Just A Soft Patch, Or What?

 |  Includes: SPXL, SPXS, SPY
by: George Simone

You've got to know when to hold 'em, know when to fold 'em etc, etc,etc. This great Kenny Rogers hit could easily have been written and composed with the ETF traders in mind who braved last week's roller-coaster market performance.

On Monday and Tuesday the bear ETFs put on a pretty good performance, only to get clobbered by the bull ETFs on Wednesday and Thursday, but then came back again with a sharp bear raid on Friday. The S&P 500 bench mark index (NYSEARCA:SPY) fell to its first back to back weekly decline since November, ostensibly against the backdrop of China's economy on the skids and worsening debt problems in the Eurozone.

But the real reason for last week's return of volatility is much more sinister. Keep in mind that this Bernanke Fed's mantra is to never ever allow the return of the "dirty thirties" and if that means QE3 is back in play, so be it. Not over our dead bodies is the reply by Washington's politicians, who are trained to think only with either the left or right side of their brains, and are on an intermittent warfooting with the Fed.

Now, the whole economic recovery along with this market's rally is based on the assumption that the Fed will continue its easy money policy for as far as the eye can see, and the slightest doubt that the Fed will be able to pull it off causes the market to go into a seizure. This is what caused last week's volatility, and has investors wondering if the market has just hit a soft patch, or is at the verge of a full blown correction.

Check these three Troika indexes - SPY, BGU and BGZ - which have seldom failed to give concrete guidance to either the upside or downside of the market. But this time it's just a question mark. While the indexes of the SPX and the bull trend are definitely geared to the downside, their green, red and yellow MA lines remain in a bullish configuration as they have been since last December.

Click to enlarge

Add to this that despite last week's selloff attempts the bear trend remains stuck at the bottom of its chart, while the bull trend and the S&P 500 are at the upper ends of their charts, and for as long as that is the case, the Troika remains bullish, and with fingers crossed, so is the market.

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