).

What we are focused on for now is the most likely scope of any pullback. The down side risk for #1 is larger (around S&P 2,130 – 2,070 – see light green square) than for #2 (around S&P 2,150 – 2,130 – see dark green square).

No further detail is shown for the most bullish option, #3 which would translate into a few more years of bull market. At this point, we discount #3 (20% probability) because some cycles point to prolonged weakness starting in H2 2017.

Summary: At this point we don’t know the scope of any pullback, but EWT and the June breadth thrust suggest that any weakness will be bought (perhaps even furiously)We consider the longer-term up side potential to be significantly larger than the down side risk.

The anticipated pullback drew the S&P 500 to 2,084 (right inside the first target zone). Stocks haven’t looked back since.

The November 13 Profit Radar Report added that: “The DJIA and Russell 2000 ended the week overbought, which normally will cause a pullback. However, if the S&P is truly in a wave 3 advance, stocks will continue to plow higher without much letup.”

Overbought, But No Bearish Divergences

Unless you’re already on the bus, a momentum driven market is one of the hardest markets to get in (like jumping onto a moving bus), because it rarely stops.

At some point momentum will halt (which is sometimes followed by a nasty correction), but the question is when? The chart suggests to watch support at 2,190 – 2,200 (if lucky, we may even see 2,170 – 2,150).

Waves 3 (according to EWT) are generally strong and relentless moves. Stocks appear to be in such a third wave advance.

Many investors consider EWT hocus-pocus, and I can understand way. I’ve seen many horrid EWT interpretations cost investors a ton of money.

That’s why the Profit Radar Report never relies on any one single indicator. As of right now, the weight of evidence (not just EWT) points towards higher prices (with or without prior pullback). We go where the indicators take us.

Back in January, when the S&P traded below 1,900, our year-end target of 2,220 seemed outrageously bullish. As it turns out, it actually may not have been bullish enough.

Continuous updates with actual buy/sell recommendation (which help balance down side risk with the risk of missing out on the up side) 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 Forecast for Remainder of 2016

The full year S&P 500 forecast is my biggest project of the year, and quite frankly it’s kind of a thankless job. Why? It gives every critic a documented, black and white foundation for criticism.

It is impossible to predict a full year of stock market future, that’s why market forecasts are loaded with ‘ifs,’ “buts,’ and other ambiguities. Anyone attempting to predict the unpredictable is doomed to miss the mark.

That’s why no other newsletter (at least not that I’m aware of) publishes an actual full year S&P 500 chart projection. Accountability is an underrated (if not entirely ignored) concept on Wall Street. But, what’s the purpose of following many time-tested indicators if we don’t put them to work?

The 2016 S&P 500 Forecast was published on January 31, 2016 and is available to subscribers of the Profit Radar Report. Below is an excerpt of the 2016 S&P 500 Forecast (with some minor edits in consideration of paying subscribers).

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

At the time of publication, the S&P 500 traded in the mid 1,800s. One of the key questions addressed by the forecast was whether the May 2015 all-time high at S&P 2,134 marked the end of the bull market.

The S&P 500 Forecast is based on the four most powerful market-moving forces:

  • Supply & Demand
  • Technical Analysis
  • Investor Sentiment
  • Seasonality & Cycles

Supply & Demand

Technical Analysis – Support/Resistance Levels

There is Fibonacci support at 1,855 (Fibonacci projection level going back to 2002).

There is an open chart gap at 2,043.62 (just above Fibonacci resistance at 2,041). This is the bare minimum target for a Q1/Q2 rally.

Technical Analysis – Elliott Wave Theory

Investor Sentiment

Bull markets die of starvation. Just as a fire needs wood to burn, the stock market needs fresh buyers to move higher. Fully invested investors can only do one of two things: hold or sell. Neither action buoys price any higher.

Excessive optimism is an indication that buyers have become rare (because everyone who wants to buy has already bought). That’s why excessive optimism usually precedes a new bear market or sizeable correction. However, investor sentiment near the May 2015 all-time highs was not as euphoric as at prior tops.

Historically, sentiment around May 2015 was not bullish enough for a major market top.

