Crisis Over or Time to Panic?

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on March 16, 2023. 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).

Three of the biggest US bank failures hit the fan and the popular CNN Fear & Greed Index just fell into ‘extreme fear’ territory.

But, stocks are up today and U.S. Treasury Secretary Janet Yellen assured congress that the banking system remains sound and Americans can feel confident that their deposits will be there when they need it.

Does that bad news – good news combo mean the crisis is over or that it’s time to panic?

We all know that politicians and heads of in trouble companies and institutions never say the full truth. That’s one reason why I pay more attention to charts and indicators than the news.

In the February 5 Profit Radar Report, I stated that: “IWM reached resistance mentioned in last Wednesday’s PRR. That resistance is comprised of the trend channel, trend line, and equality between 2 of the 3 legs coming off the October low. A reaction at this level is normal. A number of recent studies suggest stocks will ultimately work their way higher, but IWM did reach an inflection zone that at minimum allows for a deeper pullback.”

The updated chart below shows IWM (small cap’s) reaction to triple resistance (red circle). Honestly, the pullback from there was deeper than I expected … but three huge bank failures will do that I guess.

Considering those bank failures, the decline has actually been quite orderly. The worst S&P 500 down days since February were -2.00% (Feb 21) and -1.85% (Mar 9).

The VIX, however, soared 70% from its March low to high. During the worst 3-day span (Thursday – Monday), the daily average VIX gain was 11.65%, the daily average S&P 500 loss was ‘only’ 1.15%. Since the inception of the VIX in 1990, something similar has only happened 6 other times.

The chart below highlights when. None of the dates were particularly nefarious.

In addition to this VIX constellation, I also analyzed overall investor sentiment, market breadth, financial and bank sector charts, and the yield curve to ascertain if it’s time to panic (this analysis was published in yesterday’s Profit Radar Report).

Although I follow the weight of evidence of trusted and time tested indicators, I always monitor new developments and re-run scenarios (such as in yesterday’s ‘deep dive’ update) to see if my base line forecast is still supported by the weight of evidence or needs an adjustment.

My baseline, shared in the last Free Market Outlook, remains the same: Although I don’t know how deep this correction will go, I am fairly certain that stocks will come back later this year. The extent and duration of the comeback will be assessed as it develops.

However, I am never foolish enough to think I’ll be right. The weekly S&P 500 chart shows that the S&P 500 is still in limbo. Now back above the green trend line, but still below the red line … and all of this is happen in a year-long trading range.

If price falls back below the green trend line, it’s time to be cautious and allow the down side to develop.

Regarding gold, I stated the following in the March 8 Profit Radar Report (along with the chart below):

“Prior to gold’s (and silver’s) February drop, the negative divergence alerted us of lower prices. We now see a potential positive divergence.“

The next day gold started to soar over $100.

If you are considering subscribing to the Profit Radar Report, you may be interested to know that I adhere to what I call intelligent integrity; analyze trusted indicators and interpret them intelligently without bias.

For continued updates and based 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.”

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 28. 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).

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.”

Have the Stock Market Killers been Killed?

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on December 30, 2021. 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).

You’ve probably read them, all the reasons why a bear market is just around the corner (or already here):

• Stocks are overvalued
• Inflation
• China’s Evergrande group
• Weakening internal breadth and divergences
• Rapid spread of new omicron variant
• VIX is high and showing fear
• Fed’s decision to taper sooner and harder

If you’ve read these e-mails, you also know that I’ve steadfastly looked for higher prices. For example, the December 2, 2021 Free Market Outlook featured this chart with S&P 500 support around 4,500 (which has held nicely).

The December 9, 2021 Free Market Outlook stated that: “Short-term, there is solid resistance around 4,700. This is a hurdle, but I think this will be overcome eventually too,” (the S&P bumped against it a couple times but spiked above this resistance on December 23).

