Short TSLA, Long XLE – The New FOMO Trade?

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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

Energy Sector ETF (XLE) Drops To Triple Support

It’s not exactly been a high-octane year for oil and energy stocks. Here’s an interesting long-term chart for the Energy Select Sector SPDR ETF (NYSEArca: XLE).

After chopping back and forth for all of 2015, XLE has dropped down to long-and short-term support.

The black trend channel dates back to the March 2009 low, and the green trend line originates at the secondary January 14 low.

Both levels intersect around 77 this week.

Although XLE remains in a chop zone that’s watered down many support/resistance levels, 77 might be a number to keep in mind if you’re thinking about buying/selling XLE (don’t sell until support is broken, and vice versa).

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 and 17.59% in 2014.

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

Is the Smart Money Buying Oil?

If anyone knows fundamental supply/demand forces, seasonal patterns and the potential for curveballs, it’s commercial traders.

Commercial oil traders work with oil in their day-to-day business. It’s the only commodity they deal with. Commercial traders make up about 60 – 75% of the trading volume in futures markets. That’s why they are considered the smart money.

So, is the smart money buying oil?

The chart below plots the price of crude oil against the net futures positions of commercial traders (as reported by the Commitment of Traders report).

Commercial oil traders are almost always net short as futures are used as hedge against falling prices.

Here are the key takeaways:

  1. The smart money reduced short exposure steadily as oil prices tumbled. In itself, that’s good news.
  2. However, net short positions fell to an all-time low and are still well below the levels seen at prior oil price trough. That’s not bullish.
  3. Although oil prices managed to inch higher last week, commercial traders added to their hedges (red circle). That’s bearish.

Technical analysis shows an improving picture for the Energy Select Sector SPDR ETF (NYSEArca: XLE). Click here for detailed XLE analysis.

But oil ETFs like the United States Oil ETF (NYSEArca: USO) and iPath S&P GSCI Crude Oil ETN (NYSEArca: OIL) have yet to catch their footing.

Commercial oil traders are not yet convinced oil has found a lasting bottom. Unless we know something they don’t, it appears too early to buy.

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.

Why Oil Crash is Unlikely to Trigger Stock Market Crash

Falling oil prices in 2008 led to a stock market meltdown. It’s 2014, and oil prices are crashing again. Will stocks follow the 2008 script? We live in a complex world, and there are a number of correlations that may cause a surprise outcome.

This report was originally published in the December 14 Profit Radar Report:

There is some concern that the drop in oil prices will push stocks into a bear market, similar to what happened in 2008. We live in a complex world, and here are some of the ripple effects caused by falling oil prices. A bear market is not necessarily one of them.

Low Oil Prices = Economic Stimulus

According to the U.S. Energy Information Administration (EIA), the United States consumes about 11.5 billion gallons of gasoline and 567 million barrels of crude oil per month (based on 2013 data).

Since late June, the price of regular gas fell from $3.8/gallon to $2.5/gallon. A $1.30 drop in gas prices translates into a monthly savings of almost $15 billion for U.S. drivers.

Since late June, crude oil prices fell from $107/barrel to $58. A $49 drop in crude oil prices translates into a monthly savings of $28 billion.

Without help from the Federal Reserve, the oil market just delivered an ‘economic stimulus’ that could be valued somewhere around $43 billion a month.

Oil vs S&P 500

This year’s oil price collapse differs from the 2008 collapse relative to the S&P 500 (NYSEArca: SPY). In 2008, the S&P 500 topped before oil did. In fact, the S&P 500 recorded its all-time high in October 2007 and was already down 21% by the time oil topped on July 11, 2008.

In 2014, the S&P 500 recorded new all-time highs five months after oil (NYSEArca: USO) started to decline.

The chart below plots oil against the S&P 500 and shows that falling oil (NYSEArca: OIL) prices are not consistently bearish for stocks.

Falling oil prices after unusual spikes or bubbles (1990 Iraq war, 2008 commodity bubble – red shading) have a bigger effect on stocks than falling oil prices after a periods of consolidation (gray shading).

The 2014 meltdown came after a year of sideways trading. If history can be used as a guide, stocks are likely to hold up despite the oil meltdown.

Oil & the Hindenburg Omen

The ominous Hindenburg Omen showed up multiple times in December. The media has published numerous Hindenburg gloom and doom articles in recent years. The most recent Hindenburg clusters occurred in May/June and August 2013 without effect on stocks.

