According to the much anticipated Fed's minutes released last week, most of the Fed's officials reaffirmed their plan to wind down the easy-money QE programs but left the market guessing about when and by how much. That caused Wall Street's major indexes to swing like monkeys from a banana tree.
The market's growing concern that the Fed would reduce its easy-money stimulus this year contributed to the S&P 500 benchmark index to drop from its record close on August 2nd. Market participants are well aware that it was mainly the easy-money policy by the Fed that propelled the S&P 500 to a 150 percent rally from its bear market low in 2009.
So it is to no one's surprise that anxiety in the market is growing about what will happen once the Fed takes its easy money sugar-sweets off the table. As some prominent economists have it, the right thing for the Fed to do is to taper back to zero over the next nine-month period, and then sneak out of the room without anyone noticing it. The index of leading economic indicators rose in July by the most in three months and that suggests faster economic growth in the months ahead.
One of major underpinnings of the economy is obviously the housing market. More sales of appliances and home improvement merchandise show that the recovery in housing is finally filtering through to other parts of the economy, which also shows a steady improvement in the labor market.
Add to this that the Chinese manufacturing sector resumed its expansion, and ditto for the European factories and services sectors. All of which proves that the global economies are stabilizing, and that bodes well for the cyclical industrial markets in the months ahead.
But wouldn't you know it, out of the blue the bugaboo of a computer glitch shut down the NASDAQ market for three hours during last Thursday's trade.
This brought the Wall Street's doomsayers out in droves, claiming that this was one more sign that the - Hindenburg Omen - is about to hit the stock market hard. This thing is named after the German dirigible airship that went down in flames as it tried to land in New Jersey in1937. This indicator is designed to supposedly predict the same for the market. To those who follow this doomsday indicator, it has flashed warning signals about the health of the markets all summer, and last week's NASDAQ fiasco was just one more of those signals.
Non-believers scoff at this forecast, but true believers point to prior predictions like the burst of the tech bubble in 2000, and the market meltdown in 2007. Both times this omen flashed the same warning signals as it has this summer. Go figure.
Meanwhile, the market's indexes were displaying their nosedives, while their underlying Moving Average configurations remained steadfastly bullish. If market participants were ever looking for accumulative buying opportunities, this is it. Check the SPX, SPXL and SPXS Troika, and see what the market has to say about that.
Note that the [SPX] component of the Troika maintained a strongly bullish MA lines configuration, [green line below the red line] even while this index went into a sharp decline. This suggests that after taking a bit of a breather, the market will continue its rally.
But also note that the MACD momentum index and RSI strength indicator are still recovering in their respective bearish territories, which means that the market is still searching for traction. Now check the bull leg of this Troika [SPXL] and note that this index is in a consolidation mode, and that is bullish for the market. As long as the MA lines of this bull component remain in their current positive configuration [green line below the red] the market remains poised to the upside.
For a while it appeared as if the bear component of this Troika [SPXS] was gaining the upper hand. But with its MA lines configuration so negative [green line above the red, the bears won't have a chance to take control of the market.
When this index [X vs. X] is rising as it did between February and April with the green MA line below the red, it is bearish for the stock market. But when it is declining as it has between May and August with the green MA line above the red, it is bullish for the stock market.
Now that this index is way down at the bottom of the pit, it is indeed a bullish signal for the market. This is especially the case with the MACD momentum index and RSI strength indicator way down in their respective bearish territories. In short, the more bearish the appearance of this chart, the more bullish the outlook for the market.
Similarly to the previous chart, this [VIX] Futures Fear index keeps hugging the bottom, and for as long as that is the case, this is bullish for the market. Also, for as long as the green MA line remains above the red, the market's momentum continues to the upside.
Despite of last week's three hour black-out fiasco on the NASDAQ front, this market [NDX] remains well supported by its bullish MA lines configuration [green line below the red.] Also, lending strong support are its MACD momentum index and the RSI strength indicator, both of which are solid in their respective bullish territories.
After some sharp zigzagging in July and August, this commodity index [GTX] maintains a strongly bullish MA lines configuration [green line below the red.] This implies that the commodity market is at the beginning of a major uptrend. That this markets MACD momentum index and RSI strength indicator are both in their respective bullish territories, also lends support to this index.
As some market strategists have it, bullish sentiment in Wall Street is dropping like a rock as the sell-off in recent sessions has spooked investors so that they don't know which way to turn.
Check this insiders index [KNOW] and note that sentiment did indeed drop sharply in August. But also note that during the same time the MA lines configuration of this index remained remarkably bullish. This implies that investors' sentiment is about to turn bullish again also.