And of course there was this projection, published in the December 12 Profit Radar Report (and here), that essentially nailed the S&P’s performance for the rest of December.

In the process, we’ve looked at dozens of studies. Like the TV show “Mythbusters,” most such studies showed – based on history – that none of the reasons discussed above have historically led to bear markets. 

I don’t always know what the market is going to do next, but one thing subscribers to the Profit Radar Report always get is factual, objective information. Statistically, fact-based information is just more accurate that personal opinions.

So most pertinent question right now is this: Have all the potential stock market killers been killed? Is there anything that can keep the market down?

The 2022 S&P 500 Forecast (to be published in January) will answer this question and provide a detailed 2022 S&P 500 projection based on a composite of studies and indicators.

Studies include how the S&P performed after years most similar to 2021 (it answers the question whether strong gains feed on themselves or cause overvaluation and crash) and one pattern that stands out among the many. This recent pattern occurred 8 other times since 1970 and was followed by the same outcome every time.

Continued updates, out-of-the box analysis, forward performance based on historic precedents (Risk/Reward Heat Map) and the 2022 S&P 500 Forecast 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.”

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

Stats That Make You Go WOW!

Subscribers to iSPYETF’s free e-mail newsletter receive a market outlook, usually once a week. The market outlook below was sent out on December 2, 2021. 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).

I tweeted this chart prior to Thanksgiving. Turns out turkeys weren’t the only diminishing ‘asset’ this time around, stocks took an ‘oops’ too.

For much of 2020 and 2021 we shelved Elliott Wave Theory, but prior to Thanksgiving I made this statement in the Profit Radar Report:

“Monday’s (Nov. 22) intra-day high could have concluded what can be interpreted as a 5-wave rally from the October 4 low.”

The decline from the November 22 high, although unusual for this time of year, wasn’t a total surprise, and neither is today’s pop.

Yesterday’s Profit Radar Report featured this S&P 500 chart, with support right around 4,500 (this morning’s low was 4,504). It’s certainly possible that stocks will relapse and fall further, but 2021 has taught us not to front run the down side.

The last week of market action has delivered some eyebrow-raising developments.

1) The S&P 500 fell 3.16% from yesterday’s high to close near the daily low. This created the biggest such candle since 3/4/21. When within 5% of an all-time high, the S&P carved out similar candles 24 other times. The chart below highlights the 6 signal dates since 2007.

2) Stocks suffered two rather negative breadth days since Thanksgiving.

11/26/21: 85.90% declining stocks, 90.62% declining volume

11/30/21: 79.29% declining stocks, 88.00% declining volume

Similar days, when within 5% of an ATH, occurred 24 times, 22 of those since 2007 (see chart below). But, 2 signals within 3 days happened only once before (I shared that date with subscribers).

3) Last Friday, the VIX popped 54.04%, the fourth biggest one-day spike ever. Since inception of the VIX, there were only 7 other times when the VIX jumped more than 40% while the S&P was within 5% of its all-time high.

What’s the point of all the data?

As a DIY investor look at how many signal dates (orange lines) preceded major selloffs. This helps you gauge the risk of a correction or bear market.

The Profit Radar Report makes this easier by providing forward returns for the next 1, 2, 3, 6, 9, 12 months following each signal.

The above charts certainly include signal dates that turned out to be significant market tops. Therefore, we are alert of this possibility. But, it will take sustained trade below important support to confirm.

It’s interesting that many analysts that were bullish a week ago have out of a sudden turned bearish. The ones who predicted the selloff are the ones that have been crying ‘bear’ every time stocks dipped a per&Pcent or two.

Others deliver cliches like “the easy money has been made” or “the market is closer to a top than a bottom” (I just read that one, which is a ridiculous statement considering the bottom is a 52% drop away).

We live in probably the most unique market environment ever. The only way to gain an edge is to rely on objective facts.

Continued updates, out-of-the box analysis and forward performance based on historic precedents (Risk/Reward Heat Map) 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.”

