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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How Alarming is the 23-year VIX Low?

According to Barron’s, the VIX is flashing a stock market warning. Barron’s is not alone. If you threw a water balloon in a room filled with analysts, odds are you’ll hit someone who’s bearish stocks because of the VIX.

Facts Trump Opinions

VIX readings below 10 are rare. There’ve only been 9 other ones since the VIX’s inception in 1993. None of them led to stock market crashes (click here for detailed analysis).

Some claim that the 2000 and 2007 market tops were preceded by a low VIX, but that’s one of the biggest misconceptions on Wall Street.

This special report, published by the Profit Radar Report on June 16, 2014, showed why the VIX was TOO LOW for a major market top back then (and still is today).

VIX Seasonality

VIX seasonality supports overall lower readings until the major seasonal low in early July.

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.

VIX-based Indicators

The chart below plots the S&P 500 against the VIX, VIX/VXV ratio, CBOE equity put/call ratio, and contango.

The VIX/VXV ratio gauges fear of short-term volatility (30-day, VIX) compared to longer-term volatility (90-days, VXV). Readings above 1 happen when investors are more concerned about the short-term than longer-term.

This occurs near stock market lows and has been a very reliable buy signal. The April 16 Profit Radar Report noted the VIX-sell signal highlighted in green (VIX is down 39% since).

On Monday, the VIX/VXV ratio was 0.776. Readings below 0.76 happen when investors are more concerned about the longer-term than the short-term.

Although a potential warning sign, the VIX buy signal (<0.77) has not been as accurate as the VIX sell signal (>1.0).

The CBOE equity put/call ratio and contango are showing a measure of bearish (for stocks) potential, but have plenty room to become more extreme.

S&P 500 Outlook

The April 11 Profit Radar Report published the chart below along with the following forecast: “As long as trade remains above 2,330, we are still looking for higher prices. The chart below outlines two potential up side targets (2,365 – 2,375 and 2,380 – 2,410).” The upside target was revised to 2,405 – 2,410 on April 26 (more detailed outlook available here).

The S&P is now just below 2,410. It remains to be seen whether bears will take a stand, but if they do, it should be around 2,410 (which would result in a VIX spike).

Continued analysis for the S&P 500, VIX and other asset classes is 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.

 

S&P 500 Update – Churning for a Burning?

The S&P 500 reached our minimum down side target and rallied strongly. Is this rally for real or are stocks just ‘churning for another burning’?

Bullish Signals

This week’s rally is credited to the French election, but a series of solid buy signals triggered days before the news from France.

The CBOE equity put/call ratio signaled a S&P 500 rally.

Contango and the VIX/VXV ratio signal a VIX decline.

The chart below – which plots the S&P 500 against the VIX, VIX/VXV ratio, CBOE equity put/call ratio, and contango – was published in the April 16 PRR along with the following commentary:

The VIX/VXV ratio, equity put/call ratio and contango are at multi-month extremes.It appears like the amount of sellers left (needed to drive prices lower) is rather limited. The weight of evidence strongly suggests that we should focus on the upcoming buying opportunity, not on how much more down side may or may not be left.”

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 same Profit Radar Report also highlighted positive seasonality (see below).

Bearish Caveat

This bounce is in sync with seasonality and various buy signals, but will it last?

The April 9 PRR featured the yellow projection shown below. According to this scenario (based on Elliott Wave Theory), the S&P would reverse above 2,390 and fall to new lows (2,320 or below).

The S&P 500 is above 2,390 and has entered a price zone where a relapse becomes possible.

We will be watching various breadth, money flow, sentiment and technical indicators to determine whether this rally will stop here or not.

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 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.

 

S&P 500 Update

Although we are longer-term bullish, we expected lower prices prior to a buying opportunity. The last S&P 500 update highlighted lacking up side momentum and bearish divergences … which caught up with stocks this week.

The Profit Radar Report has been anticipating a ‘flush out’ move below obvious support at 2,120 and stated on October 30 that: “The next possible target for a low is 2,100.”

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.

Why 2,100? An open chart gap at 2,098.70 has been waiting to get filled (dashed purple line).

The October 30 Profit Radar Report stated that: “The preferred scenario would be a quick (perhaps even intraday) washout (to 2,100) that flushes out weak hands and clears the air for a more sustainable rally.”

The emphasis is on quick. On Wednesday the S&P failed to build on the initial recovery from Monday’s lows (right after the open chart gap was closed). While the S&P maintains below resistance (prior support), it’s at risk to fall further.

As green lines in the first chart show, the S&P 500 is oversold (based on RSI-2). Oversold conditions have led to bounces 3 out of 4 times in 2016 (the one failure is highlighted in blue).

Oversold and Overhated

The market is not only oversold, it is also overhated.

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The second chart shows that various sentiment metrics are nearing noteable extremes.

VIX traders believe that longer-term volatility (90 days, VXV) will be higher than shorter-term volatility (30 days, VIX). The VIX/VXV ratio is above 1 for the first time since the Brexit vote.

Also for the first time since the Brexit vote, option traders are nearly buying as many puts as calls The CBOE put/call ratio is one of the highest we’ve seen in the past few years.

Opportunities are Born in Panic

History says that the best opportunities are born in times of panic. Where is maximum panic?

In January the S&P continued temporarily lower despite being oversold and overhated, but eventually rebounded strongly. The more panic, the better the opportunity.

