S&P 500 is Showing First ‘Chink in the Armor’

After many weeks of relentless gains, the S&P 500 is showing first ‘chink in the armor.’ In fact, there are three persuasive reasons to expect lower prices, but there’s also one strong force that’s pushed the market continuously higher.

After weeks of strong price action, the S&P 500 is showing the first signs of weakness. Here are three early developments that may lead to lower prices:

1) Bearish reversal candle: On Tuesday the S&P 500 shot higher, but closed the day below its open price. This created a red reversal candle. A similar reversal candle on April 4 led to further weakness (blue boxes).

2) S&P 500 reversed at resistance. The S&P 500 reversed at the ascending red trend line (which connects all highs since April 2, 2012) and monthly pivot resistance (short red line) at 1,967 (both outlined in the June 22, Profit Radar Report).

3) S&P 500 moved above and dropped back below long-term resistance: In its 2014 S&P 500 Forecast (published on January 15), the Profit Radar Report projected a pre-summer market top at 1,955. Why 1,955?

1,955 is a convergence of two significant resistance levels: a) Long-term Fibonacci projection resistance (red horizontal line) and b) Parallel trend channel going back to the October 2011 low (black line).

Summary

The S&P 500 (NYSEArca: SPY) has run over similar setups before. Although this time may be different, we should keep in mind that one snow goose doesn’t make for a winter.

Especially since there is one force that continues to drive stocks higher. This force is not QE. No, it’s much more visible. In fact, it’s an ‘in your face kind of nuisance’ that’s easily assessed, but often overlooked.

The article below exposes the development that keeps extending the bull market’s life:

False Promises: Where is the Promised Crash or Correction?

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.

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.

S&P 500 Analysis: The ‘Chopping Zone’ Explained

S&P 500 analysis: Since late 2013, the S&P 500 has been ‘boxed in’ by well-defined support/resistance levels. This explains 4-months of range bound trading activity. Here is the S&P 500 ‘chopping box zone’ along with key near-term support and resistance.

Buy-and hold investors know that the S&P 500 (SNP: ^GSPC) hasn’t gone anywhere since the beginning of 2014. Why and when will this aimless back and forth stop?

Here are four charts that will progressively shed some light on the issue:

The first chart is a plain weekly S&P 500 bar chart. At the top we see an index that has stalled.

The second chart is the same S&P 500 chart with some simple annotations.

  1. Solid black trend channel going back to March 2009
  2. Dashed black trend channel going back to October 2011
  3. Green support/resistance line going back to April 2010
  4. Green support line going back to November 2012
  5. Fibonacci projection level going back to 2002

The third chart is a daily bar chart going back to October 2011.

The fourth chart zooms in on the most recent market action in correlation to the various support/resistance (S/R) levels mentioned above.

The blue lines show an S&P 500 that has been boxed in by its own S/R levels.

Each blue circle represents a tidbit of ‘insider information’ available to investors familiar with such levels.

S/R conscious investors didn’t chase the S&P 500 when it touched the upper resistance rim and didn’t sell when it touched the lower boundary.

The Profit Radar Report combines those simple S/R levels with technical analysis, seasonality patterns and sentiment analysis.

Here’s an actual recent example of sentiment analysis combined with S/R levels and seasonality:

In the beginning of May, the financial media delivered a wave of bearish headlines, such as:

“Why investors expect to sell in May and go away” – Investors Business Daily
“This Chart Says we’re in for a 20% correction” – CNBC
“I’m worried about a crisis bigger than 2008: Dr Doom” – CNBC
“Risk of 20% correction highest until October” – MarketWatch

Merely based on those headlines, it became clear that the market will shake out premature bears with a drop and pop punch. Via the May 4 Profit Radar Report, I shared this outlook:

“The ‘chart detective’ inside of me favors a shallow dip (1,874 – 1,850) followed by a pop to 1,900 or 1,915 before we see a 10%+ correction. This bold prediction is mainly based on what the ‘chart detective’ thinks will fool the maximum number of investors.”

Resistance at 1,900 was composed of short-term pivots and a long-term Fibonacci projection level. The brief pop above 1,900 no doubt stopped out all the weak bears that followed the media’s doom-and gloom talk. Was it enough of a pop?

Thus far the S&P 500 has followed our script, however it continues to trade within the ‘blue box chopping zone’ and above double trend line support.

This week’s high and today’s low are now the new short-term support/resistance box for the S&P 500.

I often get asked: “But what about valuations?”

Do valuations matter? Quite possibly. But how do you determine whether stocks are cheap or expensive? Not even the so-called pros can agree on valuations. Here’s an objective look at three objective valuation metrics and why the pros passionately disagree about valuations.