A number of requirements need to be met to trigger the Omen, one of them is a spike of new NYSE highs and lows.

Declining oil prices sent many energy stocks to new lows. Those new lows contribute to the Hindenburg Omen requirements and the resulting signal.

Oil & the Energy Sector

98% of stocks included in the Energy Select Sector SPDR ETF (XLE) are trading below their 50-day SMA. XLE is extremely oversold. The immediate downside from such on oversold condition is limited. A bounce in energy stocks will serve as tailwind for broad markets. UPDATE: XLE just deliverd the most bullish action since June. Will it stick? More details here: XLE Delivers Promising Rally

According to JP Morgan, oil firms account for 18% of the high yield bond market, which explains the 10% drop in junk bond ETFs like JNK (detailed analysis of JNK is available to Profit Radar Report subscribers).

The rest of the report along with detailed analysis for U.S. stocks and oil is available to subscribers of the Profit Radar Report.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF to get actionable ETF trade ideas delivered for free.

Energy Select Sector SPDR ETF (XLE) Delivers Promising Rally

The Energy Select Sector SPDR ETF (NYSEArca: XLE) lost as much as 28.57% from June to December. Every attempt to go bottom fishing was greeted by further losses.

I was nearly tempted to fish for an oil low in late November, when I wrote that: “Oil failed to make a new low this week, but a marginal new low would likely come with a bullish RSI divergence and the potential for a bottom.”

Two days later (November 28) oil lost 10% in one day and I shared this updated outlook with Profit Radar Report subscribers: “Friday’s 10.4% loss was more than just a ‘marginal new low.’ RSI also confirmed the new price lows. Obviously this decline is stretched, and a rally can develop at any given time, but at this point it’s better to wait for a move back above resistance. The next real support/resistance level doesn’t emerge until around 50, but it appears ambitious to expect oil to drop that far.

Turns out the $50 target wasn’t all that ambitious after all (actual low for crude oil futures was 53.60). It appears like oil will test the 50 level next year. For now, the Energy Select Sector SPDR ETF (NYSEArca: XLE) chart looks more promising than oil.

The December 10 Profit Radar Report stated that: “XLE is near parallel trend channel support and may bounce, but with lacking evidence of a more permanent low in oil prices, going long XLE is risky. A drop below trend channel support followed by a close above would offer a low-risk buy signal.”

The weekly XLE chart below includes the trend channel (purple lines) along with helpful prior support/resistance levels (dashed gray lines).

XLE dipped below the trend channel last week and closed back above it on Wednesday. This is the first encouraging sign for XLE.

Yesterday’s Profit Radar Report spells out what’s needed next for this fledgling bounce to gain momentum.

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 to get actionable ETF trade ideas delivered for free.

Time is Ripe to Get Dirty with This Out-of-Favor Sector ETF

The energy sector has been hammered by a 31% drop in crude oil prices. OPEC is a mere shadow of its prior glory days and analysts project further declines, as much as another 60%. Ironically, now might be the time to get dirty with oil/energy.

Baron Rothschild’s famous words encourage investors to buy when there’s blood on the streets. What about when there’s oil on the street?

Pull up the Hummer and Suburban, because oil (and gasoline) is the cheapest it’s been in well over four years.

According to many analysts, oil is doomed to fall much further. One price target pegged oil at $30/barrel, another 60% lower than today.

Unless you’re Russia, Saudi Arabia or perhaps a hardcore Prius driver, there’s nothing wrong with low prices, but some charts suggest that the oil/energy sector may be getting ready for a comeback.

The Energy Select Sector SPDR ETF (NYSEArca: XLE) has traversed within a defined trend channel from 2009 until today. As the weekly XLE bar chart shows, XLE recently dropped towards the lower end of the channel.

Essentially the same is true for the SPDR S&P 500 Oil & Gas Exploration & Production ETF (NYSEArca: XOP). XOP more deliberately tested channel support and is trading just above it.

Technical support areas, such as the ones shown above, don’t guarantee a change of trend, but they do highlight price levels where a change of trend is more probable.

The third chart shows the XLE:S&P 500 ratio. XLE underperformed the S&P 500 since April 2011. The gray trend channel suggests that the days of XLE’s underperformance may be numbered.

The November 5 Profit Radar Report wrote that: “We are looking for potential opportunities to buy large caps (Dow Jones, S&P 500) and possibly materials (XLB) and Energy (XLE).”