What Do Those Rare Stock Market Anomalies Mean?

Relentless is one way to describe the stock market rally from the March low. Unusual is another, and recently it’s gotten plain odd.

Relentless & Unusual

The chart below shows the relentless and unusual nature. I first published the chart on April 7, when it became clear that this rally was going to be strong. The various graphs below show the trajectory of the fastest rallies from a 52-week low.

As the performance tracker shows (based on forward performance as of April 7), initial strength always continued, but this rally has broken all record.

Odd – Exhibit #1

Here is where things get odd. On July 20, the S&P 500 closed 0.84% higher, but 57% of all NYSE-traded stocks ended lower. This anomaly occurred 7 more times since.

The chart below plots the S&P 500 against the daily percentage change and percentage of declining stocks. The red arrows highlight days when the S&P closed higher despite a majority of stocks closing lower.

S&P 500 rallies despite more declining than advancing stocks have only occurred in two other distinct periods over the past 50 years.

Odd – Exhibit #2

Yesterday (August 26), the S&P 500 ended the day with a 1.02% gain, but the VIX rose 5.63%. Since there is an inverse relationship between the S&P 500 and the VIX, this is a very unusual reading.

In fact, since 1997, there’s been only one other time when the S&P 500 gained more than 1% and the VIX gained more than 5%. It was on June 8, 2020 (see chart below).

If we relax the parameters to include every instance where the S&P gained more than 1% and the VIX more than 3%, we get 10 other instances over the past 20 years.

Do Oddities Matter

The March 26 Profit Radar Report looked at a number of indicators (including liquidity) and concluded that: “We anticipate a recovery towards 3,000 (for the S&P 500) over the next couple months and quite possibly new all-time highs in 2020.”

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

New all-time highs are no surprise to subscribers of the Profit Radar Report, but that stocks got there without any significant pullback is unusual, even unprecedented.

But we are here now, and I’ve found that most investors approach the market in one of three ways:

1. Get out of the market because it doesn’t make sense anymore
2. Buy because the Federal Reserve will keep stocks afloat
3. Stay informed and look at indicators that work most of the time (the kind of indicators that sniffed out the March low and projected a powerful rally) and put the odds in your favor.

If option #3 sounds most appealing to you, and if you would like to find out the other rare and unique times in history when 1) S&P 500 and VIX went up at the same time and 2) S&P 500 rallied with more declining than advancing stocks, you will find the Profit Radar Report of interest.

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 evaluation 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, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

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

S&P 500: Short-and Long-term Risk vs Reward Analysis

it happened again: The S&P 500 erased a month worth of gains in just 3 days. Being aware of the up side potential compared to down side risk is always a good idea, but especially now.

Let’s objectively assess bullish and bearish factors to determine up side potential vs down side risk for the short-and long-term.

Up Side Potential – Short-term

The October 20 Profit Radar Report published the S&P 500 futures chart below and stated that: “A close above 3,002 (blue triangle) could eventually lead as high as 3,187.75 (3,167.74 for S&P 500).”

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.

The S&P 500 came within 12 points of this target and then dropped 84 points in 3 days (as projected, see last chart of this article). Based on the above projection, near-term up side potential is limited.

Up Side Potential – Longer-term

On November 25, the VIX closed below 12 for the first time in 3 months. Over the past 20 years, this has happened 8 other times. 1 year later the S&P 500 traded higher every time (the blue lines below highlight the instances since 2013).

On November 25, the Russell 2000 reached a new 52-week highefor the fist time in a year. Over the past 20 years, this happened 5 other times. 1 year later, R2K traded higher 4 of 5 times.

For the first time since August 2018, the monthly MACD histogram for the NY Composite crossed above 0. The blue lines below highlight times when the MACD histogram exceeded 0 for the first time in a year. This signal was rare (only 6 times since 1980) and always followed by gains 1 year later (on average 16%).

