S&P 500 Update

On July 12, the S&P 500 became overbought and has been wrapped in a tight trading cocoon ever since.

In fact, for 13 trading days, the S&P didn’t move more than 22.5 points. That’s one of the tightest trading ranges in history.

The chart below, published in the July 31 Profit Radar Report, highlights similar trading ranges in recent history and concluded the following:

The blue boxes below highlight the last four similarly tight trading ranges. Each one of them was followed by a pullback, sometimes after a post-trading range spike.

This harmonizes with the notion that most trading ranges occur in the position of wave 4 corrections.

On Friday, the S&P eked out another all-time high at 2,177. This could be all of, or the beginning of, the post-trading range spike. A sustained break above 2,176 would unlock the next up side target at 2,xxx – 2,xxx (target levels reserved for subscribers).

The bearish divergences discussed previously persist and suggest that we’ll see an eventually pullback, similar to prior post-range patterns.”

No Change … but New Developments 

Although the S&P hasn’t gone anywhere for weeks (the last longer-term S&P 500 outlook remains valid), two noteworthy developments happened ‘under the hood:’

  1. The trading range digested the overbought condition present on July 12.
  2. The trading range created bearish divergences.

Unfortunately, these two developments are in conflict with each other. This means we need to be extra alert for curveballs.

Nevertheless, based on the majority of our indicators, we should see an up/down sequence before the next sustainable rally leg.

Short-term pullbacks should turn out to be longer-term buying opportunities.

Target levels, buy triggers and continued updates are available via the Profit Radar Report.

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

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

 

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This is the First Time the Dow Jones has Done This in 105 Years

Assuming this hasn’t put you asleep, you know that the Dow Jones (NYSEArca: DIA) has been taking a giant dirt nap.

In fact, by one measure, it’s the longest dirt nap since 1910, and soon to be the longest ever.

The Dow Jones has not recorded a 1-month high or low (based on closing prices) for 42 days.

According to Lyons Fund Management, the longest such stretch dates back to 1910 and lasted 45 days.

In itself, this is remarkable, but the next stat makes it even more remarkable.

For the past 26 trading days, the Dow has been stuck in a 2% trading range (based on closing prices). This is one of the tightest ranges of the last 25 years, and the tightest range without a new 1-month high or low ever.

 

If you read the Profit Radar Report, this range comes as no big surprise. Back on March 29, the Profit Radar Report observed that: “S&P 500 today is exactly where it was November 18, and there’s no indication that the up and down zig-zagging is coming to an end.

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 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.

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Short-term S&P 500 Forecast

Surfers wait for the next big wave, investors (or traders) wait for the next big move.

Not sure about you, but I suffer from FOMO (fear of missing out). I hate missing a big move, whether it’s in gold, silver, S&P 500 or any other asset.

The next big move is the tangling carrot that keeps people invested (or trading) much of the time.

But patience is a virtue, and sometimes the S&P 500 just doesn’t go anywhere.

I observed the following via the March 8 Profit Radar Report: “Any red flags are in conflict with bullish seasonality from now until May. The result of opposite forces fighting for the upper hand may be a period of sideways trading.”

The S&P 500 today is at the same level where it was on March 8.

All trading ranges, regardless of have long and boring they seem, come to an end eventually. The S&P 500 has reached a zone that could bust the range.

Why? Because it reached a potential inflection point.

Here is what the April 1 Profit Radar Report proposed: “There’s an open chart gap at 2,086. I favor a rally towards 2,090. We’ll have to look at the structure and buying power behind any such rally, but 2,090 +/- could be a tempting setup to go short.”

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The S&P moved as high as 2,089.81 on Tuesday. Although Monday’s rally was accompanied by strong breadth, Tuesday’s follow was disappointing and trade stalled.

This inflection point is effective only if the S&P soon peels away from the 2,090+/- zone (this zone extends to 2,100). If it doesn’t, we will probably have to consider the entire structure a triangle likely to resolve with an up side thrust.

The triangle remains a viable option as long as trade stays above 2,039 (remember, seasonality is strong until May).

The Profit Radar Report’s recommendation for aggressive traders has been to trade the edges of this range (buy against support, sell against resistance). As long as the edges hold, that’s the best approach to kill time (and scalp some profits).

For continued S&P 500 analysis sign up for the Profit Radar Report. The Profit Radar Report delivers hand-crafted out-of-the-box analysis based on proprietary measures of supply/demand, technicals, seasonality and sentiment.

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 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.

S&P 500: When Will the Trading Range Break?

There’s a time to buy, a time to sell and a time to be patient. Most of 2014 falls into the ‘be patient’ category. What’s causing this extended trading range and how much longer can it go on?

Since the beginning of the year, the S&P 500 hasn’t gone anywhere. Here’s why:

Limited Up Side

The S&P 500 has been struggling to break through technical resistance. The dashed red trend channel and solid red Fibonacci resistance have clipped the wings of the S&P 500 every time it staged an attempt to fly above resistance.

The first chart shows that aside from the January/February dip, the S&P 500 has been restricted to a range defined by predetermined support/resistance levels.

The second chart provides the long-term context needed to make sense of the highlighted support/resistance levels.

Limited Down Side

Obviously, the S&P 500 (NYSEArca: SPY) has bounced from technical support several times, but there’s been another reason why the S&P 500 hasn’t broken down.

It’s the ‘media put.’ Unlike the ‘Bernanke put’ (now Yellen put), which is cash driven, the ‘media put’ is information driven.

The media is the last entity qualified to dispense financial advice, but that’s exactly what they do. Unfortunately, enough investors are listening making the media a contrarian indicator.