Are Stocks Cheap or Overpriced? Here’s why Analysts Passionately Disagree

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.

Don’t Get Fooled by This S&P 500 Bounce

After a dismal week stocks are up nearly 1% today. This could be a ‘dead cat bounce’ or – as we’ve seen so often lately – the beginning of another rally leg. Here’s one way to tell whether today’s bounce is ‘real’ or not.

I’ve been writing a lot about the power of long-term trend channels. One of them pegged the S&P’s April 4 all-time high (more details below).

Today we’ll take a look at two short-term channels. One of them explains today’s bounce and will likely tell us if it’s ‘fake or real.’

The blue channel contained the S&P 500 from February 5 until it broke below it on April 5 (red dot).

The S&P 500 tested this trend line once more on April 10. Regarding such a back test, I wrote the following in the April 9 Profit Radar Report.

“Often when a trend line is broken, prices will double back and test the line before peeling away in the direction of the break. I’ve seen this scenario play out many times, but for it to work (in this case a sell signal), the test of the trend line (at 1,872) has to be quick” (orange dot).

From there, the S&P 500 transitions from the blue channel into the black channel.

Sunday’s Profit Radar Report stated that the black channel: “Reveals support at Friday’s close (1,814 – green dot) and resistance around 1,834 (dashed centerline) and 1,850.”

Today the S&P 500 (NYSEArca: SPY) bounced to test the dashed centerline at 1,834.

The down trend remains in tact as long as trade stays within the channel. A move outside the channel would warn of higher prices.

What about the long-term channel mentioned above?

It almost acts like a ‘puppet master’ for the S&P 500. More details on where this channel is located and how it helps investors make future decisions can be found here:

How S&P 500 ‘Puppet Master’ Covertly Pulls Strings

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.

How S&P 500 ‘Puppet Master’ Covertly Pulls Strings

Many believe the market is rigged as high frequency trading (HFT) and the Federal Reserve have become major driving forces. However, there is another age old ‘force’ that often pulls the strings in plain sight, yet undetected by many.

A puppet master is a person, group or force that covertly controls a matter. Wielding this kind of covert power is also known as pulling the strings behind the scenes.

We know that the Federal Reserve is openly pulling strings, but that’s not what this article about.

It’s about a different kind of ‘force’ that drives the S&P 500. It doesn’t drive the S&P 500 every single day, but often enough to be considered a valid force.

To recognize, oust, and ultimately profit from this force, please join me in a little experiment.

Experiment: Stage 1 (do not peek)

Below is a chart of the S&P 500. Please take a moment to look at the chart and see if you can observe certain patterns (do not peek ahead to the second chart).

Experiment: Stage 2

Below is the same chart with three very simple annotations.

  1. A blue trend channel going back to the March 2009 low.
  2. A black trend channel going back to the October 2011 low.
  3. Fibonacci projection (red line) going back to the March 2009 low.

Please keep in mind that I didn’t create those lines. The market did. I only connected the dots.

Experiment: Stage 3

The third chart shows the same two channels and Fibonacci resistance, but shows daily bars to allow for a closer examination of the more recent price action.

Here is what we see:

  1. The S&P 500 was repelled by the black channel in January, March and April (red dots).
    On April 2 (green arrow), the S&P 500 staged a technical breakout to new all-time highs, but the Profit Radar Report pointed out resistance at 1,898 (created by a short-term channel) and 1,900 and warned that this looked like a false breakout.
  2. The S&P 500 found support around the blue channel three times in March and April (green dots).
  3. The S&P 500 (NYSEArca: SPY) essentially treaded water in an expanding range wedge created by two powerful long-term trend channels.
  4. Yesterday, the S&P 500 sliced below the blue channel. Support is like thin ice, if broken it gets investors wet. Trend lines like that make great guidelines for stop-loss levels.

Please Mock Me

Usually when I write articles about trend lines, readers post comments like this one:

“More BS from the techies. I can take any chart and draw these lines and call it a trend.”

Ironically, those kinds of comments are a good sign. A puppet master ousted as puppet master is no longer able to covertly influence others.

In order for trend lines to continue working, there need to be enough doubters, mockers, hecklers, and investors simply unaware of the power of this simple tool.

So please, go ahead and disregard trend channels and allow the rest of us to enjoy their full benefit.

Even before the channel was broken, a number of indicators suggested lower prices. The April 7 Profit Radar Report reported an MACD sell signal and bearish seasonality and concluded that:

“Today’s decline looks like an important building block for a multi-week bearish structure.”

