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George Simone
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I'm a long-time Market Participant who has criss-crossed the Market for more years than I care to remember, and a few years ago I got hooked on studying and trading ETFs, especially the leveraged kind. Charts, good charts are an absolute necessity in this field, so the Linchpin of my ETF... More
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  • Why Small Caps?

    Because that's where the money is - or at least will be again sometime soon.

    Small-caps [SML] have been selling off so hard that here the upside potential is the greatest. Although small-caps have hit bottom, there are numerous market strategists who are convinced that the small-cap sectors will be out cold for a couple of years at least. As they see it, valuation wise small-caps shot way out of reach, and even though they have corrected sharply, these valuations are still out of whack.

    Besides, there is weakness in corporate earnings, the Fed's QE programs are coming to an end and interest rates are about to rise steadily in the near future. All of this is causing a great amount of volatility among the small-cap indexes, which makes their charts look like road maps to oblivion. What triggered the selloffs in small-caps last January, March and April was that they became stretched to the upside too much and too fast.

    So smart-money took profits of which there was plenty, and the crowd took that as a signal to bail out, and they sure did in a hurry. Consequently, small-caps got stretched again too much too fast, but this time to the downside.

    But when you check this SML index, you'll note that the small-caps are bouncing off the bottom and are gearing up to resume their leadership in the market. Sure, for now the Moving-Average configuration of the SML is still too bearish [green line above the red line] for a sustained rally to kick into gear. But at long last, the MACD momentum bars are attempting to rise above the demarcation line again, and that is a beginning. Also, the SML index has formed a distinct double-bottom, a sign that a rally attempt is in the making.

    (click to enlarge)

    The NASDAQ 100 index [NDX] is a harbinger of what is about to take place with the cyclicals, especially the techs and a broad range of small and mid-cap sectors. This index surged a too hard and may have to do a bit of a consolidating pullback. But with the strong performance of its MACD momentum bars, the NDX is definitely geared to the upside.

    Not only that, the RSI strength indicator is solid in its bullish territory, and the MA lines configuration is about to turn bullish also, as the green line is about to slip below the red.

    (click to enlarge)

    The commodity market [GTX] has been consolidating since early March and appears to be getting set for a rally, which of course would be beneficial to the small and mid-caps in the market. The MA lines configuration of the GTX [green line below the red] continues in a bullish mode as it has been since last February. The RSI strength indicator remains solid in its bullish territory and the MACD momentum bars appear to be set to do the same, all of which would be a bullish scenario for the market as a whole.

    (click to enlarge)

    The recent rally started in March of 2009 when the S&P 500 benchmark ended its steep nosedive at the 666 level. Currently sitting at 1900, this index has come back a long way, but whereto from here?

    So far this year the market has been stuck within a volatile and relatively narrow sideways trading range, where multiple sectors are still engaged in some pretty sharp rotations. But these rotations working like pistons in an engine, could keep this rally and the bull market going for quite some time ahead. But for now, this market needs a breather.

    Check these Troika charts and note that the two bull components [RSP] and [SPXL] have been consolidating since the middle of April, and that is a positive development for the market. The respective MA lines configurations [green lines below the red] are bullish and so are their respective RSI strength indicators. What' still missing are these two indexes' momentum bars above their respective demarcation lines. Once they manage to do that, the market will be able to kick into a sustained rally.

    When checking the bear component of this Troika [SPXS] you'll see why the bulls should have no problems getting such a rally started. The MA lines configuration [green line above the red] is as bearish as it can get. The RSI strength indicator remains in bearish territory and the MACD momentum bars are unable to climb over the demarcation line.

    No wonder this SPXS keeps digging a deep hole at the bottom of a deep pit.

    (click to enlarge)

    (click to enlarge)

    (click to enlarge)

    This "market forecasting" junk-bond canary [JNK] remains as bullish as it has ever been. Its MA lines configuration continues its bullish mode [green line below the red] and its RSI strength indicator is at the top of the bullish territory as well. But the MACD momentum bars could spoil it all. Sitting tight on the demarcation line they can snap either way, which would determine the direction of the market.

    (click to enlarge)

    The X:X indicator reflects a market with a split personality, for now anyway. Keep in mind that with this thing down is up and up is down as far as the market is concerned. That this index had rallied strongly since early March is still a bearish omen for the market. But it appears that the X:X is in the process of taking a steep nosedive, and that would be bullish. Meanwhile, the MA lines configuration remains strongly bullish [green line below the red] and that is a bearish signal for the market. But note that the RSI strength indicator and MACD momentum bars have slipped into their respective bearish territories, and that is bullish for the market.