Short-term Down Side Risk – Short-term

The November 24 PRR mentioned that VIX hedgers held a record amount of VIX positions and warned: “The last two times this happened, the VIX spiked and S&P 500 took a nasty spill.”

From November 27 – December 3, the VIX soared as much as 50%. This may have satisfied the need for a VIX spike already, but more could still be to come.

Longer-term Down Side Risk

The November 20 PRR noted that: “Unlike stocks, junk bonds have been trending lower. The chart below plots the S&P 500 against the SPDR High Yield Bond ETF (JNK). The blue boxes highlight other periods where JNK trended lower while the S&P trended higher. It usually and eventually led to stock market pullbacks of various degrees.”

It is difficult to put a time-frame on this ‘setup’ as the bearish divergence could be followed by weakness sooner or later.

Conclusion

When compiling my forecasts I look for ‘signal clusters.’ Those are times when indicators and studies coherently suggest a specific performance over a certain time frame.

Right now, a cluster of bullish studies suggests that stocks will be higher about 1 year from today.

Another cluster of indicators projects lower prices over the next 3 month. This cluster, however, is in conflict with the strong momentum market we’ve seen since early October.

In short, the weight of evidence suggests that pullbacks over the next 3 month are an opportunity to buy.

The yellow projection below, published in the December 1 Profit Radar Report, outlined a path in harmony with a number of indicators.

As you can see, the projection correctly captured the decline from 3,150 to below 3,100. Another rally to the high is quite possible and – if all goes according ‘to plan’ – should be followed by another pullback, potentially a much deeper, but also temporary one.

Continued updates, projections, buy/sell recommendations 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 evaluation 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, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

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

Can the S&P 500 Suffer Another ‘Air Pocket Decline?’

The last S&P 500 update highlighted the bearish implications of trend line resistance and the ominous VIX wedge.

I reiterated the importance of this trend line in the July 28 Profit Radar Report when stating that: “We are looking at many indicators, but the purple trend line – boring as it may seem – is probably more helpful than other gauges at this point.”

The S&P 500 fell over 200 points after tagging purple trend line resistance (see ‘before and after’ charts below).

Obviously, the purple trend line worked, but will the S&P 500 tumble another few hundred points as implied by the expanding triangle pattern (wave E shown on left)?

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.

Here are a few other facts and indicators to help gauge the odds:

New Lows

On Monday, 249 NYSE-traded stocks fell to new 52-week lows. This is the highest reading of 2019. In fact, it’s very unusual for such high 52-week low numbers to occur so soon after the S&P 500 was at an all-time high. The blue lines in the chart below show other times when 52-week lows spiked above 240 when the S&P was within 10 trading days of a 52-week high. It wasn’t a good sign for stocks.

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Technicals

The S&P 500 is back above trend line resistance (now again support, tomorrow around 2,905). As long as trade remains above this green trend line, the rally can continue higher.

Next resistance is at 2,950 – 2,985.

Island Reversals

The term island reversal is often associated with tops but can also mark bottoms. It simple donates a number of candles at a price extreme separated by two gaps.

As outlined by the blue oval, the S&P 500 just staged an island reversal to the up side.

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As indicated by the blue lines below, similar island reversals occurred in August 2,015, December 2015, February 2016 and June 2016. The short-term performance was mixed, but long-term performance was positive.

Breadth

Monday’s Profit Radar Report stated that: “Today’s drop saw 87.87% of all stocks declining. This tends to be indicative of at least short-term lows. A bounce is likely.”

The developing bounce delivered an 83.45% up day (83.45% of NYSE-traded stocks advanced) Thursday. The green lines in the chart below show that this has been positive 3 of the last 5 times it happened.

Summary

Purple trend line resistance has been validated by the S&Ps 200-point drop. It’s rare for indicators to foretell are massive drop, but the evidence allows for a continuous decline.