We’ve all heard about MACD, but this particular MACD signal is especially unique and potent. The reason why it’s discussed here:

MACD Triggers the Year’s Most Infamous Sell Signal

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.

 

MACD Trigger’s the Year’s Most Infamous Sell Signal

History suggests that an April MACD sell signal should never be ignored, but this particular MACD sell signal is loaded with additional nuances and tell tale signs. Here’s a closer look at what could be the most infamous sell signal of the year.

On Monday MACD triggered a sell signal for the S&P 500. There are a number of reasons why this sell signal should be watched very carefully:

1) It occurred after the S&P 500 pushed into triple resistance.

The April 2 Profit Radar Report highlighted this resistance cluster as follows:

“Trend line resistance going back to October 2011 is at 1,900. Minor trend line resistance is at 1,898. The centerline of a short-term trend channel is at 1,898.”

2) The S&P 500 reversed at 1,897.28 and painted a bearish red reversal bar.

3) The S&P 500 found support at the 50-day SMA and a trend channel going all the way back to the 2009 bear market low.

4) Perhaps most importantly, seasonality is turning quite bearish in April.

A bounce is likely since the S&P 500 (NYSEArca: SPY) found support exactly where it should have. However, when this bounce is finished, seasonality and the MACD sell signal may take over and push stocks lower.

Why is seasonality such a big deal?

A chart says more than a thousand words, and this chart shows that (based on history) investors do not want to own stocks after April in a midterm election year.

The chart and further explanation is available here:

Historic S&P 500 Seasonality is about to Turn Ugly

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.

Is Nasdaq Underperformance Bearish for the Whole Stock Market?

Friday was a bad day for stocks, particularly the Nasdaq. The Nasdaq’s underperformance reflects a shift of investor sentiment, but not all is bad. In fact, there’s one short-term silver lining for the Nasdaq.

Today the Nasdaq Composite (Nasdaq: ^IXIC) lost 2.6% and closed below the 100-day moving average for the first time since December 31, 2012.

Is that bearish for the overall market?

The Nasdaq Indexes (Composite and Nasdaq-100) have been lagging the S&P quite significantly for a few weeks.

Purely statistical, the recent spread between the S&P and Nasdaq is quite rare and does not consistently foreshadow trouble ahead.

However, it does reveak that investors are developing a degree of risk aversion not seen in all of 2013.

The April 2 Profit Radar Report featured this chart of the Nasdaq-100 and cautioned that a move above resistance was needed, otherwise this week’s S&P 500 break out would turn into a fake out.

By today’s close the Nasdaq arrived at the bottom of the short-term trend channel and at the top of a long-term trend channel (I’ll write about this long-term channel in detail next week).

If the Nasdaq is going to bounce (at least short-term), it should do so around the current convergence of trend channels. Further weakness will caution of more down side.

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.

S&P 500 – Stuck Between Triple Top and Triple Bottom – What’s Next?

Since the middle of February the S&P 500 has been stuck between two long-term trend channels, one acting as resistance, one as support. The chart now shows a possible triple bottom or triple top. Which one is it?

Was today’s new S&P 500 all-time high another fake out breakout?

I don’t have a crystal ball, but I can lend you my flashlight for a moment.

A flashlight doesn’t tell anyone what’s happening next, but it sheds light on issues invisible without a light. That’s exactly what the two charts below will do.

Long-Term ‘Flashlight’

The weekly S&P 500 bar chart goes back to March 2009, the beginning of this QE bull market, and shows two long-term trend channels. The black channel started in March 2009, the blue channel in October 2011.

Since the middle of February, the S&P 500 has been wedged between both channels.

The March 5 Profit Radar Report highlighted the blue channel and noted that: “In times past, this channel has caused at least a short pullback.”

On March 6 and 7 the S&P 500 hit the blue channel, but couldn’t break above it, which indicated (along with a weekly MACD failure) that the S&P didn’t have the escape velocity needed to break out.

While the blue channel acted as resistance, the black channel acted as support. In fact, there were many other support levels that confirmed the black channel support, that’s why the March 23 Profit Radar Report referred to: “a cluster of support levels around 1,840 – 1,830.”

Short-Term ‘Flashlight’

The second S&P 500 (NYSEArca: SPY) chart zooms in on the daily action and shows two additional support (green line) and resistance (red line) levels.

There’s a good chance that we’ll see another fake breakout, such as on March 21 (red arrow), when the S&P 500 rallied to a new all-time high (keep in mind that the red line wasn’t available on March 21 yet).

A special early morning March 21 Profit Radar Report warned that: “There is at least one Elliott Wave count allowing for a fake out break out and the week after Triple Witching ended with a loss 14 out of 21 years.”

