Comprehensive S&P 500 Update

The S&P 500 has arrived at major trend line resistance (see chart). Will it relapse lower or climb above?

To answer this question, we’ll look at various indicators:

  • Investor sentiment
  • Market breadth & liquidity
  • Seasonality & cycles
  • Technical analysis

Investor sentiment – Obsession with Recession

The August 25 Profit Radar Report pointed out various bearish sentiment extremes – including that google searches for ‘recession’ spiked to the highest level since 2008 – and warned that stocks are likely to rally to flush out investors’ obsession with recession (for more details and chart go here: “Today’s stock market pessimism is a reliable sign of a stock market rebound“).

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 >150-point rally since certainly alleviated recession fears and turned investors more bullish.

The chart below plots the S&P 500 against 6 longer-term sentiment gauges.

The second chart plots the S&P 500 against 4 shorter-term sentiment gauges.

Sentiment summary: Sentiment is not frothy enough where it eliminates the possibility of further gains, but it now is more of a headwind than tailwind and more likely to curb gains and cause a pullback.

Market Breadth & Liquidity

The S&P 500 reached new all-time highs on four of the last eight trading days (November 5 – 14). But, on six of the eight days, more stocks declined then advanced.

There’s weakness ’under the hood,’ and it caused a number of bearish divergences shown on the chart below.

Bearish divergences can be erased quickly, but while they exist, they reveal a measure of weakness often seen prior to pullbacks.

Seasonality & Cycles

In terms of seasonality, the S&P 500 has passed the riskiest period of the year. However, cycles do not agree with the bullish year-end seasonality.

Technical analysis

The chart below highlights all the levels highlighted by the recent Profit Radar Reports:

  • Blue trend line: Potential resistance, but move above will lead to test of purple trend line
  • Purple trend line: Potential resistance, but move above will unlock higher targets
  • Red trend line: Potential resistance, but move above allows for further gains.
    Although the yellow triangle formation cautions that a move above red trend line resistance will not last.

Initial target for any pullback will be the purple trend line. A break below the purple trend line is needed to get lower targets.

Summary

The S&P 500 is at red trend line resistance. A temporary move above (post triangle spike) seems likely, but the risk of a relapse and test of purple trend line support (at minimum) is high. A break back below red trend line resistance (assuming there will be a spike above it) is needed to signal a reversal.

Continued updates, projections, 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.

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.

How to Predict a Market Crash

Although I warned of an environment where the risk of a meltdown is high (wave 3 down, based on Elliott Wave Theory), I can’t claim credit for predicting the December crash.

Because of my multi-indicator approach to market forecasting, and profound concern for my subscriber’s portfolio’s, I rarely ever make absolute one-directional predictions based on only one indicator.

Absolute Predictions

There are plenty of absolute and unequivocal predictions out there. Such ‘hit or miss’ or ‘all or nothing’ bets are great when they work out (and like gambling, sometimes they do), but cause excruciating pain when they don’t.

Below are a few examples of recent all or nothing predictions:

December 6: “The last great buying opportunity of the decade is here!”

December 10: “Keep cool! S&P 500 & Nasdaq holding above lows. Signal is bullish!”

December 19: “ All structural criteria is in place to create a POWERFUL 1-2 week rally”

My favorite: May 14, 2018 (and virtually every day since 2011): “I think it likely that the rally is ending today” (red arrows added to show implications of wave 2 top, and subsequent wave 3 decline)

I found in my research that the only folks who ‘predicted’ the December meltdown, are those we’ve been spewing doom and gloom for years (even a broken clock is right twice a day).

My Promise

My intent is not to discredit the above services, but to highlight the flaws of tunnel vision research. That is, research based on only one indicator or one methodology.

Before publishing the Profit Radar Report (many, many years ago), I lost a lot of money by trusting one single indicator (which at the time had a good track record). Back then, I took off my ‘research blinders,’ and vowed to expand my research horizon.

Better Diversification

Diversification is a popular term in the investment world, and it’s almost exclusively linked to asset allocation. But what about research diversification?

Just as a diversified portfolio smoothes out individual boom and bust cycles, research diversifcation eliminates the ‘hit or miss’ performance tied to any one single indicator.

Multi-indicator Approach

My goal is to distill and compress the message of various indicators (such as: investor sentiment, money flow, breadth, technical analysis, price patterns, seasonality, etc.) into the most likely path going forward, the direction suggested by the weight of evidence.

For example, on October 28, when the S&P 500 first fell into the 2,600s, I published the weight-of-evidence-based projection (yellow lines) along with the below commentary via the Profit Radar Report:

The biggest potential ‘fat pitch’ trades are to go short above 2,830 (red box) or buy at the second low (green box).”

The yellow lines projected a move from 2,600 to ~2,850, followed by a drop to ~2,400.

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.

Crash Environment Alert

Starting on December 9, I warned subscribers that a wave 3 crash is a possibility. For example, the December 9 Profit Radar Report stated that:

Based on Elliott Wave Theory, the S&P 500 could be 1) nearing the exhaustion point of this down leg, or 2) be in a strong and sustained wave 3 lower. Scenario #2 seems more likely.”

The December 17 Profit Radar Report reiterated the following:

Based on Elliott Wave Theory, both options discussed on December 9:

1) Washout decline with target of 2,550 – 2,500 (or 2,478 as per Sunday’s PRR)

2) Accelerating wave 3 lower (which could erase another 10% fairly quickly)
are still alive
.”

In case you are new to Ellliott Wave Theory (one of the many indicators of the multi-indicator approach), here is a description of a wave 3:

Wave 3 is the longest and most powerful of all Elliott Waves. Wave 3 continues to move higher (or lower) despite overbought (or oversold) momentum and sentiment readings. A common target for wave 3 is a Fibonacci 1.618 of wave 1 (which currently is 2,269 for the S&P 500).

Pros and Cons

One ‘drawback’ of the multi-indicator approach is that you will rarely hear a flashy ‘all or nothing’ call.

The benefit is that you will rarely be on the losing end of such a call. The multi-indicator approach does however, outline when the risk of a crash or the potential of a spike is elevated.

And perhaps most importantly, there are times when nearly all indicators point in the same direction to form a potent and very reliable buy/sell signal (such as in March 2009, October 2011, February 2016).

Based on what I’m seeing right now, it seems like we are nearing such a signal.

The latest S&P 500 forecast is available here: Short-term S&P 500 Update

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.

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.