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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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  • Something Has Got To Give.

    The past week demonstrated that the market is gaining a propensity for triple digit DOW swings from one day to the next. These are the results from a lack of momentum either to the upside or downside. While this kind of volatility can drive regular investors up the wall, it is a godsend for skillful day-traders. But sooner or later something got to give and some-sort of a trend develops to the up or downside.

    As the bulls in this game have it, "the trend is your friend" and for as long as it shows up on a chart from the lower left to the upper right, all is well with this bull market. Also, according to these bulls, there is no stock market bubble, which means that there is plenty of room to the upside. The investing public is still skeptical and therefore there is no "irrational exuberance" that could signal a top to this market.

    Check this DOW [DIA] chart and note that since the beginning of January this solid uptrend is going nowhere. Also note the second chart which depicts the investors' fear index [VIX] which despite last Monday's selling squall did not spike and stayed at the bottom of its range instead.

    This means that besides no top to this market, there is no fear that it could crash to the bottom either. This is why whenever there was a pullback after a sharp rally, the market went into a bit of sideways consolidation, and then rallied again.

    (click to enlarge)

    (click to enlarge)

    Note that the MA lines configuration [green line on top of the red line] is bearish for the VIX and will keep this thing anchored to the bottom. Surely, that has to be bullish for the bulls.

    So, since last October the market gave investors four good buying opportunities, and as the bulls have it, the fifth one is waiting just around the corner.

    But as the bears see it, the bulk of the investing public is still waiting by the sidelines too. As outlined in previous blogs, this is the reason why this market has been rallying on nothing more but the fumes of an empty gas tank. An example of this is the current slew of mixed to poor earnings reports which give this market little incentive to move to higher highs and caused all major indexes to end in the red by last Friday's close. Also, the last disappointing labor report has put a damper on this rally. Also, that an unusually high number of companies are warning in advance that their earnings reports will come in below expectations is not doing much for this rally either.

    But let's check the Troika and see what the market has to say about that.

    Note that the bull components [SPX] and [SPXL] continue to show strong Moving Average configurations [green line below the red.] Although this indicates that this bull market remains intact, but for as long as the MACD momentum bars keep fading out of their bullish territories, intermittent pullbacks followed by consolidation periods have to be anticipated.

    Check the bear component of this Troika [SPXS] and note that this bear is trying to dig out of a deep hole at the bottom of a deep pit. But for as long as its MA lines configuration [green line above the red] stays so exceedingly bearish for the bears, it is a bullish signal for the market. But it appears that the MACD momentum bars are creeping up into bullish territory and that could be an early sign of the bear's awakening.

    Keep in mind that only when the green MA line moves below the red line for the bears, and above the red line for the bulls can a sustainable correction occur. Also, the MACD momentum bars and MA configurations have to move in the same direction. If one of them is out of step, the long or short side of the market is in trouble. (click to enlarge)

    (click to enlarge)

    (click to enlarge)

    Check the NASDAQ composite and note that while its MA lines configuration remains exceedingly bullish, its MACD momentum bars are out of step and have problems staying in their bullish territory, and that could spell trouble for the technology sector.

    (click to enlarge)

    This commodity index [DBC] shows that there appears to be no end to the problems the commodity market has. Its MA lines configuration remains bearish, [green line above the red] and its MACD momentum bars seem to have a tough time swinging back up into bullish territory.

    (click to enlarge)

    This market-forecasting junk bond canary [JNK] has no end in sight for this bull market. While this index keeps soaring to higher highs, it remains well supported by its bullish MA lines configuration [green line below the red.] That its MACD momentum bars are off the neutral demarcation line and appear to be moving back into bullish territory, adds to the strength of this junk bond.

    The RSI strength indicator has blown a bit of a bubble which could bring this index down somewhat to consolidate, and that would be a good thing.

    (click to enlarge)

    The consumer discretionary [XLY] is a major part of the cyclical offensive sector of the market and appears to be in trouble. This sector has been the main driver behind this rally since last September. If remains to be seen if the non-cyclical defensive sector of the market can pick up the slack and keep the rally going.