We got to pick up XLB, which has had a very nice run, and are waiting for a low-risk buy trigger for XLE. It looks like we’re getting close. Continued coverage will be provided via the Profit Radar Report.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

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

Simon Says: 3 Most Contrarian ETFs to Own Right Now

Here are three contrarian picks for die-hard contrarians and those who missed the latest stock market rally. Two trades are true bottom pickers, one trade is 2x contrarian, which almost makes it a mainstream trade.

If contrarian investing came with a label, it might as well be ‘no guts, no glory.’ It takes guts to bet against the crowd, but it can pay off big.

I use sophisticated software and crosscheck with basic media sentiment (headlines) to identify extreme sentiment delights for contrarians. Here are my top three choices:

Gold Anyone?

Gold prices have dropped almost $800 since September 2011, and according to many pros, gold will shed another $300 – $400. Here are a few recent doom and gloom headlines:

  • “A final purge to $700? What gold bulls surrender might look like” – Nov. 12
  • “Here’s why gold could be headed to $800” – Nov. 12
  • “Gold bulls beware: More pain coming” – Nov. 10

If gold is going to drop another few hundred bugs, why would anyone hold on to it? That’s the crux of contrarian investing. In the midst of extreme pessimism, there are not enough sellers left to drive prices much lower.

It appears that gold is at or near this point, often called the ‘puke point’. Gold ETFs like the SPDR Gold Shares (NYSEArca: GLD) and iShares Silver Trust (NYSEArca: IAU) are likely to surprise many to the up side.

Fill up The Car Honey

According to the U.S. Energy Department, low gas prices aren’t going away anytime soon. I don’t recall the Energy Dept predicting a 30% drop a few months ago, but that’s what happened.

According to one ‘pro’ interviewed on CNBC, gas may drop to $30.

Catching a bottom in oil prices is a bit like catching the proverbial falling knife, but simply based on investor/media sentiment, this slippery, oily knife is closer to the kitchen floor (a bottom) than the hand that dropped it (top).

The United States Oil Fund (NYSEArca: USO) and Energy Select Sector SPDRs (NYSEArca: XLE) are two ways to play a bounce.

The Ultimate 2x Contrarian Trade?

Back in May I noticed, and reported on, the unusual amount of bearish media coverage. Russ Koesterich (chief investment strategist at BlackRock), Wilbur Ross (billionaire investor), Carl Icahn (billionaire investor), David Tepper, Marc Faber and Peter Schiff predicted a serious correction or outright market crash.

In the spirit of no guts, no glory, I wrote back then: “Here’s a message for everyone vying to be the next Roubini: A watched pot doesn’t boil and a watched bubble doesn’t burst.”

Some of the recent headlines make we wonder if we’re in for a May/June repeat:

  • “Sentiment is ‘off the charts’ bullish” – Nov. 12
  • “Don’t get suckered by stock market winning streak” – Nov. 12
  • “Marc ‘Dr Doom’ Faber: I will soon be proven right” – Nov. 13

Yes, sentiment polls show excess optimism, but can it still be considered a contrarian indicator if everyone reads about it? Will two negatives make a positive?

Another factor to keep in mind is that actual money flow indicators do not confirm sentiment polls. Investors don’t seem to be putting their money where their mouth is.

Therefore, owning stocks into next year may be more of a true contrarian move than selling stocks. Instead of owning broad market ETFs like the S&P 500 SPDRs (NYSEArca: SPY), I would probably opt for certain sector ETFs that offer more up side.

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.

Crude Oil and Energy SPDR ETF Gushing to Major Support

Crude oil prices have been gushing lower since their June high, down 20%. The same is true for the Energy Select Sector SPDR ETF. Those two charts show that the odds for a tradeable bottom are now above average.

Crude oil has plummeted from $107 to $84.

Are falling oil prices good for the economy or are they a reflection of a weak economy?

It’s a chicken or egg kind of question.

The media is certainly at a loss, as those actual headlines from 2011 and 2012 illustrate:

  • AP: “Higher oil prices threaten global economy” – March 10, 2011
  • Reuters: “Oil prices rise on economic optimism” – January 10, 2012
  • AP: “Higher oil prices offset worries about global economic recovery” – May 25, 2011

A simple look at a comparison chart (S&P 500 vs XLE) shows that oil and stock prices can, and often will move independently from each other.

Regardless on how oil prices affect the overall stock market, oil prices are at important support.

Crude Oil Support

The crude oil chart shows trade being repelled by red trend line resistance in August 2013 and June 2014.

