NYSE Composite Chart is Sending Strong Message

Although not nearly as popular as the S&P 500 or Dow Jones, the NYSE Composite sports one of the most transparent technical pictures we’ve seen in quite a while. Here’s a closer look at the strong message of the NYSE Composite.

The NYSE Composite Index is not often discussed, but as one of the broadest U.S. indexes (1,868 components) it offers a unique big picture perspective, especially right now.

First off is a weekly log scale bar chart of the NYSE Composite since its March 2009 low along with some basic support/resistance levels and trend lines.

The second chart zooms in on the more recent price action.

There are a number of noteworthy developments:

There is a possible head-and shoulders top. The red line is the neckline. The projected target is 10,655, which was already reached last week.

The measured HS target at 10,655 also coincides with green trend line support.

Despite the measured HS target having been fulfilled, the August 3 Profit Radar Report predicted another leg down.

The NYSE Composite (NYSEArca: NYC) already exceeded last weeks low and the measured HS down side target. Today it broke below last week’s low and first green trend line support.

What does this mean for the NYSE Composite?

It doesn’t take a ‘chart Sherlock’ to perceive that the next leg down is underway.

While the trend is still down, the outlook is not as bleak as many expect. There is support at 10, 447 (200-day SMA) and 10,250.

From this support I expect a reaction that will surprise Wall Street and investors alike.

More details along with an actual projection for the S&P 500 are 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.

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Has the Year-end Rally Already Started?

Isn’t it too early to start talking about a year-end rally? It might well be, but the S&P 500 just started a pattern that led to extended rallies and new highs in 2012 and 2013. Just as important as identifying pattern, is  knowing exactly when it becomes void.

Ok, it may be a bit too premature to talk about the year-end rally, but retailers plan early for Halloween and Christmas, why shouldn’t investors look a few months ahead?

There actually is one strong technical indication that stocks have put in a bottom and are getting ready to move higher for a while.

First off, the S&P 500 (NYSEArca: SPY) and Nasdaq-100 (Nasdaq: QQQ) have not yet reached their ideal up side target (target levels available to subscribers of the Profit Radar Report).

That’s unfinished business on their to-do list and based on Thursday’s strong bounce, the Nasdaq and S&P seem intent to put a check mark behind those to-do items.

The short-term key to a bullish outcome is the green trend line shown in the S&P 500 chart below.

At first glance, the green trend line seems like a natural border between the bull and bear case. There used to be a time when trend lines like this worked like a charm. But the market’s character changed in 2011. Since then the S&P 500 has broken similar trend lines various times and recovered every time.

The green trend line just got violated, is it still valid? Yes, especially so.

Allow me to use this excerpt from the October 7 Profit Radar Report to explain why this is good news for bulls (this is one of the rare times we publish a large section of the Profit Radar Report for free):

Why We Were Looking for a ‘Broken’ Trend Line

At first glance, the green trend line seems like a natural border between the bull and bear case. There used to be a time when trend lines like this worked like a charm. But the market’s character changed in 2011. Since then the S&P 500 has broken similar trend lines various times and recovered every time.

In 2012 and earlier in 2013 we successfully adjusted our strategy and waited for a drop below trend line support followed by a move back above to go long. The longer-term chart with additional trend lines shows that prior trend line breaks weren’t fatal (gray ovals).

Therefore going short against trend line resistance bears risks, especially since there are still unfulfilled up side targets (discussed in yesterday’s PRR) and an open chart gap (1,688) left by this mornings down open.

The main reason to search for a short entry point is that we do not want to miss out on a potentially sizeable decline. Bold green trend line support is at 1,668 tomorrow. A drop below 1,668 is not necessarily a sell signal. However, due to the potential for a larger decline, we will go short if the S&P drops below 1,665 (a 3-point seesaw buffer zone) and a stop-loss at 1,675.

The scenario that appears to make most sense is a quick trip into the 1,660s or 1,650s followed by another rally to new all-time highs. We will therefore lower our stop-loss to virtually guarantee a winning trade.”

