S&P 500 Update – Know What to Expect

It’s said that we shouldn’t blame others for disappointing us, but to blame ourselves for expecting too much. The same is true for the stock market.


Expect the Unexpected


Many investors have become disenchanted as stocks are stuck in a rut. But the market always does what it does, it’s our job to manage what we have control over; our expectations. Thanks to the media and their sensationalistic headlines, investors have been waiting for either a crash or the next rally. For example:


CNBC: Market volatility is reminiscent of the 1987 crash – April 5

CNBC: Stock market looks ‘pretty fantastic’ – April 23


Headlines like: “Correction will continue,” simply don’t capture eyeballs or sell newspapers. The Profit Radar Report’s job is to give subscribers an idea of what’s ahead, not to wow them with catchy (but unrealistic) predictions.


Boring Truth


Back on February 11, the Profit Radar Report warned of extended sideways action. In fact, a multi-month range-bound chop fest was the most logical scenario (why was explained in detail here). This turned out to be the boring truth.


In early April, the S&P 500 got close to our ideal requirements for a sustainable low. Although the Profit Radar Report recommended to buy the SPDR S&P 500 ETF (SPY) on April 3 (when the S&P traded around 2,580), we didn’t fully trust that low (the actual Profit Radar Report updates surrounding the April 2 low have been made available for review here).



Following the April 2 low, the S&P 500 rallied more than 250 points, but there were still doubts about the rally’s longevity. The April 15 Profit Radar Report stated that:


Price continues to grind higher, but it’s doing so without real conviction. The chart below shows the 3 most likely scenarios going forward:
1) Drop towards (and below) 2,533, followed by the next rally leg (red).
2) Blue diagonal: Grind above S&P 2,700 followed by another pullback and next rally leg.
3) Purple triangle: Continued range racing and eventually the next rally leg.”



Although the exact path was unknown, all 3 scenarios had one thing in common:


S&P 500 pullback into a (hopefully) more sustainable low. That’s why the Profit Radar Report stated: “We want to buy into weakness rather than chasing stocks.”


The weakness materialized. The question is how much more weakness we’ll see.


At this point we are assessing the odds of each scenario, but one thing is for certain:


The lower the S&P drops, the better the risk/reward potential investors going into the next rally leg.


Short-term, the S&P 500 is nearing trend channel support while oversold.


Continuous S&P 500 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.



 

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