This is Probably the Most Important Seasonal Pattern of 2018

Seasonality is one of 4 key indicators we analyze (the other 3 are: Money flow, technicals, and investor sentiment). Out of many seasonal patterns, this is probably the most important one for all of 2018.

The 2018 S&P 500 Forecast (part of the Profit Radar Report) highlighted this seasonal pattern (and chart):

2018 is a mid-term year (based on the 4-year presidential election year cycle. Historically, stocks rally from the mid-year (2018) low to the pre-election year (2019) high (on average 50%). The average S&P 500 gain over the last 5 cycles was 36.8% (see chart for individual cycle gains).

Historically (going back to 1950), stocks fall about 20% into the mid-term (2018) low. The average S&P 500 loss from the preceding high to the mid-term low over the last 5 cycles was 18.41%. However, the 2002 loss was unusually large (34.54%). Excluding 2002, the average loss over the last 4 cycles was 14.38%.”

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From the January high to the February low, the S&P 500 lost as much as 12.26%.

This is close to the average loss of 14.38% mentioned above.

Based on this seasonal pattern, we should be looking for two developments:

  1. A buyable bottom
  2. A multi-month rally

Continuous updates will be 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.

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Gold and Silver Bulls Risk Painful Whipsaw

Gold and silver have been on a tear, but there’s reason to be cautious. Here are some facts to consider before following the crowded trade:

Gold Update

Since late December 2015, when we anticipated a tradable low, gold has rallied as much as 25%. Commercial hedgers (considered the ‘smart money’) are now heavily selling into this rally.

The chart below was published as part of the April 24 Profit Radar Report update.

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Shown is the price of gold along with the net exposure of commercial gold hedgers. Hedgers have racked up the largest short position since 2012.

The April 24 Profit Radar Report stated that: “Out of the three driving forces we monitor for gold (technicals, sentiment, seasonality), technicals look the most bullish. Sentiment says risk is elevated. Immediate up side potential is limited based on seasonality.”

The May 1 Profit Radar Report included the following update: “Gold moved above resistance at 1,272 and above this year’s high at 1,290. It is next to impossible to peg the termination point of strong momentum moves, such as in February and currently. 2-day RSI is overbought and sentiment remains bearish, so the next resistance zone at 1,310 – 1,320 is a candidate for a pause/reversal. More up side is possible, but when the tide turns, it is likely to turn quickly and burn latecomers.”

As the updated gold chart shows, gold reversed just below the 1,310 – 1,320 zone, but remains above support. What this means is discussed in the latest Profit Radar Report update.

Silver Update

The chart below (published via the April 20 Profit Radar Report) shows that commercial hedgers are even more bearish on silver.

The May 1 Profit Radar Report included the following update: “Commercial traders ramped up their silver short positions to the highest level in decades, 2-day RSI is overbought and seasonality is getting close to the most bearish period of the year. Next resistance is around 18.5. A move to around 18.5 along with some bearish divergences would create the potential for a nice short trade (ZSL is one ETF option).”

The updated chart below shows silver reacting to its overbought condition and rising red trend line, but reversing before reaching resistance at 18.5.

The extreme short positions of commercial hedgers and the most bearish seasonal pocket of the year should be a worry for silver bulls, but may set up a nice trade for trading opportunists.

Continued gold and silver analysis is available via the Profit Radar Report.

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

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

 

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.

R2K32714

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.

SPX32714

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.

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

Federal Reserve FOMC Meetings Zapped Stocks 4 Times in a Row

The Federal Reserve has been very accommodating and assured Wall Street of its full support (no taper) each of the last four meetings. Nevertheless, stocks sold off every time. Will this time be a repeat?

Wall Street anxiously anticipates the outcome of this week’s two-day FOMC conclave.

Taper or no taper is the question … and it will be answered on Wednesday around 2pm EST.

Until then, speculations run wild.

I don’t participate in the speculation for two reasons:

  1. The market’s reaction is simply unpredictable (more below).
  2. Technical analysis usually provides some clues even before the Fed announces anything.

The timelines in the S&P 500 chart below mark all 2013 FOMC meetings.

The first three meetings of the year were near-term bullish for the S&P 500 and S&P 500 ETF (NYSEArca: SPY), but eventually gave way to new lows.

The last four FOMC meetings were all followed by immediate declines.

The September 18 meeting (blue dot) was followed by an exciting twist. Most of Wall Street and the financial media expected the Fed to announce tapering at their September 18 FOMC meeting.

