Bulls Or Bears Gaining The Edge?

by: George Simone

In a recent statement, the Fed Chairman Bernanke hinted that the Fed stood ready to stimulate the economy some more, but only if necessary. So what is the message from the Fed? Apparently, they believe that the economy is ready to go it alone without any more stimulating injections.

Now, that does not mean the Fed won't stay by to tighten or ease further as the case may be, but it does mean that the Fed has stopped providing juice on a regular basis. Since it is that juice which has kept this rally going since last October, we may see a bit of a nosedive here. But then again, this sign of confidence by the Fed may be enough to bring this pile of sidelined cash back into the game, and the market into a sustained advance.

Already, the S&P 500 index-- the market's broadest measure-- is on track for the seventh straight month of gains. And yet, there are still plenty of non-believers still out of the market, waiting for the bears to finally give up and let the bulls have their way. But check the bear-trend chart BGZ below and note that the bears had given up last December already, and yet the bulls are still hesitant and without conviction for this rally, which is showing up in the low trading volumes and low bullish participation levels in the market. Should this rally falter, don't blame the bears, blame the bulls. Also, there is a hint of deja-vu overhanging the market. As some savvy market strategists have it, this rally is all about exceptionally good corporate earnings, just as was the case in April 2010 and then again in April 2011.

Click to enlarge

But check this candle chart and note that these stellar earnings did not prevent the market from taking a couple of steep nosedives and could do so again, especially with the rain in Spain turning into a heavy downpour, which could splash all over the globe's financial markets. This also proves again that the market does what the market does without needing a reason for doing it.

Notice this fat white candle with the long tail at the end of the line. It is a sign that maybe, just maybe, the bulls in this market are developing some backbone and put some healthy volume levels and conviction behind this rally. Also take a look at this three index Troika and note that it was guiding this seven month rally by keeping the S&P 500 index along with the bull-trend BGU on the upside of their respective charts, while the bear-trend remained stuck at the bottom, all of which kept the Troika in a bullish mode. Now, with the green, red and yellow MA lines poised to form a bearish configuration, things could get a bit dicey. But there is still enough time for these configurations to turn bullish again, should the market continue to rally over the next few trading sessions.

Here are some favored leveraged bull ETFs for when the market does rally: 3xDRN, 3xERX, 3xMWJ, 3xTYH, 2xROM, 2xURE, 2xRSU, 2xUYG, 2xDDM.

Non-leveraged long ETFs to put under the mattress: PALL, IHI, IJR, XPH, FXH, XRT, XLY, XHB, XBI.

Some bear ETFs in the event that the market should head south: 3x DOG, 2xDXD, HDGE, 3xFAZ.

Click to enlarge

This bear-trend index is the best ally the bulls have got. Being stuck in a deep hole at the bottom of a deep pit once again, this bear has no chance to mount a serious raid on the market.

Just like the bull-trend index, this S&P index shows that the green, red and yellow MA lines are getting perilously close of losing their bullish configuration. When this happens, it could end the rally. Click to enlarge

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