The S&P 500 will have to stay below resistance (2,985) and fall to new lows to start validating the bearish implications of the expanding triangle pattern discussed here.

Continued updates, projections, buy/sell recommendations 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 evaluation 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, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

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

If you enjoy quality, hand-crafted research, >> Sign up for the FREE iSPYETF e-Newsletter

S&P 500 at ‘Make it or Break it’ Level

The S&P 500 has reached a seemingly important ‘make it or brake it’ zone. Here’s why:

For the last couple of weeks, I’ve been following two scenarios:

1) Washout decline with target of 2,500 – 2,500 (purple arrow, chart below)
2) Accelerating wave 3 lower (yellow arrow, chart below)

The two scenarios were first introduced via the December 9 Profit Radar Report, which stated that:

“A brief drop below 2,618 (with next support at 2,607, 2,550 and perhaps as low as 2,500) followed by a quick recovery would preserve the bullish divergences and suggest sellers got ‘washed out’ and a year-end rally is underway. Persistent trade below 2,618 and 2,607 means we need to allow for more weakness.”

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.

Both scenario had the same outcome, mentioned in the December 12 Profit Radar Report: “We assume with a high degree of certainty that this rally will ultimately re-lapse to new lows. The question is not if but when.”

Although I amended the ideal down side target for scenario #1 to 2,478 (December 16 Profit Radar Report), the decline has gone a bit further than I initially thought.

Nevertheless, up until now, both scenarios pointed in the same direction. That’s no longer the case.

A (sustained) break below the blue trend channel and Fibonacci support (both around 2,478) will tilt the odds significantly towards scenario #2, which could see the S&P drop another 100 – 300 points.

Assessing the Odds

Based on Elliott Wave Theory, the odds are 50/50.

Statistically, the odds of a breakdown are less than 15%. How so?

The red graph below shows the average path of the past 10 bear markets (as defined by Ned Davis Research). On average, the S&P does not fall more than 16% during the average bear market (this average includes the 2000 and 2008 bear markets).

Today’s performance was unique and remarkable in many ways:

• S&P 500 closed down 1.54%, but VIX was unchanged
  Since 1992, VIX was unchanged or lower when the S&P was down more than 1% only 32 other times. Over the next month, the S&P rose 81% of the time, on average 2.4%

• S&P 500 turned a >1.5% gain into a >1.5% loss
  Since 1982, the S&P turned a >1.5% gain into a >1.5% loss 7 other times. 1 week, and 1 month later it was up 86% of the time.

• S&P 500 lost > 1.5% on an FOMC day
  Since 1996, the S&P lost >1.5% on a FOMC day 5 other times. 1 week later, it was up 60% of the time, 1 month later it was up 80% of the time (datasource: SentimenTrader).

Summary

The S&P 500 just suffered the worst start to a December since 1931. Although statistical odds favor a bounce from here, Elliott Wave Theory cautions that a break below 2,478 can unleash another wave of selling.

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 evaluation 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, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

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

S&P 500: Does Low Fear Portend High Risk?

Below is a free excerpt of the December 9, Profit Radar Report, which takes a detailed look at various sentiment, liquidity, breadth and moment indicators to gauge the down side risk. Since this update is published out of context with all the other updates, an additional “Summary” section is provided at the end of the December 9 Profit Radar Report to provide bigger picture context.

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.

                                       * * * * * December 9, 2018 Profit Radar Report * * * * *

The S&P 500 closed at 2,633.08 on Friday. That’s only 1.99 points higher than the November 23 low. If the S&P would have closed at a new low, it would have been interesting to see if there are any bullish divergences.

Well, futures are down 20+ points in Sunday’s trading, so let’s just pretend the S&P closed at new lows, and look for potential divergences anyway. The blue box highlights the price action since the September high.