Surprise! The Fed did the unthinkable and continued unbridled QE. The S&P 500 soared the day of the announcement and a few hours on the next day, but dropped lower thereafter.

More or less ignoring the Fed’s noise, the September 18 Profit Radar Report published the projection chart below and warned:

“The S&P 500 red resistance line will be at 1,735 tomorrow. A temporary decline from this line (around 1,735) followed by another rally leg to 1,750+ would make most sense (see projection).”

What about the July 31 FOMC meeting? The July 31 Profit Radar Report stated that: “The Nasdaq-100 and Dow Jones chart suggest a period of correction or consolidation.”

What do technicals say this time around?

Technicals allow for some near-term weakness and a test of the 50-day SMAs for the S&P 500 and Dow Jones (DJI: ^DJI). I favor the odds for a year-end rally, but with sentiment at multi-year bullish extremes, any move below support would caution of a sizeable drop.

A more detailed technical forecast for the S&P 500 and Dow Jones, along with a chart that highlights important support, is available here: S&P 500 and Dow Jones Short-term Forecast

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).

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

Stock Market Breadth So Bad, It Might Actually Be Good

On the surface the decline from the May 22 high has been tame and orderly. However, the NYSE advance/decline ratio suggests otherwise. The ratio has dropped to a level usually seen at or near market bottoms. Here’s how we treat this somewhat odd reading:

One indicator suggests that stocks are about to bottom, but please don’t take this as a buy signal.

Starting with the May 22 reversal day – which painted a huge red reversal candle for the S&P 500, Nasdaq-100, Dow Jones, Russell 2000 etc. – the Profit Radar Report turned bearish.

We sold all our Nasdaq-100 long positions at 3,030 and also issued a signal to go short (for aggressive investors) at 3,030.

Why? The Nasdaq-100 reached the Profit Radar Report’s target of 3,050 and S&P 500 seasonality, sentiment and technicals all suggested lower prices and lower prices is what we got.

In fact, the decline has been so pervasive that declining stocks outnumber advancing stocks by a near-record margin.

Wednesday’s NYSE decliners outnumbered advancers by a ratio of 4.3:1. Monday’s NYSE decliners outnumbered advancers by a ratio of 5.7:1.

The 10-day moving average advance/decline ratio (advancing issues divided by declining issues) has dropped to 0.79.

The chart below plots the S&P 500 against the NYSE advance/decline ratio. Readings around 0.80 have often resulted in a bottom of some sort as the dashed red lines illustrate. Plotting the S&P against the McClellan Oscillator paints a similar picture.

Quite frankly, this indicator is at odds with many others I follow, but it shouldn’t be ignored. This doesn’t mean that stocks will jump here. It merely shows that there’s potential for a rally that lasts more than a couple days.

This is the kind of data I keep in mind when setting a stop-loss level, in this case for our short positions. The first priority is to keep profits and protect capital. A runaway rally – which according to the advance/decline ratio is possible – would be an unwelcome surprise by shorts and needs to be hedged.

The stop-loss level for current short Nasdaq-100 and S&P 500 positions is available via the Profit Radar Report.

Did Gold’s Shake-Out Move Reveal A New Buy Signal?

How can gold prices tumble when central banks continue to devalue fiat currency while buying gold en masse?  There’s little fundamental evidence that suggested this kind of gold weakness. Technicals on the other hand projected short-term weakness.

Last week was a bumpy ride for gold prices and gold investors. There were many fundamental reasons for gold to rally:

  • Central banks continue to devalue fiat currency.
  • Central banks continue to be net buyers of gold.
  • Uncertainty caused by Cyprus-like financial escapades highlights the safe-haven appeal of gold.
  • The gold mining industry is struggling to find enough gold to meet investor demand.
  • Bullish euro gold breakout. The March 26 article “Bullish Euro Gold Breakout May Be Misleading” – published on iSPYETF.com – explained why a “shake out move” is likely to precede a bullish gold (measured in dollars) breakout.

This fundamental optimism squashed many goldbugs. Although the fundamental rationale may turn out to be correct eventually, it may be time to explore more accurate (in terms of time and price) forecasting methods.

My method of choice is plain technical analysis. Before you dismiss technical analysis as crazy chart mumbo jumbo, please review the outlook for gold published in the March 30 issue of the Profit Radar Report:

Here’s the rub on gold: We should eventually (April/May) see a good buy signal. Ideally, gold will drop below 1,554 first. Well-defined and much publicized support is around 1,520.