The S&P 500 (NYSEArca: IVV) followed our script pretty closely and based on similar technical patterns in 2012 and 2013, odds favor higher prices. Any trade below the green trend line and the trade is off. The up side target for this rally is available to subscribers of the Profit Radar Report.

There are two other variables that help assess the viability and longevity of an upcoming rally.

1) Viability of the rally: The VIX (Chicago Options: ^VIX) is about to a major seasonal turning point. Fore more information about VIX seasonality and the most unique VIX seasonality chart click here: VIX Seasonality Near Best Turning Point of the Year

2) Longevity of the rally: The S&P 500 has been closely following a 13-year and 7-year top and bottom cycle since the 1970. Both cycles will meet this and next year for a potent signal. For a detailed analysis of the S&P 500 cycles click here: S&P 500 Cycle Analysis

Simon Maierhofer is the publisher of the Profit Radar Report.

Follow Simon on Twitter @ iSPYETF


Will Apple’s Breakout Stick?

Apple has staged six unsuccessful breakout attempts in the last eight months. Each time AAPL rallied more than 10% just to roll back over. Now Apple is teasing investors with higher prices again. Will this rally stick?

Since its September 2012 all-time high at 705, AAPL has rallied more than 10% seven times … and failed every time.

An Apple a day may keep the Doctor away, but an AAPL a day certainly hasn’t kept the bear away.

In fact, AAPL (Nasdaq: AAPL) is trading 35% below its all-time high (it was down as much as 45%). Yes, somebody really upset the apple cart (ok, that’s the last apple/AAPL pun).

Bottom line questions: Does this bounce have sticking power?

The Apple chart below compares this rally with the prior six failed rallies (gray circles). Three differences are easily noticeable:

  1. Most prior rallies were unable to overcome resistance (red circle). Current trade is above two trend lines.
  2. Once the high was in place, the market rolled over quickly. Current trade is lingering above support.
  3. RSI is higher (although marginally) than at any other rally attempt (grey circle).

Prolonged price coiling, or consolidation, above trend line support at 447 (and 457) increases the odds of higher prices. Like a coiled up snake, AAPL may actually jump higher.

A drop below 447, 434 and 418, on the other hand, would point to new lows.

A look at Apple seasonality (ebbs and flows created by seasonal forces) provides additional clues about Apple’s next move.

Apple seasonality is worth investigating, because it doesn’t only affect AAPL. AAPL is a major component of the Nasdaq Index (Nasdaq: ^IXIC), Nasdaq ETF (Nasdaq: QQQ), Technology Select Sector SPDR ETF (NYSEArca: XLK), and S&P 500 (SNP: ^GSPC), so the ripple effects of AAPL seasonality can draw wide circles.

“Sell in May and go away” is a well-known (and accurate in 2008, 2010, 2011, 2012) seasonal piece of wisdom usually applied to the S&P 500.

As per the Apple seasonality chart, the moniker for AAPL should be “Sell in September and go away” and perhaps buy in August?

AAPL seasonality chartsuggested the steepest decline of the year starting on September 16. In fact, the September 16, 2012 issue of the Profit Radar Report recommended to: “short AAPL (or buy puts, or sell calls) above 700,”

Right on queue with seasonality, AAPL’s all-time high occurred on September 21.

This AAPL seasonality chart shows Apple at the cusp of the next seasonal signal.

Will $100+ Oil Be a Problem for the Economy?

It’s summer and there’s usually a big buzz about gas and oil prices this time of the year. But there’s been little talk about oil’s quiet move above $100/barrel. In times past this has stifled the economy. What about this time?

“Higher Oil Prices Threaten Global Economy” – AP, March 10, 2011

This may be a headline of the distant past, but it was written at a time when crude oil traded just above $100/barrel. In fact, on March 10, 2011 crude oil ended the day at 102.58.

Oil above 100 usually captures the media’s attention one way or another. Some outlets consider it a sign of a strengthening economy, others a stone around the neck of car-driving consumers.

Interestingly, this time around, 105 oil hasn’t tickled the media’s reporting need yet.

Regardless of the media, there’s a worthwhile correlation between the S&P 500 and crude oil, and technical analysis suggests that crude oil prices are at an interesting junction.

