After the market started off last week with three back to back sessions of triple digit gains, the ol' bugaboo of a tapering Fed appeared and put a screeching halt to this rally. Still, last Friday the DOW ended its best week since January, with the S&P 500 just a shade off a historic high.
The reason for this quick spurt to the upside is that Wall Street assumes the Fed will begin to taper its QE stimulus programs lightly this week if at all, and that Syria is off its poison gas junket, without the U.S. having to fire a shot.
Yet, the debt-ceiling debate in Washington is set to heat up again and that could easily put a crimp into any economic recovery and prevent the market from advancing further. But despite headwinds like that and things that still can go wrong with the economy and screwed up politics out there, the market remains amazingly resilient.
GTP continues to tick higher; economic sensitive cyclical stocks and ETFs are a top performer, which applies especially to the small and mid cap sectors of the market. Strong economic data out of China also contributed to last week's rally. That the second biggest world economy is revving up again is a positive for the global markets, and is helping Wall Street to get its mojo back.
Another reason that the market performed such strong rallies early last week is that market participants were betting on the "dark side" of this game and counting on a sharp selloff. But they're not getting it, and so being short the market they have to chase the rallies in order to cover these shorts and that adds extra fuel to the advance.
But now, some savvy market strategists believe that the top of the market is in, and are anticipating a sharp correction.
As they see it, trading volumes have been exceedingly low in recent weeks, a sign that more and more investors are moving to the sidelines with a feeling of uncertainty about the Fed's taper intentions, Syria and the politics in Washington. This could set the market into a downdraft or at least into a holding pattern, until such time that these issues become a bit clearer.
Check this Troika combo SPX, SPXL and SPXS and note that while the indexes of the two bull components spiked sharply to the upside, their MA lines configurations remained strongly bearish, [green lines above the red lines.] The same is the case for most major indexes, and reflects the split personality of this market. No index can sustain a rally while showing a bearish MA lines configuration.
Also note that the MACD momentum index shows that the market is still trying to correct the effects of these two big bubbles from between May and June, as well as between July and August. So it may take a little more time, but once the MA lines configurations on the Troika's two bull indexes turn positive again [green lines below the reds] expect a steady market advance to kick into gear.
Now check the SPX bear component of this Troika which is trying to get out of the hole it has been stuck in since last July. If it succeeds, that of course would be bearish for the market.
This bear just about made it between August and September, but its MA lines configuration was still sharply negative, and that stops any bear in its tracks. But now this configuration is turning positive for the bear, and that gives this bruin a chance to turn this Troika bearish, and that could take the market down.
By the way, these MA lines configurations are a simple but very effective tool to gauge market behavior, including indexes and stocks, specifically ETFs. These MA configurations show if the market is blowing bubbles that are about to burst, or just simply deflate and fade away. Also, these MA configurations over time develop "gut feelings" that tell if it feels right to go ahead and do it, and if not; don't. That is the kind of stuff markets are made of.
Now check the X vs. X chart and note that this contrarian index remains stuck to the bottom. For as long as this is the case and while its MA lines configuration remains solidly bearish [green line above the red] this market remains a "Bull." Supporting this bullish stance are the MACD momentum index and RSI strength indicator, both of which are deep down in their respective negative territories, and that is exceedingly bullish for the market.
But for now, between this chart and the Troika the market shows split personality syndromes, and that is a good time to stay in cash and on the sidelines until things get a bit clearer out there.
Despite all that turmoil out there this NDX index remains remarkably bullish. Its MA lines configuration continues to be positive, while the MACD momentum indexes along with the RSI strength indicator are both supportive in their respective bullish territories.
Although this CRB commodity supply index is catching its breath and is in a consolidation mode, its MA lines configuration remains strongly bullish [green line below the red.] That its MACD momentum index and RSI strength indicator remain both in their respective bullish territories, are signs that the commodity market remains in a solid uptrend.
Renewed demand out of China could be the reason that this commodity demand index BDI has spiked sharply to the upside. But this index needs also to pull back in order to find some renewed traction from which to advance further.
After deflating a medium sized bubble, GOLD is now in a consolidation mode and remains strongly supported by a bullish MA lines configuration. Same is the case with SILVER which is also deflating a bubble. After they have consolidated a bit, both precious metals will find renewed traction from which to rally further.
Oil appears to have touched a ceiling along which to consolidate, while being well supported by a fairly strong MA lines configuration. This is helping energy XLE to stay upright, even though its MA lines configuration appear to be turning bearish. Note that this index has also shot up too much too fast. So now it needs to pull back in order to find some traction from which to advance further.
The U.S. dollar USD made a pretty good attempt to rally, but pressured down by an exceedingly bearish MA lines configuration [green line above the red] the greenback hasn't got a chance. But it is this bearish weakness in the greenback that affords gold, silver and commodities generally to rally.
All in all, this market appears to be uncertain and is sending conflicting signals. But after this week's Fed meeting there might be some clarity and a sense of direction for the market.
Until then, it is best to stand aside and watch how the market unfolds. But of course, should events trigger the market to rally or to sell off, use the appropriate "leveraged ETFs" to trade, not to invest in such a move.
Here are some favoured ETFs that have performed well in previous sessions, and will do so again when the time is right. If the market comes your way either as bull or bear, select the appropriate ETFs that have performed well since they first appeared in previous articles.
Leveraged Bull ETFs to trade:
Health Care 3x (CURE), Russell 2000, 3x (URTY), Small Caps 3x (TNA), Semis 3x (SOXL), Financials 3x (FAS), NASDAQ 3x (TQQQ), Mid Caps 3x (UMDD), Mid Caps 3x (MIDU), S&P 500, 3x (UPRO), DOW 30, 3x (UDOW), Financials 2x (UYG),
Nat Gas 3x (UGAZ).
Non-Leveraged Long ETFs to invest:
Leveraged Bear ETFs:
Non-Leveraged Short ETFs: