S&P 500 Update: Is This Rally Leg Over?

The September 5, 2016 Profit Radar Report published the chart below along with the following commentary:

The chart below shows the long-term up side target purely based on projected symmetry. Based on the 1997 – 2013 trading range, the measured up side target is S&P 2,330 – 2,485, which is in the general vicinity of the 2,290 – 2,342 Fibonacci levels mentioned in the 2016 S&P 500 Forecast. Higher targets are possible, but we’ll reassess once we get there.”

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Bussines Daily says “When Simon says, the market listens.” Find out why Barron’s and IBD endorse Simon Maierhofer’s Profit Radar Report.

The second chart shows the trading activity over the past year along with short-term bars and trend lines we used to narrow down the up side target (the latest up side target was 2,494).

Short-term X-Ray

A special August 7 Profit Radar Report update featured this potent warning:

The S&P 500 ETF (SPY) closed at a new all-time high at the lowest volume of the year. For the first time in a while, there is a bearish divergence between the S&P 500 and the NY Composite a/d lines. The ideal scenario (and tempting setup to go short) would be a spike to 2,495+ followed by an intraday reversal.”

This is almost exactly what happened. The S&P 500 spiked as high as 2,490.87 before falling 52 points.

However, this drop quickly caused an oversold condition.

A special August 10 Profit Radar Report update featured this chart and stated that:

The CBOE equity putt call ratio (last chart) spiked to the highest reading (0.88) since April. The VIX is overbought. The VIX/VXV ratio jumped and contango fell. Both are near levels that have been seen at VIX highs. Stocks are oversold and ready to bounce. Based on the wave structure, we anticipate this bounce to be brief (2-6 days) and stay below the prior all-time highs (although the extent of the oversold condition would allow for a stronger bounce).”

Conclusion

The August 28, 2016 Profit Radar Report featured a bullish Elliott Wave Theory count with a projected up side target around S&P 2,500 (more details here: S&P 500 Update – Expect the Abnormal).

One of the images featured was a conceptual “We are here” chart (shown below). The green dots mark where we were in August 2016 (along with probability scores).

The red circles highlight where we are at today. The upcoming correction should be a choppy and frustrating wave 4 decline to be followed by another rally to new all-time highs. It then remains to be seen whether that high will be a major top or not.

Since the S&P did not quite reach our up side target, there is an alternate interpretation, which allows for continued gains almost immediately. However, that remains only an alternate unless the market tells us otherwise.

Continued analysis, with down side targets and buy/sell signals are provided via the Profit Radar Report.

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

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

 

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Last week the VIX traded at the lowest level since November, but the VIX:VXV ratio dropped to 0.78. Readings below 0.80 are extremely rare.

The VIX reflects anticipated volatility over the 30 days. The VXV reflects anticipated volatility over the next three months.

The expectation of increased mid-term volatility (VXV) relative to short-term volatility (VIX) is usually a contrarian indicator.

In other words, when investors expect short-term volatility to remain subdued, the market delivers the opposite.

The chart below plots the S&P 500 against the VIX:VXV ratio. As the dotted blue lines show, low VIX:VXV ratio levels tend to spell trouble for stocks.

View VIX chart

The only unusual development is that the CBOE Equity put/call ratio is relatively elevated. A rising CBOE Equity put/call ratio tends to coincide with lows.

What do we make of all this?

The S&P 500 reached an obvious resistance zone last week. The VIX:VXV ratio suggests lower prices. It makes sense to expect further weakness. The elevated put/call ratio may soften the effect of the VIX signal or cause any pullback to become more choppy.

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, 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.

2 Contrarian Indicators Triggered Buy Signals Last Week

For much of 2014, contrarian indicators were stuck in the ‘Bermuda Triangle’ of technical analysis. They crashed, burned and drowned. However, the recent sell-off revived a number of them … with buy signals (how about that for irony).

As mentioned in the Short-Term S&P 500 Analysis, the S&P 500 nearly hit important support located at 1,902 – 1,885.

Just before the S&P 500 (NYSEArca: SPY) approached this key support cluster, there was a buy signal by two option-based indicators.

The charts and commentary below were published in the August 6 Profit Radar Report.

“The 5-day SMA of the CBOE Equity Put/Call Ratio just spiked to a two year high. Options traders are more bearish today than any other time since June 2012. Obviously 2012 and 2013 were unusual years and may not be the best benchmarks, but nevertheless this is a noteworthy extreme.”

