Are Stocks Breaking Out?

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on January 26, 2022. If you’d like to sign up for the free e-newsletter, you may do so here (we will never share your e-mail with anyone, just as we don’t accept advertising).

Stock market bears are getting squeezed again this week as the S&P 500 grinds higher. And, for the first time in a year, the S&P closed above the descending trend line. The color of that trend line is now green, because it’s support. As long as this support holds, price can continue higher.

This week’s push above last week’s high eliminated the most bearish of Elliott Wave patterns (a nested wave 3 decline proclaimed by a number of Elliotticians). The red lines show other highs. Every time one of those highs is eclipsed, bears’ hopes sink.

Perhaps more important is the dashed purple line. It’s an open chart gap left by the 9/13/22 drop. Ever since then I’ve been talking about that chart gap being closed (most recently here: 2023 S&P 500 Forecast).

Unlike the S&P, the recent IWM peaks are all clustered in the 189.50 neighborhood. IWM needs to break above this zone – confirmed by RSI-35 – to allow the S&P to move higher as well. Without IWMs support, risk of a pullback remains present.

I stated in the December 28 Profit Radar Report that: “TSLA has been in crash mode, with the December meltdown likely being part of a wave 3. The long-term chart shows there’s no significant support near current price. Perhaps a temporary bounce and eventual drop to 100 +/- could set up a more sustainable bounce.”

Shortly thereafter, TSLA fell as low as 101.81 and is up over 50% since. While this bounce could be only a wave 4, it’s likely a larger degree bounce with higher targets (as long as price stays above the green support line).

2023 S&P 500 Forecast

This is the time of year where I’m working on the full year S&P 500 Forecast. This forecast includes the most pertinent facts and indicators and an actual price projection based on those indicators.

The proof is in the pudding and the chart below plots my 2022 S&P 500 projection (yellow line) against the actual price action (you can see the original projection at the bottom of this page).

The full S&P 500 Forecast is available here for your review.

Below are some of the warning signs mentioned in the 2022 S&P 500 Forecast BEFORE the stock market fell into a pothole:

– “The bearish divergence (NY Composite a/d lines) reappeared again at the January 2022 S&P 500 highs. This internal market deterioration is a concern and a warning sign.”

– “The 6-month average of Titanic signals exceeded 25. It’s been a good bear market indicator. Although the majority of breadth studies are positive, this is one that should not be ignored.”

– “We’ll focus on the commonality of all 3 (Elliott Wave Theory) scenarios: Up side is limited and down side risk is increasing.”

– “Trend line resistance is around 4,915. We do not expect the S&P to break above this trend line in 2022.”

– “Short-term, the January 10, 2022 low at 4,582 is important. Failure to hold above this level would be a warning signal with the potential for a quick drop into the 4,200 – 4,300 range. If the 4,200 – 4,300 support zone fails, a test of the 4,000 zone (as low as 3,700) is possible.”

– “2022 is the mid election year, which is the weakest of the 4-year presidential election year cycle. Historically (going back to 1950), the S&P 500 declines on average about 20% into the mid-term election year low.”

– “Since the Fed is planning to unwind and reduce purchases (and shrink its balance sheet) in 2022, the risk of a more serious correction this year is much greater than in 2021.”

To receive the 2023 S&P 500 Forecast and for continued updates and purely fact based research, sign up for the Profit Radar Report. 

The Profit Radar Report comes with a 30-day money back guarantee, but fair warning: 90% of users stay on beyond 30 days.

Barron’s rates iSPYETF a “trader with a good track record,” and Investor’s Business Daily writes “Simon says and the market is playing along.”tock

Earnings, and one Famous Wall Street Adage to Ignore

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. This market outlook below was sent out on April 29. If you’d like to sign up for the free e-newsletter, you may do so here (we will never share your e-mail with anyone, just as we don’t accept advertising).

There’s a Wall Street adage that says: “Never short a dull market.”

Boy, has it been a dull market. One way to spot a dull market is when you don’t receive a Thursday e-mail from me (like last Thursday). This may be silly, but I respect people’s inboxes and only send out updates when I feel like there’s something worth writing (or when I didn’t send one out last week).

Anyway, is the adage never to short a dull market true?

First, let’s define dull. From Monday – Wednesday the S&P 500 average maximum daily percentage change (based on closing prices) was 0.09%. Yeah, let’s call that dull.

The yellow lines in the chart below mark every time (since 2014) when the maximum daily % change (3-day SMA) was 0.10% or less (we’ll call this the signal).

Although this week was the first signal since 9/19/2019, it happened many time before. Throughout 2017, it was a good idea not to short a dull market, but shorting a dull market 2014 – 2016 would have yielded positive short-term returns most of the time.

In short, it’s better to know the facts than trust an adage. That’s, by the way, what the Profit Radar Report is all about, getting the facts of what’s really going on.