After a steep decline from September last year to July this year, [GOLD] had an extraordinary change turning from a hibernating bear into a raging bull. Note that during its decline gold was pressured hard by an extremely bearish MA lines configuration [green line above the red.] But now, the yellow metal is moving the other way while being well supported by a strongly bullish MA lines configuration [green line below the red.]
That the MACD momentum index along with the RSI strength indicator are both in their respective bullish territories, will aid gold's advance in the months ahead.
Oil appears to be zigzagging sideways in a consolidation mode. It could be a ceiling for the price of oil [WTIC] but also a new floor. Chances are that for as long as the MA lines for oil remain in their current bullish configuration, it will be a floor.
That the MACD momentum index and RSI strength indicator are also in their respective bullish territories will help to stabilize the price of oil.
Of course, the steep decline in the greenback [USD] and its sharply bearish MA lines configuration [green line above the red] is aiding the rally in gold, oil and commodities generally. With its MACD momentum index and RSI strength indicator losing ground as well, the U.S. dollar is poised to stay at the lower end of the chart for awhile.
For now, it is still best to stay in cash and watch if the market develops some decent momentum in either direction. The exceptions are gold ETFs which keep riding bullion to the upside.
Here are some favoured ETFs in case the market develops some momentum in either direction.
Leveraged Bull ETFs:
- Silver 2x (NYSEARCA:AGQ) Gold 2x (NYSEARCA:DGP) Gold 3x (NASDAQ:UGLD) Gold 2x (NYSEARCA:UGL) Gold Miners 3x (NYSEARCA:NUGT)
- Silver 3x (NASDAQ:USLV) DOW 30, 2x (NYSEARCA:DDM) Real Estate 3x (NYSEARCA:DRN) Energy 3x (NYSEARCA:ERX)
- Financials 3x (NYSEARCA:FAS) Mid Caps 2x (NYSEARCA:MVV) NASDAQ 100, 2x (NYSEARCA:QLD) S&P 500, 3x (NYSEARCA:SPXL)
- Technology 3x (NYSEARCA:TECL) S&P 500, 2x (NYSEARCA:SSO) Russell 2000, 3x (NYSEARCA:TNA) NASDAQ 100 3x (NASDAQ:TQQQ)
- Crude Oil 2x (NYSEARCA:UCO) S&P 5000, 3x (NYSEARCA:URTY) Russell 2000, 2x (NYSEARCA:UWM) Financials 2x (NYSEARCA:UYG)
Non Leveraged Long ETFs:
- Gold Trust (NYSEARCA:IAU) DB Gold (NYSEARCA:DGL) Gold Trust (NYSEARCA:GLD) Gold Explorers (NYSEARCA:GLDX)
- Gold Miners (NYSEARCA:GDX) Junior Gold Miners (NYSEARCA:GDXJ) Global Gold Miners (NYSEARCA:GGGG)
- Oil Exploration (NYSEARCA:IEO) Internet (NYSEARCA:FDN) Small Caps (NYSEARCA:IJR) Russell 2000 (NYSEARCA:IWM) Small Caps (NYSEARCA:VB)
- Health Care (NYSEARCA:XLV) Pharmaceuticals (NYSEARCA:XPH)
Leveraged Bear ETFs:
- DOW 30, 2x (NYSEARCA:DXD) Crude Oil 2x (NYSEARCA:DTO) Nat Gas 3x (NYSEARCA:DGAZ) Emerging Markets 3x (NYSEARCA:EDZ)
- Financials 3x (NYSEARCA:FAZ) NASDAQ 100, 2x (NYSEARCA:QID) Crude Oil 2x (NYSEARCA:SCO) Financials 3x
- DOW 30, 3x (NYSEARCA:SDOW) S&P 500, 2x (NYSEARCA:SDS) Financials 2x (NYSEARCA:SKF) S&P 500, 3x (NYSEARCA:SPXS)
- Semis 3x (NYSEARCA:SOXS) NASDAQ 100, 3x (NASDAQ:SQQQ) Russell 2000, 3x (NYSEARCA:SRTY)
Non Leveraged Short ETFs:
- DOW 30 (NYSEARCA:DOG) Emerging Markets (NYSEARCA:EUM) Equity Bear (NYSEARCA:HDGE) Mid Caps 400 (NYSEARCA:MYY)
- Russell 2000 (RUM) S&P 500 (NYSEARCA:SH) NASDAQ 100 (NYSEARCA:PSQ) EAFE (NYSEARCA:EFZ)