• RSI-35 did not confirm the ‘new low’ (RSI-2 is near over-sold)
• The cumulative NY Composite a/d lines did not confirm
• The NY Composite a/d ratio did not confirm
• The percentage of stocks below their 50-day SMA did not confirm

How about different sentiment gauges?

• The VIX is below its October extreme
• The VIX/VIX3M ratio is below its October extreme
• The CBOE equity put/call ratio is at the same level
• Contango is above its October extreme
• The SKEW carved out a new low
• The CBOE equity put/call ratio (5-day SMA) is below its November extreme
• NAAIM equity exposure is about even, but above its November extreme
• Bullish Advisors polled by II are less bearish than last week
• Bullish Investors polled by AAII are less bearish than last week

All the above indicators show that there is little panic, certainly less panic than in October or November. This could be viewed as either 1) a bullish divergence or 2) there is enough room for the market to fall further.

Based on Elliott Wave Theory, the S&P 500 could be 1) nearing the exhaustion point of this down leg, or 2) be in a strong and sustained wave 3 lower (S&P could still rally towards or into 2,700s before next down move). The summary section below discusses which scenario is more likely.

Another attention grabber was last week’s ‘death cross,’ where the 50-day SMA fell below the 200-day SMA.

The last time death cross that received a lot of attention was in May 2016, when the 50-week SMA fell below the 100-week SMA. This was supposed to be an ‘irrefutable sell signal,’ but ultimately turned out to be one of the best buying opportunities ever.

At best, SMA crossovers have a spotty track record, and we don’t base our anlysis on such lagging indicators. For those interested, the arrows in the weekly chart below mark all bearish and bullish 200/50-day SMA crosses over the past 20 years (weekly chart shown to capture longer-term history of signals).

Shown below are various support levels that may help navigate the coming weeks, and answer the question posed above: What’ next? Sustained move lower, or quick wash out decline followed by snap-back rally?

• 2,618: Black trend channel
• 2,607: Wave C = 61.8% wave A
• 2,550: Wave C = 78.6% wave A
• 2,500: Fibonacci support going back to 2011
• 2,478: Wave C = 100% wave A
• 2,385: Trend line support going back to 1998
• 2,280: Trend channel support going back to 2009

The Russell 2000 IWM is in the general green support range, with trend channel support at 143.25 and 141.30. A bounce from 143.25 – 141.30 seems likely, but sustained trade below the lower trend channel would unlock lower targets.

The Nasdaq-100 QQQ has a general range of support at 161 – 157. A break below, would likely lead to a retest of the February/March lows at 154-150.

Summary: The above analysis was based on Friday’s closing price. The S&P 500 futures chart below includes Sunday’s 20+ point drop. Trade is right around black trend channel support. Anytime prices reaches support, odds of a bounce increase.

Based on the Elliott Wave Theory structure, we are trying to figure out whether we are nearing the end of this down leg (with a potential wash out decline), or if trade will accelerate lower (as a wave 3 would).

A brief drop (1-3 days) below 2,618 (with next support at 2,607, 2,550 and perhaps as low as 2,500) followed by a quick recovery would preserve the bullish divergences and suggest sellers got ‘washed out’ and a year-end rally is underway.

Persistent trade below 2,618 and 2,607 means we need to allow for more weakness.

We will take a stab at going long (only with a small amount as this correction may carve out lower lows eventually) if the S&P 500 drops below 2,607 and subsequently rallies above 2,620 (stop-loss to be set at that day’s low). The SPY buy level is thus linked to the S&P 500 (approximate corresponding SPY levels: buy on drop below 261 followed by move above 262.10 with stop-loss at day’s low).

The very first graph of today’s update (S&P 500 in 2011 – blue box) illustrates what a wash out decline may look like.

                                        * * * * * December 9, 2018 Profit Radar Report * * * * *

SUMMARY: The lack of fear, expressed by various ‘bullish divergences,’ is likely to result in a short-term bounce. Back in September, we expected a correction toward 2,400, and that seems still likely (longer-ter S&P 500 outlook available here). A drop toward 2,400 (or at least below 2,500), would probably trigger the kind of ‘panic readings’ commensurate with a more significant bottom.