The media has been talking so much about support around 1,520 that we have to expect some sort of fake out move. This could be a bottom above support or stop-running with a temporary drop below support.

The bottom line is that we’ll be looking for a low-risk opportunity to go long eventually. Before we get to the buy signal, there may be an opportunity to go short.

Over the short-term, a triangle might be forming, with support around 1,596 and resistance around 1,605. A move/close below 1,596 may drive prices below 1,554.”

The April 3, Profit Radar Report added the following:

Gold followed the script outlined in Sunday’s PRR quite beautifully. Unlike price, RSI did not drop to a new low, so we’re still looking for a low-risk buying opportunity. In fact, today’s decline fulfilled the minimum requirements to start legging into gold. Aggressive gold buyers may want to buy a half or third position on the next low.”

The “next low” happened the next day. In fact, it occurred against trend channel support and resulted in quite a bounce.

Is technical analysis always spot on? No, but at the very least it acts as a safety net and prevents you from entering a foolish trade.

In many cases, such as the gold trade above, technical analysis enables you to pinpoint buy or sell levels that come with very low risk and above average potential for gains.

The Profit Radar Report combines technical analysis with sentiment analysis and seasonal patterns to identify high probability and/or low-risk trade setups.

Is it Time to Buy Apple Again?

Instead of becoming the first 1 trillion dollar company, Apple’s market cap shrunk by more than $200 billion. Apple today is almost 30% cheaper than it was just a couple months ago. Is now the time to buy?

28 – If you follow Apple shares you probably know what this number stands for. 28% is how much AAPL dropped from September 21 to November 16.

That’s a terrible situation if you own AAPL, but great news if you are a bargain buyer – AAPL is now almost 30% cheaper than it was 40 trading days ago. Does that mean it’s time to buy AAPL?

The answer depends on your time horizon.

AAPL Long-Term Outlook

A November 15 CNBC article titled “Apple stock hit by panic selling:  Someone yelled fire” (that’s good for the short-term, more about that below) pointed out that more than 800 hedge funds and mutual funds counted Apple among their top ten holdings at the end of the third quarter.

“Apple was the classic case of no more incremental buyers of the stocks. No matter how bullish a story, you need new buyers of the stock or it will go down.”

Well no kidding Sherlock, that information would have been useful a few weeks ago.

In a March 16 research note to subscribers on record, I published the following research:

“About one-third of all U.S. stock mutual funds own Apple. One in five hedge fund managers holds Apple amoung their 10 largest bullish positions. Only 2 of 54 analysts have a sell rating on Apple.

40 dividend focused funds own Apple. Apple is the single biggest holding of Goldman Sachs’ U.S. Equity Dividend and Premium Fund. Yet Apple has never paid a dividend. 50 small and midcap funds own Apple. Yet Apple is the largest company in the world.

If and when Apple sneezes, the market will get a cold. A 20% drop in Apple shares would zap over $100 billion of liquidity and likely increase mutual fund redemptions and emphasize the need for cash. Apple shares and other high flying stocks will have to be sold to raise cash and the market will drop further.”

The financial market was more than just saturated with Apple stock, it gorged on AAPL and I doubt that – over the long-term – a 28% drop will cure the saturation hangover.

The September 28 Profit Radar Report issued one of the most contrarian recommendations for individual stocks ever:

“Aggressive investors may short Apple (or buy puts or sell calls) above 700 or with a close below 660. Obviously, there is no short Apple ETF and if you don’t have a margin account set up, you may consider using the Short QQQ ProShares (PSQ), which aims to deliver the inverse performance of the Nasdaq-100 (Apple accounts for 20% of the Nasdaq-100).”

AAPL Short-Term Outlook

After falling as low as 506 on Friday, AAPL staged a nice reversal and closed at 527. In the process it created a green reversal candle against a small bullish RSI divergence (price made a new low, RSI did not).

A similar constellation happened on November 9, but prices continued to fall lower. The difference between Friday’s (November 16) and the November 9 green candle is volume. Friday saw the most shares change hands since March 13.

In short, AAPL is showing signs of life and prices are likely to move higher, but I think an even better opportunity lies ahead in the near future.

The Profit Radar Report analyses the markets and the forces that drive the market. Such forces include technicals, sentiment, seasonality, and recently the performance of Apple. Sunday’s report includes a multi-month forecast for the S&P 500.