The chart below plots the S&P 500 against crude oil prices and shows almost everything important there’s to know about oil right now:

  1. Crude oil prices just climbed above red trend line resistance (now support) at 104.
  2. Crude oil prices are also trading above longer-term dashed red trend line resistance at 96.
  3. Crude oil at 110 – 115 has coincided with stock corrections in 2011 and 2012.
  4. Important green trend line support is at 91.

Crude oil cycles don’t really support higher prices right now, but the chart shows very little bearish energy.

As long as crude oil remains above the solid red trend line, prices may reach the 110 – 115 danger zone that led to corrections in 2011 and 2012.

The dashed red and green trend lines will serve as important support in the weeks/months to come.

What About Oil and the Economy?

Oil is the only asset that keeps the Federal Reserve ‘honest.’ Past rounds of QE buoyed all asset classes. With the exception of oil, that’s exactly what Mr. Bernanke wants.

However, rising oil prices – unlike any other asset – are bad for the economy and may force the Fed to taper QE.

Oil is trading above various support levels and may continue higher, but oil’s quiet ascent has escaped the media’s attention. There’s currently no public pressure on Bernanke to curtail evil oil from pick pocketing American saving accounts.

Weekly ETF SPY: XLP – What Defensive Sector Outperformance Means

The defensive consumer staples sector has been outperforming the economically sensitive consumer discretionary sector. Some say that’s bearish, contrarians may say it’s bullish. Here’s what the facts say:

Defensive sectors like health care, consumer staples and utilities have been on fire. In fact, health care and consumer staples are the two best performing industry sectors of the U.S. stock market.

On paper, the strong showing of defensive sectors parallel to all-time stock market highs is odd. But let’s face it; the overall market action (meaning the QE bull market) is odd.

Defensive sector outperformance may be a reflection of investor suspicion. After all, owning defensive sectors is one way to ‘throw your hat in the ring’ without actually going all in.

To what extent are defensive sectors currently outperforming economically sensitive sectors?

The lower portion of the chart below shows the ratio of Consumer Staples Select Sector SPDR (XLP) to Consumer Discretionary Select Sector SPDR (XLY). The XLP/XLY ratio is plotted against the S&P 500 (SPY).

We see that extreme XLP outperformance (red lines) in the mid-2000s either held back the S&P or led to a major market top. Extreme under performance (green line) was generally seen towards meaningful market lows.

Currently the XLP/XLY is more or less in neutral territory.

The second chart shows XLP’s 48.62% rally from the August 2011 low (since its corresponding October 2011 low the S&P 500 gained 47.63%).

XLP nearly touched resistance going back to that low, but is trading above short-term trend line support. The behavior of RSI suggests a tired up trend. A close below green support would be the first sign of a correction. A close above the red line would likely reinvigorate consumer staples stocks.

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Yield Spread Between Junk Bonds and Treasury Bonds Hits Alarming Level

“If it seems too good to be true, it probably is” used to apply to investing. Although this piece of common sense folk wisdom has been eroding due to the Federal Reserve’s money policy, there’s reason to believe that junk bonds are in for at least a wake up call.

The Federal Reserve is watering (or drowning) growth investors and dehydrating income investors. The slim pickings interest rate environment is forcing investors into high yield/high risk vehicles, such as high yield or junk bonds.

High yield bond issuance saw a record high of $346 billion in 2012. In the first quarter of 2013, investors already gobbled up an additional $90.4 billion. Due to unprecedented demand, junk bond yields hit a record low 6.11% in January 2013.

Based on the BofA Merrill Lynch US High Yield Master II Option-adjusted Spread, junk bonds now yield only 4.79% more than US Treasury bonds.

Perhaps with a guilty conscience, the Fed has provided the liquidity needed to neutralize the usually associated with high yield (or more truthfully called junk) bonds.

Nevertheless, as the chart below illustrates, the spread below Treasury bond and junk bond yields is approaching a range that’s been troublesome for stocks.

The chart plots the S&P 500 against the inverted (to better illustrate the correlation) BofA Merrill Lynch US High Yield Master II Option-adjusted Spread.

The red dotted lines highlight the correlation between yield spread lows and market highs. The solid red line stands for yield resistance, the solid green line for yield support.