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 evaluation 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, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

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

US Stocks: 5 Intriguing Charts, 1 Conclusion

Here is a look at the 5 (in my humble opinion) most intriguing and important charts right now. As you will notice, not all charts point in the same direction. Nevertheless, I will conclude with a weight of evidence-based conclusion.

1) S&P 500 Tug of War

The July 15 Profit Radar Report introduced subscribers to a massively bullish S&P 500 chart pattern with an up side target of 3,000+.

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.

The chart insert shows price since July 15. Thus far, triangle support has held, the pattern has not been invalidated, but also not confirmed.

Short-term, as brought out by the August 8 Profit Radar Report, sellers have a window of opportunity due to triple resistance around 2,860.

2) Nasdaq Resistance

The Nasdaq-100 QQQ is up against double resistance comprised of the red trend line and a Fibonacci projection level going back to its 2002 low. As long as resistance holds, bears have a window of opportunity to take QQQ lower.

3) Bear’s Best Friend

All major indexes (S&P 500, Dow Jones, Nasdaq, Russell 2000) have been dancing to the beat of their own drum.

For a broader assessment of US stock’s health, some look at the NY Composite (NYC), which includes some 2000 stocks.

The NYC thus far only retraced 61.8% of the decline from the January high. 61.8 is a Fibonacci number, in fact, it is the ideal retracement of a counter trend rally, a dead cat bounce. That’s what makes the NYC “bear’s best friend” right now.

A look under the hood however, reveals two important facts:

• More stocks have been advancing than declining (blue graph)
• The ratio of advancing stocks has slowed significantly (gray graph)

Based on the NYC advance/decline line and ratio, the most likely outcome is short-term weakness followed by longer-term strength.

4) VIX

The August 1 Profit Radar Report published the chart below, which plots the VIX against hedgers’ (smart money) exposure and seasonality. Based on those factors, a spike to 17 (red trend line) seemed likely.

This week, the VIX spiked from 10.17 to 15.02, a 47% move. Higher readings are still possible.

5) Doom-and-Gloom Hurray

Investors loved doom-and-gloom stories a couple weeks ago. I took a screenshot of most popular MarketWatch articles on July 31. The top two were:

• Prepare for the biggest stock-market selloff in months, Morgan Stanley warns
• This ‘prophet of doom’ predicts stock market will plunge more than 50%

Admittedly that’s anecdotal evidence, but heavily bearish investors tend to get burnt first. The early August rally did just that.

Conclusion

If you want to be bullish, there’s plenty of data to support your view.

If you want to be bearish, there’s plenty of data to support your view, too.

Looking at the data objectively, my conclusion (based on the weight of evidence) is that short-term weakness will provide at least one more buying opportunity.

Weakness may not materialize if the S&P 500, Nasdaq, NY Composite move above their respective resistance levels.

Support levels, up side targets and continuous updates are available in the Profit Radar Report.

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.

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, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

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

What’s Next: New Highs or Lows?

Even just a quick glance at the S&P 500 chart reveals a tug-of-war between bulls and bears, buyers and sellers. Although there’ve been many – at time violent – swings, there’s been no net progress.

What will we see first, new highs or new lows? Here’s a look at various pieces of market research:

Long-term:

Hypervolatility – April 11, 2018 Profit Radar Report:

“What a contrast: In 2017, the S&P 500 swung more than 1% on only 10 days. That’s measured from daily high to low, not open to close. In 2018, the S&P 500 had already 41 daily swings of more than 1%.

Below is a closer look at actual volatility, not the VIX. The first chart plots the S&P 500 against the daily percentage change measured from high to low (gray graph) along with a 20-day SMA of the daily percentage change (blue graph).

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.

