September is known for being the worst month of the year for Wall Street, and this time it is no exception as investors are bracing for rocky sessions ahead.
There is a full plate of Syria-centered geopolitical tension, with the U.S. president trying to gather support to retaliate for Syria's poison gas incident, and the Russian president promising to come to Syria's aid should such an attack occur.
There is the upcoming U.S. Fed meeting which could trigger a tapering of the QE easy money programs that kept the U.S. economy alive for over four years, and there are the debt-ceiling woes along with overall concerns about the global economic health.
All of this is giving doomsayers a field-day out there.
Predictions by some high-profile strategists are calling for a crash, not only on Wall Street but in global markets as well. At the same time they can see the doomsday metal gold spiking up to ten Ks, while the U.S. economy is double-dipping into a deep recession, brought on by the Fed's exit from its easy-money QE programs.
Yet, a U.S. manufacturing index surprised economists by unexpectedly climbing in August to its highest level in more than two years, while another positive report showed construction spending increasing to the highest level in four years. Other economic data show that the U.S. is leading a global manufacturing recovery that stretches from China to Europe as their economies improve. When all is said and done, this is what really matters and will in the end carry the day.
Still, September saw the first week since last July that the Moving-Average configurations of the major indexes are beginning to turn bearish, in that the 50 day moving has started to slip above the 20 day, or to put it another way, green MA line above the red. This has some market watchers concerned that a bear market is just around the corner.
Check this X vs. X chart which is an inverse indicator of the market. As long as this index fluctuates sideways along the lower end of its scale, the internals of the market remain bullish.
Not only that, but the MACD momentum index and RSI strength indicator are also way down in their respective negative territories, which is an exceedingly bullish sign for the market.
Also note that because this index is an inverse indicator, the bearish MA lines configuration (green line above the red) signals bullish market conditions ahead.
Confusing? Yes, but it works.
Check the SPX, SPXL and SPXS Troika charts and note that their MA lines configurations have just turned negative for the market. Green line above the red for the bull and green line below the red for the bear.
Until these lines reverse and turn bullish again, it is best to stay in cash at the sidelines and watch the market unfold as it reacts to the Syria question and the Fed's tapering intentions. Click to enlargeClick to enlargeClick to enlarge
Throughout all that turmoil out there, the NASDAQ index (NDX) remains remarkably bullish. Note that while this index is consolidating, its MA lines configuration remains solidly bullish (green line below the red).
Also note that its MACD momentum index and RSI strength indicator remain in their respective bullish territories, which bodes well for the market as a whole.
This Treasury note index (TNX) is consolidating at a relatively high level while being well supported by a strongly bullish MA lines configuration (green line below the red). Also supportive are the MACD momentum index and RSI strength indicator, both of which are solid in their respective positive territories. This is a bullish signal for the economy because this index reflects rising economic optimism.
By contrast, this market-forecasting junk bond canary (NYSEARCA:JNK) continues to send out bearish signals by keeping the green MA line above the red line. Unless this configuration turns bullish again (green line below the red) the market will have a tough time keeping a sustained rally in place. It is these conflicting signals that cause all this volatility in the market.
Check these (CRB) commodity supply and the (BDI) commodity demand indexes (both are joint at the hip) and note that they are showing strongly bullish MA lines configurations. This bodes well for the commodity market generally, and falls in line with the rising economic optimism out there.
But the BDI index shows a bit too much exuberance, and needs to pull back to reality a bit.
After a much needed pull-back (gold) has again found its footing and could be in a consolidation mode. But because of its MA lines bullish configuration (green line below the red) gold remains a bull at the core.
Although the U.S. dollar had itself a bit of a rally, but with the exceedingly bearish MA lines configuration (green line above the red) the greenback remains very much a bear. That is one of the reasons gold is finding some traction again.
Although it is still best to stay at the sidelines until the situation in the markets becomes a bit clearer, here are some favoured ETFs to keep on tap in case the market develops some momentum, one way or the other.
Leveraged Bull ETFs for traders:
Non-Leveraged Long ETFs for investors:
Leveraged Bear ETFs:
Non-Leveraged Short ETFs:
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.