The current constellation means that risk for stocks is rising. In itself that doesn’t mean that we’ll be confronted with a major market top like 2007, but it increases the odds for a stock market pullback.

Since junk bonds perform similar to stocks, it may be appropriate to scale back or sell junk bond ETFs like the SPDR Barclays High Yield Bond ETF (JNK), or iShares iBoxx High Yield Corporate Bond ETF (HYG). JNK and HYG have both fallen below trend line support, emphasizing the bearish yield spread message.

Treasury ETFs, including the iShares Barclays 20+ year Treasury Bond ETF (TLT) should benefit from a decline in junk bond prices.

In fact, the Profit Radar Report issued a buy signal on long-term Treasuries on March 18, when TLT was still trading at 116.

Weekly ETF SPY: China ETF At Support – Buying Opportunity?

After breaking out, the FXI China ETF has consolidated and come back to test support. Is FXI’s return to support a buying opportunity or a warning sign? Technical indicators suggest an ultimately bullish solution.

China has been an ongoing theme here at iSPYETF.com. The October 11, 2012 article  “Contrarian Investment Idea: China ETF Looks so Bad, is it a Buy?” recommended to buy iShares FTSE China 25 ETF (FXI) with a breakout above 36.50.

Since then FXI rallied as much as 15% and just recently pulled back to test trend line support (see first chart).

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Over the long-term, Chinese stocks have a lot more up side potential and buy-and hold investors might be better off simply holding on to a long China position.

If you are interested in short-term profit management, the bold green trend line is of interest. This trend line has acted as support since September 2011. FXI’s up trend is alive and well as long as prices remain above it.

However, the trend line is ascending at a trajectory steep enough to validate an eventual break below. Additional support is provided by the horizontal green line around 38.

The second chart provides common Fibonacci retracement levels and additional longer-term support resistance levels. Based on Fibonacci’s wisdom, 39.92 is a support/resistance level to be watched as well.

Bottom line, as long as prices remain above 38 +/- the trend for FXI is up.

Russell 2000 and S&P MidCap 400 Butting Up Against Resistance

The Russell 2000 and MicCap 400 Indexes helped us identify weakness for stocks in early November. Now they’ve come back to touch major support/resistance levels and may be once again the “canary in the gold mine.”

About a month ago we looked at the Russell 2000 (small cap stocks) and S&P MidCap 400 (mid cap stocks) indexes to determine whether there’s more down side for the broader market.

Our focus was in particular on the trend line that connected the October 2011 low with all subsequent lows. It was a well-defined support level that created a pretty technical picture.

On November 7/8 the Russell 2000 (corresponding ETF: iShares Russell 2000 ETF – IWM) and S&P MidCap 400 Index (corresponding ETF: SPDR S&P MidCap 400 ETF – MDY) dropped below their respective trend lines.

This foreshadowed lower prices ahead and triggered a sell signal. However, the quick sell off left open chart gaps (particularly for the Nasdaq-100), that’s why the Profit Radar Report didn’t wholeheartedly embrace the post-election sell off and sold S&P 500 short positions at 1,348.

Fast-forward a couple of weeks and we see the MidCap 400 Index back above trend line resistance (previously support) and the Russell 2000 Index butting up against trend line resistance.

The first chart below provides a closer look at the Russell 2000 (support is colored green, resistance red). Right beyond the red trend line resistance is another resistance cluster made up of a descending trend line and previous highs/lows.

So there’s a strong resistance range ahead for the Russell 2000 (the same is true for the S&P 500) and it may take a couple of attempts to push beyond. The beginning of December tends to have a brief seasonal lull, which (combined with resistance) may drive the Russell 2000 (and stocks in general) a bit lower.

But small caps in particular sport a strong bullish seasonal bias starting in mid-December.

Mid caps have performed a bit better as they have already pushed above trend line resistance, now support. Nevertheless, resistance made up of prior failed highs is straight ahead.

The technical picture for mid caps looks more bullish than that of small caps, but even mid caps have room to retest the green support line before making another run higher.

Both indexes and their corresponding ETFs trade above their up sloping 200-day SMAs.

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.