It’s risky to short such a market, and much more promising to look for a low-risk buying opportunity.

The Profit Radar Report nailed the February low (buy recommendation at S&P 1,828 on February 11) and we will try to do the same for the up coming low.

Our focus in the coming days/weeks will be to minimize short-term down side risk without missing the lowest possible entry point to buy.

Continued S&P 500 updates and 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 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.

 

3 Must Know Brexit Vote Facts

Up until now, iSPYETF did not participate in the Brexit discussion. Why? Until the votes are cast and counted, it’s all speculation. We can’t predict the outcome of the vote and how the market reacts.

The best thing we can do is look at our dashboard of indicators and decipher their message. Based on our indicators, the Profit Radar Report anticipated a pullback in early June, but stated on June 15 that: “Following five consecutive down days, the S&P is compressed and prone to bounce. Based on Elliott Wave Theory, this bounce should stop at 2,090 – 2,110.”

We are right at 2,110, just a few hours before Britain heads to the polls.

As the vote is imminent, there are three absolute must know facts:

  1. Timing
  2. Bullish/Bearish VIX Pattern
  3. S&P 500 Coiling Pattern

1) Timing

According to the BBC, polls will close on Thursday at 22:00 GMT (3:00pm PST, 6:00pm EST). The ballot count is expected to start as soon as the polling stations close. Credit Suisse estimates that about 25% of the votes will be counted by 3:00am GMT (8:00pm PST, 11:00pm EST), 50% of the votes will be counted by 4:00am GMT (9:00pm PST, 12:00am EST).

There will be a rolling total so the time at which one side reaches the point of being mathematically unbeatable depends on how quickly the vote are counted and how close the results are running. Some expect the final result on Friday around 7:00am GMT (12:00am PST, 3:00am EST).

In other words, Wall Street will likely be closed when the results come in. This may well result in a gap up or gap down open on Friday morning. Risk adverse investors who don’t want any voting-related risk, should close out positions before the end of close today.

2) Bullish/Bearish VIX Pattern

There are three different volatility indexes:

  1. CBOE Short-term Volatility Index (VXST): Expectations of 9-day volatility
  2. CBOE Volatility Index (VIX): Expectation of 30-day future volatility
  3. CBOE 3-Month Volatility Index (VXV): Expectation of 3-month volatility

Looking at the volatility correlation between various time frames can provide helpful clues.

For example, the expectation of increased short-term volatility relative to long-term volatility (VIX/VXV ratio above 1, or VXST/VIX ratio above 1.2) is usually a contrarian indicator. When investors brace themselves for more immediate volatility, the opposite tends to happen and stocks move higher. Investors are bracing themselves right now.

The first chart plots the S&P 500 against the VXST/VIX and VIX/VXV ratio. Short-term volatility is elevated relative to longer-term volatility.

The VXST/VIX ratio is at 1.31. The dashed green lines show that similar readings in the past coincided with market lows. The VIX/VXV ratio is at 1, which is elevated as well.

However, VIX seasonality is nearing the best buy signal of the year.

S&P 500 Coiling Pattern

Based on Elliott Wave Theory, the S&P 500 is at or near a significant inflection point (fork in the road).

Summary

According to the charts, stocks are at or near an important inflection point, and the Brexit vote may be the catalyst for the next move.

The market could break into either direction. Now is the time to watch important support/resistance levels. Trade above resistance is likely to send stocks significantly higher, while a drop below support should lead to a sizeable correction.

Continued S&P 500 analysis is 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.

 

Volatility Ratio Shows Dangerous Complacency

At the end of last week we saw some excessive pessimism (reported here), now we are seeing signs of complacency.

The May 8 Profit Radar Report stated the following: “As long as the bullish RSI divergence and support near 2,040 hold, odds favor either a bounce or rally to new recovery highs. We will be watching the open S&P chart gap at 2,079.12. Once/if the gap is closed, we’ll have to determine if this bounce has legs (new recovery highs) or if it is just a small bounce within a deeper correction.”

The S&P 500 rallied and closed the open chart gap on Tuesday (May 10). This open gap was our minimum up side target, and the fact that the S&P turned lower immediately after reaching the target indicates persuasive selling pressure.

On the same day, the VIX:VXV ratio dropped to 0.79. Wednesday’s (May 11) Profit Radar Report explained what this means.

MW 2

 

The chart above plots the S&P 500 against the VIX:VXV ratio. The VIX measures implied volatility for the next 30 days, VXV for the next 90 days. Readings below 1 mean that option traders anticipate 90-day volatility to exceed 30-day volatility. Readings below 0.80 indicate extreme complacency towards short-term volatility. Yesterday’s reading was 0.79.

As the dashed red lines indicate, sub 0.80 readings have consistently led to a pullback, although the scope of any pullback varies. This indicator was the reason we did not want to chase yesterday’s spirited rally.

Today’s S&P 500 reversal after closing the open chart gap yesterday neutralizes (and reverses) the bullish edge discussed on Sunday.  The S&P remains in the chop-zone with 2,065 being the likely ‘line in the sand’ between short-term bullish and bearish moves.

Failure to move back above 2,065 favors further down side. Potential near-term target: below 2,040.”

Once the S&P reaches the initial down side target, we’ll evaluate our dashboard of indicators to see what’s next. Continued S&P 500 analysis is 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.

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.