Rebel Yell: The S&P 500 May Be Signaling A Breakout Rally

by James DiGeorgia | 07/11/2016 09:43 AM
Rebel Yell: The S&P 500 May Be Signaling A Breakout Rally

I'm a huge fan of Erlanger Chart Room. I have found over the last several years it to offer literally the best technical indicators for both bullish and bearish signals for trading available on the market today. In the last week, the Erlanger Crossover (EC) Spread a key component of Erlanger Chart Room is signaling a potential breakout to the upside in both the Dow Jones and the S&P 500 that shouldn't go ignored.

The EC Spread is a proprietary price driven technical indicator. The EC spread isn't perfect, nothing in quantative analysis is a perfect indicator but from the several years I have been using the signal I can tell you it's by far one of the most reliable indicators I have ever seen in my 30 years of investing and trading. When used with a thoughtful options strategy or stock trading strategy it can reap enormous profits.

On July 5th the first trading day after the holiday the EC Spread started to indicate a potential break out to new historic highs in the Dow Jones and the S&P Indexes. I'm featuring the SPY as a proxy for the S&P Index to illustrate where the market closed on Friday.

As you can see by the chart the market is in a negative or neutral stance when the EC spread is negative ( in the red) and often signals a bullish move is about to begin when the spread moves from a negative stance (red) to a positive (green) stance. On Friday, we ended the day just a few points shy of a new record high in the S&P index (less than 2 points in the SPY).

Even more significant we may be on the verge of the EC spread crossing into a big move up into the green that could indicate a rally of as much as a 10% move breakout above the historic highs. That would be move in the S&P index in to the rarefied level of 2,200+ in the S&P or 230 on the SPY.

Yes, it could be a false signal. As I've pointed out the EC Spread isn't perfect, it's however reliable. The signal however is coming at a point where the market is still oversold as indicated by the spread just coming out of the read. When you look back at a the same kind of set up last December the signal gave a quick signal that the potential upward move in the SPY was going to break down when it breached the moving average (the solid line running through the EC Spread). This gave traders and investors enough time to close their bullish positions before the break down that followed. Traders and investors had enough time when the moving average in the EC signaled a failure to get out or get short at that point.

Now we are at a point where the EC spread is moving into the green and the moving average is rising. This may be an opportunity to grab a quick 5% to 10% move to the upside and a chance to follow it up with profits from a 5% consolidation when the EC Spread moving average trend line cross back over heading south. The signal generated by the crossing down of the EC Spread is very reliable also see what happened last November, March and late April through May when the EC Spread moving average crossed the moving average down, the market headed south creating opportunities to make money on bearish corrections.

The EC Spread works magnificently on Indexes and individual stocks. Here are two stocks Radius Health, Inc. (RDUS) and BioMarin Pharmaceutical Inc. (BMRN) that all are showing the potential for big moves higher. I'm not labeling the charts but instead allowing you to follow and interpret the EC Spreads for each stock and the moving averages to allow you to draw your own conclusions.

I'm especially bullish on Biotechnology Stocks with these bullish EC Spread Set ups. The magnificent acceleration in technologies and scientific breakthroughs in medical research are indicating a giant leap in the treatment of many of the most deadly threats to human health.

BioMarin Pharmaceutical Inc. (BMRN) has been drawing takeover speculation in recent days. Radius Health, Inc. (RDUS) has its breakthrough treatment for Osteoporosis under review for approval both by the FDA and the European Union. The Euro application was filed by the company in December and should be approved first. Approval could easily run its current shares from $40+ a share to $60+. An approval by the FDA would in my opinion send its share back over its historic highs of $80 a share. The company has recently engaged a firm specializing in patches to adapt its product to that delivery system. RDUS is not without risk. The European Union and FDA could find fault in the company's applications and send the stock into a nosedive. I don't think that will happen but it may make sense to buy underlying puts on any position in RDUS you might initiate as insurance.

I entered a position of 1000 shares at $39 a share in Radius Health, Inc. (RDUS) and sold 10 July 45 Call Options against the position at .50 a share on Friday. MY best is the stock will not rise over $45 a share by Friday's market close. I like writing covered calls from time to time to reduce the cost per position. Radius Health's Chief Commercial Officer, David Snow, will present at the Cantor Fitzgerald 2nd Annual Healthcare Conference on July 12, 2016 at Le Parker Meridien Hotel in New York, NY. A good presentation could be a catalyst for a move over the $45 a share that could result in my shares being called away next Friday.

Latest News

Stay Up to Date With The Latest
News & Updates

Join Our Newsletter


Rebel Yell Morning Market Report
Market Alerts
Offers from us
Offers from our trusted partners

Follow Us

Connect with us on social media

Facebook Twitter