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Sept. 23, 2016, 10:43 a.m. EDT

The S&P 500 is setting up for a slingshot move

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About Simon Maierhofer

Simon Maierhofer is the founder of iSPYETF and publisher of the Profit Radar Report. Investor’s Business Daily once wrote that: “Simon says and the market is playing along.” Simon analyzes technicals, proprietary supply and demand data, sentiment and seasonality to spot low-risk or high-probability ETF setups. He has been featured on: CNBC, FOX News, the Wall Street Journal, and many other financial-news outlets.

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By Simon Maierhofer

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The verb “slingshot” is defined as “ forcefully accelerated .” Most investors hate to be caught on the wrong side of a “forcefully accelerated” stock market move.

Ironically (and vindictively), most forcefully accelerated market moves are forceful only because the majority of investors have been wrong-footed, kindly providing the cannon fodder needed for the next move. The slingshot moves shakes out the weak hands, punishes the crowded trade, and tends to reward the brave minority.

The Aug. 7 Profit Radar Report visually projected (yellow line) the anticipated slingshot move via the chart below (why we expect more up side is discussed in the 2016 S&P 500 Forecast ).

In terms of time, the yellow projection was slightly off as the trading range lasted longer than projected (who could have known it would become the longest in history).

In terms of price however, the S&P followed the yellow path almost perfectly: First the S&P rallied to just below 2,200, then it declined into the low 2,100s to close the open chart gap at 2,130.41 (dashed purple line) and tag our first down side target.

Is the slingshot ready to snap higher, or could the S&P 500 relapse and take out the September lows?

Minimum requirement fulfilled

The S&P already reached the minimum retracement, and there were some bullish divergences at the Sept. 14 closing low (2,125.77).

Additionally, the VIX contango (detailed explanation of contango is available here ) dropped to a level often indicative of a VIX top (see chart below, published via the Sept. 14 Profit Radar Report). The VIX tops tend to coincide with stock bottoms.

Partially due to the bullish divergences and the VIX contango, the Profit Radar Report issued three different long-ETF buy recommendations last week (the worst performing one is up 2%, the best performing one is up 10%).

Double-slingshot move

Despite the positive developments since the Sept. 14 low, the S&P has not yet shown the same upside conviction as the February and June rallies. Late-September seasonality also projects some weakness. The lack of real upside follow through and bearish seasonality leave the door open for a double slingshot move.

Nobody has ever gone broke by taking profits, that's why we have already trimmed our long exposure and cashed in some profits. We now have the luxury of playing with “house money.”

A more detailed S&P 500 forecast along with trading recommendations is available here .

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