“The VIX:VXV ratio briefly poked above 1 on August 1. This means that expected 1-month volatility (VIX) was higher than 3-month volatility (VXV). All 2012 and 2013 spikes above 1 marked lows for the S&P 500 and highs for the VIX.”

The message of various indicators was summarized as follows by the August 6 Profit Radar Report:

The longer-term S&P 500 chart shows key support at 1,885 – 1,902. This would be the ideal target for a tradable low (a drop to support at 1,850 is only a low probability). However, the 100-day SMA is at 1,913 and the August s1 pivot is at 1,910. In essence, support/resistance levels confirm the message of EWT: A low is either already in place or nearly so.”

Unfortunately, the above two indicators don’t tell us how long this bounce will last.

We will be looking at various other gauges to judge the longevity of this bounce.

One clue comes from the VIX. VIX seasonality triggered a major buy signal on July 9 (which has been spot on), but sports a brief bearish window right now.

More details here: VIX Seasonality Sports Brief Bearish Window

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.

This Might Be the Only Bullish S&P 500 Chart Right Now

Last week’s decline has turned many short-term trend following and technical indicators bearish. There’s little evidence for an immediate bottom, aside from this one chart (which has an impressive track record):

A one-week decline doesn’t wipe out a five-year bull market, but it can ruffle some bullish feathers. That’s exactly what happened last week.

Aside from this chart, few indicators suggest an immediate end to stocks new-found attraction for lower prices.

The chart plots the S&P 500 against the VIX:VXV ratio.

The VIX (NYSEArca: VXX) is a gauge of expected volatility for the next month.

The VXV is a gauge of expected volatility for the next three months.

We’ve previously dubbed this the ‘Incredible VIX Market Bottom Indicator,’ because prior readings above 1 (= expected 1-month volatility > 3-month volatility) have coincided with every S&P 500 bottom since 2012.

Now, once again, the VIX:VXV ratio has spiked above 1.

This is good news if the S&P (NYSEArca: SPY) follows the bullish 2013 pattern, but not every year can be like 2013 (I personally think we might see another VIX:VXV hook higher like in February – green circle).

There’s another, even better, explanation why stocks rallied today (and whether this is a ‘real’ or ‘fake’ bounce. More details here:

Don’t Get Fooled by S&P 500 Bounce

There are two potent reasons why this VIX spike may not have the same results now as it did in 2013. More details here:

MACD Triggers the Year’s Most Infamous Sell Signal (make sure to look at date of article)

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.

Incredible VIX Indicator Triggered Surprising Signal

Market’s sold off following the Fed’s taper announcement and Wall Street was bracing for lower prices, but this trusty little VIX indicator triggered a surprising signal.

 

The December 13 article on the incredible VIX indicator drew a lot of feedback and requests for updates. Now is an appropriate time for an update.

Before we look at the actual indicator, here’s a quick nutshell summary on how this particular VIX indicator works.

The ‘incredible VIX indicator’ is a simple ratio of two short and long-term ‘fear gauges.’ We use the VIX (Chicago Options: ^VIX) and VXV.

The VIX reflects how volatile traders expect the next month to be. The VXV reflects how volatile traders expect the next three months to be.

The expectation of increased short-term volatility relative to long-term volatility (VIX/VXV ratio above 1) is usually a contrarian indicator, which means short-term volatility is about to level off and the S&P 500 (NYSEArca: SPY) or other indexes are about to move higher.

The chart below plots the S&P 500 Index against the VIX/VXV ratio. Over the last four trading days the VIX/VXV ratio (based on closing prices) peaked above 1 three times.

The red lines highlight the S&P 500’s reaction to VIX/VXV ratios of 1 or higher.

The current bounce is in harmony with the Profit Radar Reports January 27 assessment that: “A new low should still be forthcoming (perhaps around 1,760 for the S&P 500) before we see a larger bounce.”

The hourly S&P 500 chart below shows some of the trend lines and key levels we’ve been following.

Although the current bounce should move higher, the weight of evidence confirms the Profit Radar Reports 2014 Forecast, which proposed a correction starting at S&P 500 1,855. Today’s rally should have further to go, but ultimately lead to lower lows.

This article (make sure to look at the publishing date) provides more details about the S&P 500’s future path:

Watch for Bounce! But 3 Reasons Why a Larger Correction is likely

If you trade VIX vehicles like the iPath S&P 500 VIX Futures ETN (NYSEArca: VXX) or VelocityShares Daily Inverse VIX ETN (NYSEArca: TVIX), you’ll find the trading tip offered here insightful.

Record Bet: Trader Sells $18 Million in VIX Calls

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (stocks, 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.