    Confused enough?

    (click to enlarge)

    The yellow metal [GOLD] appears to be hanging on to a consolidation mode, even though its MA lines configuration is still bearish [green line above the red.] But with its RSI strength indicator and MACD momentum bars in dead neutral, gold can swing either way.

    (click to enlarge)

    Oil [WTIC] is in an incredible bullish mode. But this index has shot up too far too fast, and is in need of a consolidating pullback. That both the RSI strength indicator and MACD momentum bars are deep into their respective bullish territories is a big positive for the price of oil. But the fat fly in this sweet ointment is the total merger of the green and red MA lines.

    Should the green line rise above the red, the price of oil will come down hard. But should the green line slip below the red, oil will remain in a rally mode.

    (click to enlarge)

    Adding it all up, the VIX-Bull index [SVXY] is signaling bullish markets ahead. The only negative here is that this index became too enthusiastic and blew a RSI bubble at the top of this chart. This thing could burst and cause a temporary pullback in the market, but the primary bias remains to the upside.

    (click to enlarge)

    This rally started in March of 2009 when the S&P 500 ended its steep nosedive at the 666 level. With last Friday's close at 1900, the market came back a long way.

    But whereto from here?

    So far this year, the market has been moving sideways within a relatively narrow and volatile trading range where multiple sectors still are engaged with some pretty wide-swinging rotations. But just the pistons in an engine, these rotations could keep driving the market forward for some time to come.

    But for now, this market still needs a breather and that is a good time to just stay on the sidelines with cash ready, observe and wait.

    Still, here are some favored ETFs for a trader's quiver.

    Leveraged Bull ETFs:

    Regional banking 2x (KRU), Technology 2x (ROM), Russell 2000, 2x (UKK), Consumer Services 2x (UCC), Retail 3x (RETL), DOW 30, 2x (DDM), NASDAQ 100, 2x (QLD), Technology 3x (TECL), NASDAQ 100, 3x (TQQQ), Russell 2000, 3x (TNA), Real Estate 3x (DRN), Russell 2000, 2x (UWM), Semis 3x (SOXL), Mid-Caps 3x (MIDU), S&P 500, 3x (SPXL), Mid-Caps 2x (MVV), DOW 30, 3x (UDOW), Mid-Caps 2x (SSO), Financials 2x (UYG), S&P 500, 3x (UPROW), Financials 3x (FAS), India 3x (INDL), Energy 3x (ERX), Health Care 3x (DRN), Materials 2x (UYM), Algerian 2x (MLPL), Biotech 2x (BIB).

    Non-Leveraged Long ETF:

    India (SCIF) (INXX) and (INDY), Semis (XSD), Pharma (XPH), Transports (IYT), Small-Caps Dividend (DFE) Oil & Gas Exploration (IEO), Pharma (PJP), Semis (SMH), Technology (QTEC), Materials (IYM), Industrials (RGI), Russell 2000(VTWV), Small Caps (IJR), Technology (IYW), Small-Caps (SLY).

    Leveraged Bear ETFs:

    Nat-Gas 3x (DGAZ), Emerging Markets 2x (EEV), Oil & Gas 2x (DUG), DOW 30, 2x (DXD), Materials 2x (SMN), Emerging Markets 3x (EDZ), S&P 500, 2x (SDS), Financials 2x (SKF), China 2x (FXP), Energy 3x (ERY), DOW 30, 3x (SDOW), NASDAQ 100, 2x (QID), Russell 2000, 2x (TWM), Small-Caps 3x (TZA), Russell 2000, 2x (SRTY), S&P 500, 3x (SPXS), Financials 3x (FAZ), Semis 3x (SOXS), NASDAQ 100, 3x (SQQQ), Russell 2000, 3x (SRTY), Small-Caps 2x (TWM), Biotech 2x (BIS).

    Non-Leveraged Short ETFs:

    Gold (DGZ), Emerging Markets (EUM), DOW 30 (DOG), S&P 500 (SH), NASDAQ 100 (PSQ), Russell 2000 (RWM), Active Bear (HDGE), EAFE (EFZ), Oil (DNO).

    GOOD LUCK!

    May 27 9:26 AM | Link | Comment!
  • Heed The Weather Vanes Of The Market.

    After more ups and downs last week, it appears that the market is setting up for more zigzags sideways to nowhere. That may not be such a bad move, considering last year's hefty gains. It would allow the market to take a breather and regain traction to the upside again - maybe.

    Problem is that there is no way of knowing if taking a breather is a precursor for the market to shift into gear to the upside, or pull the plug on the downside. For now it appears that the market is still looking for excuses to take profits after that nice rebound last April. This is why some market strategists are advising their clients to do the same, that it was time for caution and capital preservation, rather than trying to make money trading the market.

    This thing can go either way in a flash, and this is why paying close attention to the weather-vanes of the market is so important. Knowing which way the wind is blowing marketwise, could save a portfolio from a lot of pain.

    These blogs favorite is by far the Troika. It stands on three legs, two bulls' one bear and that gives it a good balance. Note that the two bull components of this Troika [RSP] and [SPXL] show continued strong Moving Average configurations [green lines below the red.] This implies that even though this bull-run has stalled, it is far from over. Problem is that this bull has been running on an increasingly empty gas tank since the middle of last January. This is well demonstrated by the respective MACD momentum bars which have been hanging into bearish territory since that time. So, unless these bars for the RSP and SPXL rise above their respective demarcation lines and stay there for awhile - this bull has had it.

    Check the bear component of this Troika [SPXS] and note that this bear has no chance to attack the market in any meaningful way. Its MA lines configuration is totally bearish for the bears [green line above the red] and its MACD momentum bars have vanished since the beginning of 2013. So, there is no momentum behind the bears or the bulls, and the best the market can do in a situation like this is to zigzag sideways through no man's land.

    (click to enlarge)

    (click to enlarge)

    (click to enlarge)

    Two more weather-vanes the market is sensitive to are the market-forecasting junk-bond canary [JNK] and the VIX bull [SVXY.] Why bull? Because anything that moves opposite the VIX has to be a bull!

    Note that the SVXY is sending nothing but bullish signals to the market. This index just wants to go higher. Its MA lines configuration remains strongly bullish [green line below the red] and its MACD momentum bars are again climbing above the demarcation line. Also, the RSI strength indicator is solid in bullish territory, and that bodes well for the market.

    The junk-bond canary [JNK] is sending similar bullish signals, except the attempt of its MACD momentum bars to climb above the demarcation line, looks a bit iffy. But check this RSI strength indicator, which is so bullish that it is sitting close to bubble territory.

    All in all, these weather-vanes of the market appear to blowing in a favourable direction.

    (click to enlarge)

    (click to enlarge)

    For the market to get its moxie back it needs to be led by the broad sectors of cyclicals [CYC] especially the small-caps [SML.] They are spread across all industry sectors and when they move to the upside it is a sign that the economy and the market are firing on all cylinders.

    The CYC chart shows that its rising index remains well supported by an exceedingly bullish MA lines configuration [green line below the red.] Also, its RSI strength indicator is well within its bullish territory, all of which is a plus for the market. But again, its MACD momentum bars are totally neutral, as they stick close to the demarcation line. This means that the cyclicals are rising on the fumes of an empty gas tank, and it is anyone's guess when these fumes will have evaporated too.

    Even though the small-cap index [SML] is still doing a steep nosedive, its MA lines configuration remains remarkably bullish [green line below the red.] Maybe this has something to do with a report that smart-money inflows into the small-cap sectors are the highest in four years. Go figure! But for now, the MACD momentum bars of the SML leave no doubt that this small-cap index is in high gear to the downside.

    (click to enlarge)

    (click to enlarge)

    The NASDAQ 100 index [NDX] is actually trying to show us something. While this index has been zigzagging to the upside with higher highs and higher lows, its MACD momentum bars remained in bullish territory as they have been since late April.

    While its RSI strength indicator is sitting at dead neutral, the MA lines configuration is trying to turn bullish by having its green line slip below the red. Should that happen, expect NASDAQ to take off, and probably take the whole market along with it.

    (click to enlarge)

    The commodity index [CRB] appears to be consolidating while being well supported by its MA lines configuration [green line below the red.] But with its MACD momentum bars and RSI strength indicator both in their respective bearish territories, all is not well with the commodity market.

    This is corroborated by the commodity-demand index [BDI] which is mirroring a disaster area. Both its MACD momentum bars and RSI strength indicator are solid in their respective bearish territories, and now the MA lines configuration [green line above the red] is turning bearish too. This is a minefield for commodity players!

    (click to enlarge)

    (click to enlarge)

    Although [GOLD] appears to be consolidating, the yellow metal remains bearish, just the same. Its MA lines configuration [green line above the red] is bearish, and ditto for the RSI strength indicator which has slipped into bearish territory as well. The MACD momentum bars are sitting at dead neutral along the demarcation line, which indicates that while there is no upside momentum for gold, there is no downside momentum either. Flip a coin.

    (click to enlarge)

    Oil [WTIC] continues to build a base and appears to be settling down on the plus side of 100 levels. Its RSI strength indicator is still in bullish territory, and so are its MACD momentum bars. But with the red and green MA lines touching, oil is totally neutral and will remain that way until these two lines diverge again.

    (click to enlarge)

    All in all, this is a market which is totally undecided and is best observed from the sidelines until such time that this thing makes up its mind to swing one way or the other.

    Nobody knows what will trigger such a move and this is why it's best to wait and just watch the market unfold.

    Here are some favored ETFs to keep track of in case the market comes your way.

    Leveraged Bull ETFs:

    DOW 30, 2x (DDM), S&P 500, 3x (SPXL), Mid-Caps 2x (MVV), Industrials 2x (UXI), Financials 3x (FAS), S&P 500, 3x (UPRO), Small-Caps 3x (TNA), DOW 30, 3x (UDOW), Real Estate 3x (DRN), Mid-Caps 3x (MIDU), S&P 500, 2x (SSO), Russell 2000, 3x (URTY), NASDAQ 100, 2x (QLD), NASDAQ 100, 3x (TQQQ), China 3x (YINN), India 3x (INDL), Emerging Markets 3x (EDC), Biotech 2x (BIB), Jr. Gold Miners 3x (JNUG).

    Non-Leveraged Long ETFs:

    India-(EPI) (SCIF) and (INDY), Discretionary (VCR), Mid-Caps (IWP), Regional Banking (KRE), Industrials (IYJ), EAFE (IFA), Mega-Caps (MGK), Global X (SDIV), REIT (VNQ), Info-Tech (VGT), Materials (XLB), NASDAQ 100 (QQQ), VIX Bull (SVXY), Real Estate (IYR), Retail (XRT) High-Yield (HYLD).

    Leveraged Bear ETF:

    Nat-Gas 3x (DGAZ), DOW 30, 2x (DXD), Emerging Markets 3x (EDZ), Emerging Markets 2x (EEV), Financials 3x (FAZ). NASDAQ 100 2x (QID), Oil 2x (SCO), DOW 30, 3x (SDOW), S&P 500, 3x (SQQQ), S&P500, 2x (SDS), NASDAQ 100, 3x (SQQQ), Real Estate 2x (SRS), Russell 2000, 3x (SRTY), Russell 2000, 2x (TWM), Financials 3x (FAZ), China 2x (FXP), Gold Miners 3x (DUST),

    Non-Leveraged Short ETFs:

    Gold (DGZ), Small-Caps (SBB), Emerging Markets (EUM), DOW 30 (DOG), Info Tech (EFUT), EAFE (EFZ), Financials (SEF), Russell 2000 (RWM), Oil-Fund (DNO), Equity Bear (HDGE), Real Estate (REK), S&P 500 (SH), Mid-Caps (MYY).

    GOOD LUCK!

    May 19 10:53 AM | Link | Comment!
  • RISK ON OR OFF?

    Going into February and March, the small-cap sectors in the market [IWM] became overbought, top-heavy and susceptible to a selloff. So the market pulled the plug and sure enough, down they came. Meanwhile, the large-caps [SPX] kept hanging in there in a sideways consolidation. (click to enlarge)

    (click to enlarge)

    This stark diversion between the SPX and IWM has the bears in this game convinced that the market and the "risk-off trade" is in place.

    Not only that, companies' earnings-growth isn't much to grow about, stocks are mostly fully valued at current levels, the economic expansion is slower than anticipated and the Fed's tapering process signals that this goose doesn't intend to continue laying golden eggs for much longer and the geopolitical troubles between Russia and the Ukraine weighs on the market as well.

    All of this shows that any expectations for the repeat of the "risk-on trade" from the 2013 and last February are nothing more but a bull's wishful thinking. Yet, chart-records show that for most of the time the market has resolved divergences between large and small caps to the upside.

    So we'll see if the same will be the case this time around.

    But for now, both bulls and bears can use this diversion to make a case for either side. The bears can say that the sharp selloff in the small-caps is a precursor for a sharp market correction in all caps. But the bulls can point to the resiliency of the large-caps as a precursor for the market to resume its romp to the upside, sometime soon.

    But for as long as the MACD momentum bars for most of the charts featured in this series of blogs remain in dead neutral near their respective demarcation lines, the market will continue zigzagging sideways.

    Small-caps and mid-caps are an integral part of the cyclical sectors [CYC] in the market. Check this chart and note that it continues to be well supported by its Moving-Average configuration [green line below the red.] Also note that the RSI strength indicator remains solid in its bullish territory. All of this implies that despite the sharp selloff, the small-caps remain very much in play and in due time will present excellent buying opportunities.

    But for as long as the MACD momentum bars remain neutral to bearish close to the demarcation line, there simply is not enough upside momentum for a sustainable market advance.

    (click to enlarge)

    Check these [SVXY] VIX-bull and the [JNK] junk-bond charts and note that both are well supported by their respective bullish MA lines configurations [green lines below the reds] and RSI strength indicators that are steady in their respective bullish territories. What is missing, are the MACD upside momentum bars which would signal the makings of a sustainable rally.

    Both of these indicators act like the canary in a coalmine and have demonstrated an uncanny ability to forecast market directions. But without momentum to either side, they at present are neutral, which means more waiting time for the market to make up its mind.

    (click to enlarge)

    (click to enlarge)

    When you check the Troika, you'll note that this chart combination is totally undecided and neutral. The MA lines configuration of the two bull components [RSP] and [SPXL] are hanging together without a sense of direction. The RSI strength indicator and MACD momentum bars are directionless as well, which means that this bull is not going anywhere, anytime soon.

    Check the bear component [SPXS] and note that while this bear is being held down by its negative MA lines configuration [green line above the red] its MACD momentum bars have faded away and its RSI strength indicator is still in negative territory. What all of this means is that the bear is back in hibernation.

    (click to enlarge)

    NASDAQ [COMPQ] is still struggling to find traction to the upside. But with its extremely bearish MA lines configuration [wide gap between the green lines above the red] it will take some time. Also, the RSI strength indicator is still in bearish territory, while its MACD momentum bars are flat on the demarcation line. All of this will continue to have a bearish impact on NASDAQ.

    (click to enlarge)

    The commodity market [GTX] shows a surprisingly bullish MA lines configuration [green line below the red]. But for as long as its RSI strength indicator and MACD momentum bars remain in their respective bearish territories, this index remains strongly bearish.

    (click to enlarge)

    Although this gold index [GOLD] continues its sideways consolidation, for as long as its RSI strength indicator and MACD momentum bars remain in their respective bearish territories, the bias of the yellow metal continues to be to the downside.

    That its MA lines configuration [green line above the red] remains exceedingly bearish, only adds to the negative outlook for gold.

    (click to enlarge)

    With its MA lines configuration fairly bullish [green line below the red] oil [WTIC] appears to have found a base of support around the $100.- level. But with its RSI strength indicator in bearish territory and ditto for its MACD momentum bars, the bias for the price of oil remains to the down side.

    (click to enlarge)

    Market strategists are advising their clients to position themselves in the rotating leadership and safety of dividend-paying stocks, which could gain momentum in the months ahead. But for now it is still best to just keep cash on the sidelines and watch the market for the right signals to reenter the game.

    Here are some favoured ETFs for the tracking list in case the market comes your way.

    Leveraged Bull ETFs:

    DOW 30, 2x (DDM), Biotech 2x (BIB), Mid-Caps 3x (MIDU), Russell 2000, 2x (UWM), S&P 500 3x (UPRO), Small-Caps 3x (TNA), Russell 2000, 3x (URTY), NASDAQ 100, 2x (QLD), DOW 30, 3x (UDOW), Mid-Caps 2x (MVV), Financials 3x (FAS).

    Non-Leveraged Long ETFs:

    Mid-Caps (IWP), Regional Banking (KRE), VIX Bull (SVXY), Energy (XLE), Discretionary (VCR)

    Jr. Gold Miners (GDXJ), Semis (SOXX), Financials (IYF), NASDAQ 100 (QQQE), Russell 1000 (IWF), Russell 2000 (IWM).

    Leveraged Bear ETFs:

    Financials 3x (FAZ), NASDAQ 100, 2x (QID), DOW 30, 3x (SDOW), S&P 500, 2x (SDS), Semis 3x (SOXS), NASDAQ 100, 3x (SQQQ), Russell 2000, 3x (SRTY), S&P 500, 3x (SPXS), Technology 3x (TECS).

    Non-Leveraged Short ETFs:

    Russell 2000 (RWM), Financials (SEF), NASDAQ (PSQ), Mid-Caps (MYY), DOW 30 (DOG), Small-Caps (SBB), Equity Bear (HDGE).

    GOOD LUCK!

    May 12 11:21 AM | Link | Comment!
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