Here’s some of the ‘advice’ (headlines) the media has been giving:

Yahoo Talking Numbers: “Why sell in May adage makes sense this year” – April 28
CNBC: “This chart says we’re in for a 20% correction” – May 1
CNBC: “Bubble talk catches fire among big-money pros” – May 5

The S&P 500 rarely dances to the tune of the media’s whistle, that’s why the Profit Radar Report expected a pop and drop combo to fool the ‘here comes the crash’ crowd.

The May 7 Profit Radar Report stated that: “A false pop to 1,900 – 1,915 would shake out the weak bears and set up a better opportunity to go short.”

When Will the Range Break?

The pop to S&P 1,902 on May 13 certainly rattled the cage of premature bears. A break below key support (key levels outlined in the most recent Profit Radar Report) may usher in the long-awaited 10%+ correction.

Could the correction morph into something bigger?

One indicator with the distinct reputation of signaling the 2000 and 2007 meltdowns is at the verge of triggering another ‘crash signal.’ But there’s one caveat.

Here’s the full intriguing story:

A Look at the Risk Gauge that Correctly Signaled the 2000 and 2007 Tops

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.

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

Stock/Bond Ratio Projects Exciting Times Ahead

Are stocks ripe for a deeper correction or is the 5%+ January hiccup – the biggest in well over a year – already in the rearview mirror? The stock/bond ratio provides a dimension not often considered.

The S&P 500 (SNP: ^GSPC) just had its first 5%+ correction in well over a year.

Some say that’s bullish, because it brought prices down to levels that spark new buying. Others point to a potentially bearish technical breakdown at a time when stocks are over-loved, over-valued, and over-hyped.

Which one is true?

As the old saying goes, there are always three sides to an argument: His, hers and the truth.

The stock/bond ratio provides another dimension to this ‘argument.’

We use the SPDR S&P 500 ETF (NYSEArca: SPY) as proxy for stocks and the iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF) as proxy for bonds.

The S&P 500 ETF – SPY/IEF ratio chart below shows the SPY/IEF ratio vacillating between support and resistance.

The SPY/IEF ratio rises when the S&P 500 moves higher and bonds move lower.

A spike in the SPY/IEF ratio accompanied every S&P 500 high. This includes the most recent January high.

However, the SPY/IEF ratio did not touch resistance at the most recent high. It also didn’t touch support at the most recent low.

Nothing says that resistance or support need to be met, but often such support/resistance levels act as magnets.

If the SPY/IEF ratio is still in need of touching both support and resistance levels, as a result, we conclude that the January high didn’t mark a major top and last week’s low didn’t mark the end of this correction.

Obviously, this would translate into exciting times ahead.

A detailed forecast for the S&P 500 is provided here:

S&P 500 Forecast: Short-Term Gains vs Long-Term Pain

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.

String of Indecisive Dojis Foreshadows Trouble for SPDR S&P 500 ETF

Increasing demand following a lasting bottom generally leads to higher prices. The SPDR S&P 500 ETF has seen higher prices (since the June 24 low), but the candle formation since then reflect uncertainty, not increasing demand.

The SPDR S&P 500 ETF (SPY) has rallied as much as 4.3% from last week’s low and some analysts feel that the market has been cleared for takeoff again.

That may be the case, but the string of dojis of the recent low doesn’t inspire confidence in the longevity of this bounce.

A doji candlestick is formed when the open and close are the same or very close to equal, despite a wide trading range. They are generally an indication of equality between buyers and sellers.

The SPY chart below highlights the seven consecutive dojis since the June 24 low. The doji’s suggest that this rally is lacking the kind of buying pressure associated with lasting lows.

In fact, a closer look at the hourly chart (see gray chart insert) shows that SPY gapped higher in the first hour of trading five of the last six trading days. In other words, most of the gains occurred in the overnight futures session.

The big players may be running up the futures at night to sell their long position during the day.

While the string of dojis looks bearish for stocks, technicals are currently neutral.

I believe the overall odds favor lower prices. A well-defined resistance level for SPY, the S&P 500 and Nasdaq-100 provides a promising low-risk opportunity to go short. A break below support (also less preferred) would open a similar opportunity.

It will take sustained trade above resistance to unlock higher price targets.

The Profit Radar Report highlights the resistance level that serves as a low-risk entry for short sellers.

The Week of Dojis – What Sideways Trading Means for Stocks

Up until yesterday, the market has been stuck in a tight trading range for over a week. A look at the past shows that periods of such sideways trading generally lead to a spike higher.

Last week’s trading range (from February 11 – 15) was a whopping 11 points for the S&P 500. A candle chart visually expresses this performance with 5 candles called dojis.

What exactly is a doji and what does it mean for the market?

A doji candle is formed when the open and close are the same or very close to equal. The body (see “Anatomy of a Candle” chart) is narrow.

The upper and lower shadows vary depending on the type of doji (see second chart). All doji candles reflect a measure of equality between buyers and sellers and a period of indecision.

The Monday (February 18) Profit Radar Report included the following analysis (including S&P 500 chart) of dojis and periods of sideways trading:

The market usually doesn’t give investors a whole lot of time to make the right decision (i.e. get out at the top), that’s why a cluster of dojis is rarely seen at significant highs.

The candle chart below highlights various doji clusters. Most of them (gray boxes) were followed by spikes higher. The red box, although not a ‘doji top,’ is one possible exception. Dojis tend to relieve overbought (or oversold) conditions and tend to provide more fuel for the next move.

Based on the market’s MO, a move above last week’s high (S&P 1,524.69), would likely result in another 10+ point rally.”

The Profit Radar Report is putting the dojis in short-term context with nearby support/resistance levels and in long-term context with an extensive 2013 market forecast.