    The MA lines configuration of the XLY is still very bullish, but its MACD momentum bars are way out of step in their bearish territory. This kind of diversion can easily knock the market for a loop, especially when the index is already keeling over. Also note that the RSI strength indicator has slipped into negative territory, which is a bearish signal for the market.

    (click to enlarge)

    The cyclical small cap sectors [SML] were leading the market advance since last September and are still reflecting the market's behavior as a whole. While the MA lines configuration remained strongly bullish throughout, it was the volatile MACD momentum bars that caused the sharp zigzags on the way to higher highs. Now this index appears to be topping out while the momentum bars are stuck in bearish territory. Should the MA configuration turn bearish as well with the green line above the red, then watch out down below.

    (click to enlarge)

    The insiders in this game [NFO] are still counting on this rally to continue. For as long as this index remains supported by a bullish MA lines configuration they could get their wish. But with the MACD momentum bars slipping into bearish territory, the insiders my have to take a second look at their bullish strategies.

    (click to enlarge)

    Gold [GOLD] had a nice little rally so far this year, buoyed by its MACD momentum bars which are up sharply in their bullish territory. That the RSI strength indicator is back in bullish territory also, adds to the bullish outlook for the yellow metal. But for as long as the MA lines configuration of this index stays bearish [green line above the red] gold won't get a chance for a sustained rally.

    (click to enlarge)

    Crude oil [WTIC] is quickly turning into a basket case. Not only is this index unable to break lose of the bottom, its MA lines configuration is about to turn bearish with the red line slipping below the green while its MACD momentum bars are stuck in bearish territory.

    All of this is a far cry from the bullish promise in December.

    (click to enlarge)

    As some prominent market strategists explain it, among the ten percent of S&P 500 companies reported so far, most of them show earnings well below historic averages. That makes for more downside risk than upside potential, which also is reflected by these charts.

    So here are some favoured ETFs for any market action down the road.

    Leveraged Bull ETFs:

    China 3x (YIM), Russell 2000 3x (URTY), Health Care 3x (CURE), Small Caps 3x (TNA),

    Biotech 2x (BIB), NASDAQ 100 3x (TQQQ), Semis 3x (SOXL), Financials 3x (FAS),

    S&P 500 3x (UPRO), S&P 500 3x (SPXL), Mid Caps 400, 3x (UMDD), Mid Caps 3x (MIDU),

    Nat Gas 2x (GASL), Developed Markets 3x (DZK), Russell 2000, 2x (UWM),

    Technology 3x (TECL), NASDAQ 2x (QLD), DOW 30, 3x (UDOW), Financials 2x (UYG),

    S&P 500, 2x (SSO), Mid Caps 2x (MVV), Energy 3x (ERX), Japan 2x (EZJ),

    Technology 2x (ROM), DOW 30, 2x (DDM), Materials 2x (UYM), China 2x (XPP),

    Alerian 2x (MLPL), Emerging Markets 3x (EDC), Emerging Markets 2x (EET).

    Non-Leveraged Long ETFs:

    China (PGJ), Spinoffs (CSD), Internet (PNQI), Biotech (PBE), Aerospace (ITA),

    Health Care (PSCH), Industrials (PRN), Pharma (PJP), Transports (XTN), Small Caps (RZV),

    Micro Caps (RZV), S&P 500 (RPV), Small Caps (RWJ), Regional Banking (KRE),

    Internet (FDN), Capital Markets (KCE), Microcap (IWC), Health Care (FXH), Industrials (FXR),

    Guru Holdings (GURU), Biotech (FBT), Small Caps (SLY), Small Techs (DWAS),

    Discretionary (XLY), Transports (XTN).