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After a 21% drop from high to low, oil is sitting right above important support around 84.

Energy Select Sector SPDR Support

The Energy Select Sector SPDR ETF (NYSEArca: XLE) matched crude oils gush lower, down 20% from its high.

The 81 level offered important support in December 2007, March/April 2011 and February 2014 (blue dots).

Considering the steepness of the recent selloff and proximity to important support, there’s a good chance oil and XLE will find a tradable bottom somewhere around current trade.

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.

Sector ‘Heat Map’ Shows Cooling Appetite for Risk

Every bull market has a certain life expectancy. Nobody knows how long this bull will live, but a look at the S&P 500 industry sector ‘heat map’ shows ‘graying around the temples’ as investors rotate out of higher risk industries.

A rising tide lifts all boats. This sounds cliché, but was certainly true in 2013.

The first chart below shows the Q4 2013 performance of the nine S&P 500 sector ETFs. Those nine ETFs are:

  • Industrial Select Sector SPDR ETF (NYSEArca: XLI)
  • Technology Select Sector SPDR ETF (NYSEArca: XLK)
  • Consumer Discretionary Select Sector SPDR ETF (NYSEArca: XLY)
  • Materials Select Sector SPDR ETF (NYSEArca: XLB)
  • Financial Select Sector SPDR ETF (NYSEArca: XLF)
  • Health Care Select Sector SPDR ETF (NYSEArca: XLV)
  • Consumer Staples Select Sector SPDR ETF (NYSEArca: XLP)
  • Energy Select Sector SPDR ETF (NYSEArca: XLE)
  • Utilities Select Sector SPDR ETF (NYSEArca: XLU)
    The ETFs are sorted based on Q4 2013 performance.

More risky, high beta sectors (red colors) like technology and consumer discretionary were red hot in the last quarter of 2013.

‘Orphan & widow’ sectors (green colors) like utilities and consumer staples lagged behind higher risk sectors.

The first chart is a snapshot of a healthy overall market. No wonder the S&P 500 ended 2013 on a high note.

The second chart shows that the tide turned in 2014. Conservative sectors are now swimming on top, while high octane sectors have sunk to the bottom of the performance chart.

This doesn’t mean the bull market is over, but the distribution of colors illustrates that investors have lost their appetite for risk (for now).

Like graying around the temples, this rotation out of risk reminds us of an aging bull market.

It’s not yet time to order the coffin, but indicators like this do warn of the potential for a deeper correction.

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.

Crude Oil Speculators Are All-time Bullish – Will This Sink Oil Prices?

Large crude oil speculators have amassed a record amount of long crude oil positions. This may mean that there are few buyers left, which may be troublesome for oil prices. Furthermore, oil prices are at technical crossroads.

The latest Commitment of Traders (COT) report shows that large speculators have never been more bullish on crude oil and are holding an all-time high exposure to the ‘black gold’ (hopefully it won’t disappointment them like actual gold).

The Commodity Futures Trading Commission (CFTC) COT reports holdings data for various energy contracts and most of them show large speculators are record long.

What does that mean for oil and gas prices?

There are two key components to the short-term oil outlook. Both of them are illustrated in the chart below, which plots WTI crude oil prices against the COT large speculator data.

When large speculators were ‘all in’ in 2011 and 2012 oil prices corrected. Not immediately but inevitably.
The red trend line magnifies the potential impact of the current sentiment extreme. Oil prices are at technical crossroads as trade hovers around this support/resistance level.
ETFs that are affected by this sentiment/technical analysis combo include:
United States Oil Fund (NYSEArca: USO)
PowerShares DB Oil Fund (NYSEArca: DBO)
Ultra DJ-UBS Crude Oil ProShares (NYSEArca: UCO) – 2x leveraged long ETF
UltraShort DJ-UBS Crude Oil ProShares (NYSEArca: SCO) – 2x leveraged short ETF
The trend line suggests that bullish and bearish forces are fighting a battle over short-term supremacy right around the 103 level.
As long as trade stays above trend line support, higher prices deserve the benefit of the doubt, but sentiment suggests that the we should see a notable correction eventually.
There’s one support level that absolutely must hold and a price target that – if reached – should be very damaging to the stock market.
A more detailed analysis of oil titled ‘Will $100+ Oil Be a Problem For Stocks & The Economy” offers an insightful longer-term outlook for oil along and reveals key support and resistance levels.