In February, the daily swing range was nearly as big as in September 2015 and January 2016, which is when stocks bottomed. Back then, volatility came and went quickly (like the shape of a ‘V’). This time around, volatility is lingering longer.

The second chart provides a long-term perspective, which includes the 1974, 1987, 2002, 2007, and 2011 market lows. Back then, daily swings (20-day SMA) peaked around 4%, twice the current average of around 2%.

Based on positive liquidity (NYC a/d line) and the parallels to 2011, it’s unlikely that the daily swing range will double from 2% to 4% as stocks melt lower.

The main takeaway is that volatility extremes are usually seen towards market lows.”

Elliott Wave Theory (EWT) – February 11, 2018 Profit Radar Report:

“For well over a year stocks have almost exclusively gone up, slow but steady. For the past two weeks, stocks have gone down quickly.

What’s next? The temptation (and trap) is to think two dimensional – up or down – since that’s most of what we’ve experienced lately. However, stocks could also go sideways for a period of time.

The weekly S&P 500 chart provides some long-term perspective. 1 – 2 – 3 is how we label the rally from the February 2016 low. Wave 3 (wave 5 of wave 3 to be exact) extended much higher than normal.

Based on EWT, wave 3 is followed by wave 4, which is where we are currently at. Waves 4 are generally choppy, range-bound, long-winded, unpredictable corrections that retrace ideally 38.2% of the preceding wave 3. The 38.2% Fibonacci retracement level is at 2,536 (reached on Friday).

In terms of price, wave 4 has already reached its down side target. In terms of time, wave 4 would be unusually short.”

Liquidity – April 18, 2018 Profit Radar Report:

On the bullish side of the ledger, we find that the NY Composite advance/decline line (and NYC OCO a/d line) made new all time highs. This follows the bullish divergence noted in the April 4 PRR.

Long-term summary:The weight of evidence suggests that this correction will be temporary and followed by new all-time highs. But how much longer will this correction last and how low can it go?

Short/Mid-term:

Breadth – May 2, 2018 Profit Radar Report:

“As early as February 11, the Profit Radar Report expected a frustrating, drawn out correction like in 2011. There are many parallels between the 2011 and 2018 correction, but here is one difference:

In 2011, there were multiple strong up days (where more than 80% or 90% of stocks advanced – green lines), and strong down days (where more than 90% of stocks declined – red lines).

The strong down days exhausted sellers, and the strong up days indicated internal strength not yet reflected in price.

The 2018 correction is much different. There’ve been only two days that come close to be considered a 90% down day, and only one 80% up day.

To end this sideways range, it appears that either more 90% down days or 80%-90% up days (like in October 2011, see green arrow) are needed. Ideally we’d like to see both, first a bout of strong down days followed by strong up days.”

Seasonality, cycles, pattern – May 6, 9, 2018 Profit Radar Report:

“Based on mid-term seasonality (blue graph, chart below), the S&P has a tendency to bottom between late June and late September. Cycles are fairly similar to seasonality at this time.

Year-to-date the S&P is down 0.38%. Since 1950, the S&P 500 showed at loss of 1% (but no more than 5% below 200-day SMA) after the first 4 months 17 other times.. 6 of those 17 instances occurred in mid-term election years (like 2018). The average full-year performance is shown below (average bottom: trading day #193).”

Summary:

The April 2 Profit Radar Report (when the S&P 500 closed at 2,582) stated that: “The S&P 500 has met the minimum criteria to consider this correction complete. There is, however, a difference between minimum and ideal.”

The S&P continues to be stuck in the ‘twilight zone between minimum and ideal.’

Short-term, the May 13 Profit Radar Report probably defined it best: “The S&P 500 broke above triangle resistance. Although we view this breakout with a fair amount of skepticism, we need to allow for higher prices while trade remains above 2,700. Due to the overbought condition, it is unlikely for the S&P to move above 2,750 early this week.”

Continued 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.

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