    Leveraged Bear ETFs:

    Gold 3x (DGLD), Gold Miners 2x (DUST), Silver 3x (DSLV), Oil 2x (DTO), Oil 2x (SCO),

    Real Estate 3x (DRV), Nat Gas 3x (DGAZ), Emerging Markets 2x (EEV), China 2x (FXP),

    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 2x (QID), Russell 2000, 2x (SRTY), S&P 500, 3x (SPXU),

    Russell 2000 2x (TWM), Small Caps 3x (TZA), Financials 3x (FAZ), Semis 3x (SOXS),

    NASDAQ 3x (SQQQ), Small Caps 2x (TWM),

    Non-Leveraged Short ETFs:

    Emerging Markets (EUM), DOW 30, (DOG), S&P 500 (SH), NASDAQ (PSQ),

    Russell 2000 (RWM), Active Bear (HDGE), EAFE (EFZ), OIL (DNO), Financials (SEF),

    Mid Caps (MYY), Real Estate (REK), Alerian (MLPS), Russell 2000 (TWM).

    GOOD LUCK!

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

    Jan 20 12:59 AM | Link | Comment!
  • Achilles Heel Of The Market.

    Despite the consistently bullish Moving-Average configurations of the major indexes [green line below the red] the market keeps floating higher on nothing more but the fumes of an empty gas tank, and that is the "Achilles Heel" of the market.

    Check these Troika charts and note that the MACD momentum bars of the bull components [SPX] and [SPXL] are fading out of their respective bullish territories and no longer supply the support needed to boost this rally. Add to this that last Friday's payroll report came in much weaker than expected and that the companies' earnings reports don't appear to be much to crow about either, and one can visualize that this rally's gas tank is indeed empty.

    But this lousy economic news could revitalize the "bad is good" mentality in Wall Street and cause the Fed to take it easy with the tapering of its QE programs.

    Check the bear component of this Troika [SPXS] and note that at this stage of the game the bulls don't have much to worry about. The bear appears to be still hibernating in a deep hole at the bottom of a deep pit. The MA lines configuration remains exceedingly bearish for the bears [green line above the red] and its MACD momentum bars have faded away also. This means that while there is no strength to the upside, there is non to the downside either. This could cause the market to move sideways for a while and stay spring-loaded for either direction.

    But for now, this Troika remains bullish.

    (click to enlarge)

    (click to enlarge)

    (click to enlarge)

    Note that MA lines configuration for this bullish percent index [BPS] has turned bearish [green line above the red.] Its MACD momentum bars have slipped into dead neutral, and so is its RSI strengt indicator. This could make investors feel as if they're walking on egg-shells.

    (click to enlarge)

    Although this NASDAQ composite [COMPQ] maintains a very bullish MA lines configuration [green line below the red] its MACD momentum bars are fading into bearish territory. This could be a precursor to a steep nosedive for the tech-components in this game.

    (click to enlarge)

    Despite its continuous and strongly bullish MA lines configuration [green line below the red] which always indicates that an uptrend remains in gear, this DOW index [INDU] reflects a market that appears to be rolling over at the top. Also note that it's MACD momentum bars are poised to slip into bearish territory. So caution is called for.

    (click to enlarge)

    When last December the commodity demand index [BDI] went on a rampage to the upside, its RSI strength indicator blew a bubble. Last week this thing burst and sent the commodity market into a tailspin. Meanwhile its MA lines configuration turned bullish [green line below the red] which means that once things have settled down, commodities could be back in a rally mode again.

    The commodity producer's index [CRB] had a similar experience and also sports a bullish MA lines configuration. That's a good sign because these two commodity indexes will have to move in tandem to the upside, for a sustainable rally to kick into gear.

    (click to enlarge)

    (click to enlarge)

    With its MA lines configuration strongly bullish since last October [green line below the red] this junk-bond market-forecasting [JNK] canary has also rallied on the fumes of an empty gas tank since last November. Even though this was and still is a very good call, its MACD momentum bars started to fade away and haven't recovered since, which is a bearish development for the market.

    (click to enlarge)

    When gold [GOLD] rallied off its low last December, managers of large hedge funds sharply increased their bets on a continuous rally for the price of the yellow metal. With the MACD momentum bars for gold strongly in bullish territory, they could be right.

    But for as long as the MA lines configuration remains bearish [green line above the red] short gold will remain a good call.