Talking about facts, the stock market has delivered some rare phenomena recently, like:

– Very bullish breadth readings and all-time highs

– Incredibly low volume

I wanted to find out:

1. If breadth has gotten so good (too good to be true) that it’s actually a negative
2. If new all-time highs on record low volume are bearish for stocks.

My findings along with S&P 500 forward returns after similar setups in the past are available here: What are the Implications of Rare Stock Market Phenomena?

The April 15 Free Market Outlook highlighted shorting TSLA as the new FOMO trade. The entire April 15 Market Outlook along with the rationale to short TSLA was posted here.

The chart below shows how TSLA has done since I recommended shorting it on April 14. What’s real ‘curious’ is that TSLA’s decline accelerated after it delivered a solid earnings beat.

This is one reason why I tend to ignore earnings. Two, even better reasons, (one of them being the Buffett Indicator) for ignoring earnings – and perhaps more importantly sky high valuations – are discussed here: 3 Reasons for Ignoring Earnings and Valuations

Continued updates, out-of-the box analysis and forward performance based on historic precedents are available via the Profit Radar Report.

The Profit Radar Report comes with a 30-day money back guarantee, but fair warning: 90% of users stay on beyond 30 days.

Barron’s rates iSPYETF a “trader with a good track record,” and Investor’s Business Daily writes “Simon says and the market is playing along.” 

Short TSLA, Long XLE – The New FOMO Trade?

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on April 15. If you’d like to sign up for the free e-newsletter, you may do so here (we will never share your e-mail with anyone, just as we don’t accept advertising).

Everyone knows that S&P 500 and Dow Jones price action has been as pristine as it’s been boring … and there’s a trace of that’s ‘too good to be true’ in the hair.

I wanted to find out how the most recent rally stacks up to others in the past and if that calm turned out to be the calm before the storm. Here is what I found.

I personally don’t like chasing an over-bought market (although that’s not been a great mantra to live by) and prefer lower-risk setups … like this one discussed in the April 11 Profit Radar Report (chart includes original annotations but updated price):

“There’s been a fierce battle between value and growth – risk on vs risk off sectors. XLE (SPDR Energy ETF) appears to offer one of the more attractive entry levels near current price. XLE is testing the trend channel (48) with next support around 46.80 (blue circle).

The chart includes a potential Elliott Wave Theory count, which makes an eventual rally into the 55.65 zone likely. Wave 4 (or IV) corrections can be complex and drawn out, but buying XLE around current price or after a quickly reversed dip below the trend channel looks attractive. More aggressive investors may buy XLE around current price, but we’ll look at buying XLE after a successful test of the 47.20 zone.”

Who would have thought that short TSLA is the new S&P or Nasdaq FOMO (fear of missing out) trade?

But there was a solid setup to short TSLA, as discussed in Monday’s special Profit Radar Report update (chart includes original annotations but updated price):

“TSLA closed at 762 today. According to Elliott Wave Theory (EWT), the decline from the January high to March low traced out 5 waves. The bounce from the March low looks like 3 waves. The 78.6% Fibonacci retracement is at 762.53 and wave c = wave a at 769.37.

The TSLA bounce could finish in the 762 – 769 zone. Additional resistance is around 795 (trend channel) and 823 – 838 (78.6% retracement and C = 1.382 x A).

EWT has been essentially useless for the major indexes and excess liquidity may also void this signal, but it’s been rare to get such a clear read and confluence of resistance levels like seen here.

As mentioned, TSLA is a fast-moving stock not for the faint of heart . We will initiate a small short position at tomorrow’s (Wednesday) open.“

TSLA opened at 770.70 on Wednesday and quickly fell to 730. There is a small chance that TSLA will still reach the 823 – 838 range (breakout of the purple triangle) but with a stop-loss at breakeven we can wait if TSLA finds support around 700 – 710 or not.

Continued updates and factual out-of-the box analysis are available via the Profit Radar Report. 

The Profit Radar Report comes with a 30-day money back guarantee, but fair warning: 90% of users stay on beyond 30 days.

Barron’s rates iSPYETF a “trader with a good track record,” and Investor’s Business Daily writes “Simon says and the market is playing along.”TSL

S&P 500, Nasdaq, DJIA, Gold, Treasuries, TSLA Update

Even though every major index is marching to the beat of its own drum, it’s possible to see a common stock market theme. To help investors understand what’s going on, I’ve published below the entire February 28, Profit Radar Report update (which also includes analysis on gold, Treasuries and TSLA). Please notice how the summary section offers a cohesive forecast despite the market’s fragmented nature.

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

Profit Radar Report, February 28, 2021 (5:45pm PST)

Thursday and Friday delivered a whippy conclusion to the week. DJIA spent Thursday above trend line resistance but relapsed back below it Friday and painted a weekly reversal candle against the trend line. 

