Keep It Simple

by: George Simone

What both bullish and bearish market strategists can agree on is that the market has reached an inflection point from which it will rally to higher highs or nosedive to lower lows.

As the bears have it, this market's fading upside momentum implies that yes, this rally could carry the market a bit further, but it is running out of gas. The retail investor is mostly still out of the game, which accounts for the exceedingly low volume levels. This is causing the market to be narrowly based with fewer stocks to keep the indexes moving to the upside. As bearish market strategists see it, this is a clear signal that the major advance which started in March 2009 has reached its peak, and it is all down-hill from here.

The fundamentals behind this bearish outlook are the seemingly never ending disputes with Iran and consequently rising oil prices. Also, the Eurozone's economic recession is in danger of sliding into a full-blown depression, adversely affecting even Germany's powerhouse economy. This would not only put a crimp into the U.S. Export market, but into any rally attempt by the market as well.

The main point by bullish market strategists' counter argument is that because of these troubles overseas, international demand for U.S. financial assets so far this year is far exceeding officials' estimates, which indicates that the anticipated cash flow into U.S. capital markets is picking up steam.

So far it is still favoring U.S. Treasuries. But with the U.S. Labor participation levels rapidly improving along with an expanding manufacturing level, the realization is setting in that the U.S. economy is on a self-sustaining recovery course, and that favors equities and the stock market.

With this long rally behind us, the market may well be at a tipping point here, but which way?

To answer questions like that ever more complex trading platforms are being offered by discount brokers to their growing numbers of clients who want to trade on their own, especially in the category of ETFs. These seemingly ever evolving trading gizmos are truly technical wonders, competing with each other by being touted as the newest, perfect strategy program, more confusing than the next. This is why it is so important to keep things simple and easy to understand.

Here is where this little known but highly effective Troika trading methodology fits the bill. Because my articles are meant to assist in a small way ETF participants out there, I'll add the three Troika charts S&P 500 SPY bull trend BGU and bear trend BGZ It will be interesting to see how this Troika combination performs in the weeks ahead.
You may recall the gloom and doom atmosphere overhanging the market last October and again in December. Check these charts and note that at that time the green, red and yellow MA lines turned into a positive configuration for the bulls, and a negative one for the bears, and the rest is history. The same configuration method applies to finding the best winning prospects among the ETFs.

In today's suite of charts you'll find a close cousin (NYSEARCA:XLP):(NYSEARCA:XLY) to the Troika's bear trend index. For as long as these two keep hugging the bottom of the charts, the market remains in gear to the upside and bull ETFs the favored money makers.

You can count on it, sooner or later this combination will reverse with these two charts at the top, the market in gear to the downside and the bear ETFs the favored money makers. But by the configurations of these Troika indexes, the bears will be stuck to the bottom a while longer.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.