What about current sentiment? Sentiment dropped towards extreme pessimism in January (some indicators triggered panic readings), which should provide a bullish tailwind for the weeks/months ahead.

Summary

The 2016 S&P 500 Forecast did not expect much down side following the January meltdown, but anticipated a market comeback with a ‘bare minimum up side target of 2,043.’

This target was already captured. What’s next? A short-term outlook is available here.

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.

 

Detailed S&P 500 Forecast – Profit Radar Report Sneak Peek

Below is a complete excerpt of the S&P 500 analysis featured in the February 28 Profit Radar Report. This is a rare, and longer than usual re-print of s subscription-based report, but I believe you’ll find it interesting and worth your time.

To put this update into context, allow me to highlight some of the comments leading up to the February 28 Profit Radar Report.

The February 11 Profit Radar Report listed six reasons why the S&P is expected to rally and recommended to buy at 1,828.

The February 17 Profit Radar Report stated the following: “The S&P 500 is now at trend line resistance (1,930) and near the February high (1,947), which is likely to introduce some selling pressure. How the S&P reacts (and recovers) to any upcoming selling pressure may set the tone for coming weeks, possibly months.”

The last observation builds a nice bride to the February 28 Profit Radar Report. Enjoy.

* * * * * * * * * *

February 28 Profit Radar Report:

Since February 17, when the S&P 500 first spiked to 1,930.68, we’ve been watching how the S&P reacts to its overbought condition. It’s been a topsy-turvy eight trading days since, but the S&P gained an additional 18 points. This is a positive development for stocks thus far.

There hasn’t been much net-movements and little new information the past week, so we’ll use the time to review and perhaps clarify our outlook and analysis.

Revisiting our Projections

The February 10 Profit Radar Report listed four projections. One was outdated (#1). One was unlikely (#4). We’ve been following the other two projections (#2 and #3) ever since. Here they are again:

2) A drop towards or just below 1,812, followed by a rally just above 1,950 and a ‘better’ bottom, likely below 1,800 (solid thick yellow line)

3) An immediate drop to new lows (or at minimum test of prior low) followed by a rally towards and likely beyond 2,040 (thick dashed yellow line)

The chart below shows both projections along with some additional information.

On February 11, the S&P 500 dropped to 1,810.10, which was 2.19 points below the January 20 low (1,812.29). This new low activated both projections.

Although the S&P did not drop as low as the dashed yellow line shows (projection #3), it triggered the minimum requirement for projection #3 (“immediate drop to new lows”). Projection #2 (solid yellow line) was validated as well.

Initially, the dashed yellow line (projection #2) was our preferred outlook, but as mentioned in the February 17 PRR: “The solid yellow projection has lost some of its edge, and will lose more if the S&P shrugs off short-term overbought readings without major damage.”

Classic Technical Analysis

The blue lines outline a W or double bottom formation. The projected up side target of a valid W formation is somewhere in the 2,060 – 2,100 range. What would validate the W formation?

Depending on which criterions are used, the W formation is validated with a break above the February 1 high at 1,947.20 or the January 7 high at 1,985.

As a point of reference, the last W formation was carved out in August – October 2015 (blue box). The red bar highlights the W resistance zone(s), the green bar the post-bottom kickoff(s). A detailed analysis of the February kickoff rally (three consecutive daily gains of 1.5%+) was published in the February 21 PRR. If you are a new subscriber, take a moment to review the significance of this pattern.

2011 vs 2015

The February 7 PRR re-visited a comparison between 2011 and 2016. In 2011, the S&P broke its initial August low on October 4 against various bullish divergences. In 2016, the S&P broke its initial January low on February 11, also against various bullish divergences.

However, there were only 16 days between the January 20 and February 11, 2016 lows. In 2011, the S&P 500 chopped around for 40 days until finally carving out a lasting bottom on October 4.

In terms of price and divergences, the S&P already fulfilled the minimum requirement. In terms of time, it could take until March or April until we see a more lasting low.

Elliott Wave Theory

Based on Elliott Wave Theory, there are a number of valid interpretations. Here are a the 3 most applicable ones:

1) The S&P 500 completed a larger-scale wave 4 correction on February 11, which is to be followed by further gains and ideally new highs (dashed yellow projection #3). The conceptual chart below marks where we’re at right now, assuming this scenario is playing out.

2) The S&P 500 completed the fourth wave of a larger wave 4 correction on February 11, and needs another new low to complete the larger wave 4 correction. The final correction low would be followed by further gains and ideally new highs. (solid yellow projection #2 and conceptual chart below).

3) The S&P 500 completed wave 1 of a new bear market on February 11. The current rally is a counter trend move. Once complete, this rally would roll over into a steep decline (this scenario is unlikely, see conceptual chart below).

How to Discern the Difference

The obvious conundrum is to discern whether the S&P is more likely to follow projection #2 or projection #3.

Unfortunately, there is no way of telling. The February 15 PRR foresaw and phrased the predicament as follows: “We soon may have to decide if we want to use this trade merely as an ‘insurance trade’ against a runaway up move (in which case we hang on at least until 1,950), or if we want to cash in a somewhat respectable gain of 3-4%.”

As per the February 12 PRR: “If the S&P is going to turn lower, it should do so between 1,945 – 1,990.” The S&P entered this general turnaround zone last week.

We cashed in half of our position for a 5.2% gain. We are holding the second half in case a ‘runaway rally’ develops. More often than not, the onset of a runaway rally is unpredictable. It is not prudent to bet on the unpredictable, however, based on what we see, the environment for a runaway rally is in place.

At this point, we feel comfortable holding on to our remaining half long position, but we are not confident enough to deploy new capital.

Summary: The S&P is in the 1,945 – 1,990 region where a reversal is becoming more likely. However, the recent price action increases the odds that an upcoming reversal may only be temporary and shallow.

Immediate support is at 1,947, followed by 1,915. A move above 1,990 would unlock higher targets (2,040 – 2,100). A move below 1,915 would be a first step towards lower targets.

* * * * * * * * * *

End of February 28 Profit Radar Report

Since February 28, another price pattern emerged. This new pattern emphasizes the importance of the S&P 1,990 zone. All the details about this new price pattern and how it affects the S&P 500 outlook are discussed in the March 2 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.

 

S&P 500: Year-end Rally or Breakdown?

2015 has been the year of trading ranges. The S&P 500 was stuck in a 100-point range from February to August and again from October until now.

Prolonged periods of zig-zagging tend to wear down support/resistance levels and dilute the effectiveness of technical analysis.

At times like this, it makes sense to overweigh other indicators to get a better read on the market. Here are a few of them:

Seasonality:

As of December 11, the S&P 500 was down 3.27%. Such poor performance is unusual for December. In fact, since 1970, the S&P 500 lost more than 3% after the first nine December trading days only four prior times (1975, 1980, 1996, 2002).

The graphs below (originally published in the December 13 Profit Radar Report) represent all years with 3%+ losses after the first nine December trading days (dashed black line) along with the performance over the next 30 trading days. December seasonality (green graph) typically turns notably bullish in mid-December.

Here’s another December anomaly:

Last week (Thursday/Friday), the S&P had two 1.5% back-to-back losses in the second half of December. According to SentimenTrader, this hasn’t happened since 1937.

Since 1928, there’ve only been eight back-to-back losses of more than 1% during the second half of December. All of those were during bear markets, but the S&P ended the year above the second down day level every single time.

Market Breadth

The December 6 Profit Radar Report pointed out extremely weak market breadth (more details here: Why are Stocks Down Despite Bullish Seasonality?).

Buyers fatigue is not always a short-term timing toll, but it’s been like a dark cloud over Wall Street, and certainly contributed to the lousy December performance.

There’s a small tell tale sign that buyers may be awakening (perhaps only for a little while). How so?

As the chart below shows, on Friday, the S&P closed at the lowest level since October 13. Some market technicians may consider this a technical breakdown, however, there was a bullish divergence between the S&P 500 and the percentage of NYSE stocks above their 50-day SMAs.

At least by one measure, selling was not as strong as price suggests. More often than not that’s a good sign.

Based on technicals, last week’s low at 1,993 seems important for the S&P 500.

Summary

As long as the bullish divergence and support at 1,993 hold, positive December seasonality deserves the benefit of the doubt.

Simon Maierhofer is the publisher of the Profit Radar ReportThe 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.