Nasdaq-100: Wednesday’s PRR showed the potential for a 5-wave decline (with wave 4 invalidation level). As the side-by-side comparison below shows, the Nasdaq-100 Futures did set a new low for a legitimate 5-wave decline. The Nasdaq-100 Cash Index however, did not.

The daily chart shows a break below trend line support. A backtest of the previously broken support (now resistance around 13,300) is quite common. A close back above the resistance cluster (blue oval) will pause any pullback and possibly rejuvenate this rally. 

S&P 500 Futures almost tagged the rising trend line from the March low (3,780) on Friday. The blue oval highlights a support cluster at 3,720 – 3,780. The decline from the high looks either like 3 waves (which suggests the pullback is already or nearly over) or a 1, 2 setup (which would point towards down side acceleration once this bounce is complete).

Summary: Every index is marching to the beat of its own drum, and there’s even discord between the same index’ cash and futures chart (Nasdaq). DJIA painted an ugly looking weekly reversal. Nasdaq Futures declined in 5 waves but Nasdaq-100 Cash only in 3 waves (Elliott Wave Theory explains the significance of 3 vs 5-wave moves). S&P 500 (cash and futures) looks like a 3-wave decline and the S&P 500 Futures decline paused at important trend line support. 

S&P 500 Futures support at 3,780 held and first-of-the-month liquidity inflows tend to buoy markets, so odds of a bounce to start the week are high. We would prefer for selling to resume after this bounce exhausts (ideally Monday or Tuesday), but a move above 31,600 for DJIA, 13,300 for Nasdaq-100 and 3,900 for S&P 500 could embolden buyers again and rejuvenate the rally.

Gold couldn’t make it above the 1,830 resistance cluster (blue circle, daily chart) last week and continued lower. 

The weekly chart shows strong support in the 1,700 area, which is where the 2020 melt up started. A dip into that zone, if it occurs, would likely spark a bounce. How strong of a bounce is to be seen.

Wednesday’s PRR mentioned that TLT is likely to bounce from the 134 – 140 zone. From Thursday’s low at 136.61, TLT bounced already 2% with futures action suggesting more follow through Monday morning. Initial resistance will be at 143.60 – 146, but the selloff was strong enough to cause an even stronger bounce.

TSLA: The January 10 PRR included the chart and commentary below: 

“The next chart shows the most likely Elliott Wave Theory labels. Wave 5 doesn’t have to be over yet, in fact a smaller wave 4 and 5 seems necessary to finish the bigger wave 5. Based on the log scale chart, there is resistance around 900. Will lightning strike twice and TSLA suffer two post-bowl collapses? My gut feeling says no, at least not initially, but perhaps after a brief violation of bowl support and subsequent rally continuation.”

The January 24 PRR followed up with this chart and commentary: 

“TSLA paused at 884 and started carving out another triangle, which could be a smaller wave 4 before the last spike into a quickly reversed all-time high (possible resistance in the high 900s, depending on timing).”

The updates TSLA chart shows a 31% drop from the January 25 high at 900.40, which was a bit lower then expected. Thus far, price has stayed above trend channel support. A break below 607 could lock in a 5-wave decline along with the corresponding implications (counter trend rally followed by eventual new lows), but as long as price stays above, TSLA can still recover.

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

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Why ‘Hot New Tech’ is Getting Crushed by ‘Old Tech’

Until recently, the Nasdaq was driven higher by hot new tech names like Facebook, Priceline and Tesla. Now, ‘hot new tech’ is cooling down while tech dinosaurs are rallying higher. What does this rotation mean?

Priceline, Netflix, Facebook and Tesla are the driving force behind a ‘new and improved’ technology boom.

Those companies are cutting edge, hip, and until recently hot.

But something changed in March. Hip wasn’t hot anymore. PCLN, NFLX, FB and TSLA are all of a sudden 10 – 20% below their highs.

It seems like the money left ‘Hot Tech’ and moved into ‘Old Tech.’

Dinosaurs like Microsoft, Oracle, Cisco and Intel just got a vitamin M shot and boost (M as in Money).

What does this ‘changing of the guards’ mean?

Here’s one possible reason: Stocks in general and the Nasdaq in particular have gotten pricey.

Investors don’t want to go into cash (yet), but they are taking some risk off the table by rotating from high beta tech into ‘tried and true’ low beta tech.

As the third chart illustrates, the Nasdaq (Nasdaq: ^IXIC) has also started to underperform the S&P 500.

The S&P 500 (NYSEArca: SPY) is now top dog and just spiked to a new all-time high this morning. Is this a technical breakout or just another fake out?

Here are two charts that may well change your expectations for the S&P 500:

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

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.