This market is very tricky and more than ever is intent on separating as many investors as possible from their hard earned dollars. Discipline and risk management are a must.

The latest Profit Radar Report features a full April forecast and identified the buy trigger, that – once broken – will lead to higher prices (although any long position will be kept on a short leash).

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.

Is it Too Late to Jump into Stocks? Watch S&P Reaction to This Inflection Point

The S&P 500 has rallied strong and most professional money managers missed that move. Is it too late to jump back on? How the S&P 500 reacts to this inflection point should provide helpful clues.

45% of airplane accidents occur during takeoff or landing. Why?

That’s when the airplane is in closer proximity to the ground, the speed is slower and more airplanes are in the immediate airspace.

Similarly, most S&P 500 (SNP: ^GSPC) reversals (minor and major) occur at support or resistance levels. Why?

That’s when stocks are in close proximity to ‘supply and demand hubs,’ areas prone to additional buying or selling pressure.

The S&P 500 is about to hit such a ‘supply/demand hub’ or resistance level.

The S&P 500 chart below shows a trend channel that has contained prices for 28 months.

The black arrows mark the anchor points of this channel. The red arrows highlight prior meetings of this channel.

The two biggest corrections (if you can call them big) of the last year occurred in May 2013 and January 2014 right after meeting (or nearly meeting) the upper channel line.

In late December 2013, the S&P exceeded the channel by ten points and closed above it for four days, so we need to allow some wiggle room. The channel is at S&P 1,883 today and ascends about 0.75 points per day. Round number resistance is around S&P 1,900.

The yellow line is the ideal S&P 500’s path outlined by the Profit Radar Report’s 2014 S&P 500 Forecast (published on January 15, full 2014 Forecast available to subscribers).

Although the timing wasn’t perfect, in terms of form the forecast is on track.

A longer-term S&P 500 analysis independent of this particular channel suggests that the S&P 500 rally is not yet over.

In fact, unbelievably though, it is even possible that the rally may accelerate. Another option sees a shakeout correction followed by a resumption of the rally.

The ‘supply/demand hub’ (and stocks’ reaction to the hub) around trend channel resistance should provide further clues about the next move.

A detailed projection of the two near-term scenarios along with the full 2014 Forecast is available via the 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.

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 Hits 2009 Projection Target – Resistance or Springboard?

The S&P 500 has finally reached its up side target outlined by a trend channel going all the way back to 2009. Is this the bull market’s final destination or just a ‘layover’ before departing for new bull market highs?

The S&P 500 (SNP: ^GSPC) has rallied 100 points in the last 10 days.

That’s nice trivia, but the weekly S&P 500 bar chart (figure 2) shows something more significant.

The S&P 500 (NYSEArca: SPY) has finally reached trend channel resistance going all the way back to the March 2009 low.

This trend channel served as a natural magnet for prices, that’s why the Profit Radar Report has been following the channel since early 2013.

The July 14, Profit Radar Report featured two possible paths the S&P 500 could take to ultimately reach the channel.

  1. “A brief correction followed by the next rally leg to 1,700 – 1,750 (purple projections). Somehow my gut tells me it won’t be that easy.”
  2. “A prolonged period (4 – 8 weeks) of frustrating and unpredictable range bound up and down moves (blue projections) may be the markets way to play cat and mouse with investors and digest the strong gains since November 2012 and June 24, 2013. The longer the sideways action, the higher the next target (due to the ascending trend channel).”

The S&P 500 (NYSEArca: IVV) chose option #2, the cat and mouse path. But regardless of the path, the destination has been reached. What now?

Mission Accomplished

The S&P 500 has captured the long-standing Profit Radar Report’s up side target and accomplished this mission.

As the chart shows, the upper line of the trend channel has acted as natural resistance for the S&P 500 (NYSEArca: VOO) in the past and repelled stocks.

But past performance is no guarantee of future results.

If the S&P 500 is going to reverse, it should do so right around trend channel resistance. In fact, the effect of the channel resistance is being felt today.

However, I am seeing a number of indicators that suggest any reversal will be only temporary in nature, with the growing potential of higher price targets.

One indicator that suggests continued (although not uninterrupted) strength for the S&P 500 is VIX (Chicago Options: ^VIX) seasonality. In fact, VIX seasonality is quite pronounced.

A simple but comprehensive VIX seasonality chart is available here: VIX Seasonality Chart

As always, I will share my findings and buy/sell signals via the Profit Radar Report.

Simon Maierhofer is the publisher of the Profit Radar Report.

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