    (click to enlarge)

    Now here is a good example of the impact a bullish [green line below the red] or bearish [green line above the red] MA lines configuration has on an index. Should the currently bullish MA lines configuration for crude oil [WTIC] hold, crude will rally in the weeks ahead. But should this MA lines configuration turn bearish again, expect the price of oil to fade further.

    (click to enlarge)

    Considering all of the above, the current rally remains precarious at best. But for as long as the Troika remains bullish, so will the market with the Bull ETFs among the leaders of this game.

    So here are a few favorites to keep track of.

    Leveraged Bull ETFs:

    Junior Gold Miners 3x (JNUG), Healthcare 3x (CURE), 30 Yr Treasury 3x (TMF), Emerging Markets 3x (EDC), Energy 3x (ERX), Financials 3x (FAS), Mid Caps 3x (MIDU),

    Real Estate 3x (DRN), Small Caps 3x (TNA), Technology 3x (TECL), China 3x (YINN),

    S&P 500, 3x (SPXL), S&P 500, 3x (UPRO), Basic Materials 2x (UYM), China 2x (XPP),

    Oil 2x (UCO), DOW 30, 2x (DDM), Financials 2x (UYG), Gold 2x (UGL), Health Care

    2x (RXL), Japan 2x (EZJ), Mid Caps 2x (MVV), Biotech 2x (BIB), NASDAQ 2x (QLD),

    Real Estate 2x (URE), Russell 2000, 2x (UWM), S&P 500, 2x (SSO), Silver 2x (AGO),

    Mid Caps 3x (UMDD), NASDAQ 3x (TQQQ), Russell 2000, 3x (URTY), Gold 3x (UGLD),

    Silver 3x (USLV),

    Non-Leveraged Long ETFs:

    Discretionary (FXD), Internet (FDN), Health Care (FXH), Industrials (FXR), Large Caps (FTA),

    Biotech (FBT), Technology (FXL), IPO Index (FPX), Developed Markets (PIZ), Biotech (PBE),

    Pharma (XPH), Banks (KBE), Regional Banks (KRE), Transports (XTN), Pharma (PJP),

    Small Caps (DWAS), Biotech (XBI), Discretionary (VCR), Discretionary (XLY), Japan (DXJ),

    Spain (EWP), Micro Caps (IWC), Russell 2000 (IWO), S&P 500 (IVW), Gold (DGP),

    Small Caps Dividend (DGS),

    Leveraged Bear ETFs:

    Oil 2x (DTO), Gold 2x (DZZ), Emerging Markets 3x (EDZ), Energy 3x (ERY), China 3x (YANG),

    Financials 3x (FAZ), Mid Caps 3x (MIDZ), Small Caps 3x (TZA), Gold Miners 3x (DUST),

    S&P 500, 3x (SPXS), Russell 2000, 3x (SRTY), S&P 500, 3x (SPXU), Euro 2x (EUO),

    Emerging Markets 2x (EEV), S&P 500, 2x (SDS), DOW 30, 2x (DXD), Financials 2x (SKF),

    NASDAQ 2x (QID), DOW 30, 3x (SDOW), NASDAQ 3x (SQQQ),

    Non-Leveraged Short ETFs:

    Gold (DGZ), DOW (DOG), Emerging Markets (EUM), NASDAQ (PSQ), Small Caps (SBB),

    Russell 2000 (RWM), S&P 500 (SH), Real Estate (REK), Equity Bear (HDGE), Oil Fund (DNO),

    GOOD LUCK!

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

    Jan 13 8:21 AM | Link | Comment!
  • Now What?

    Check this [OEX] chart and note that despite a very bullish "Moving Average" line configuration [green line below the red line] this rally which started in October was beginning to lose momentum as indicated by the MACD momentum bars which started to fade away in November. This meant that the rally was fuelled by nothing more but the fumes of an empty gas tank.

    So when the momentum bars slipped sharply south of the demarcation line beginning in December, the time had come to keep the parachutes handy, because the market was headed for a deep nosedive.

    Sure enough, by the middle of December the market had dropped to the point where Wall Street had its worst week since August. Market participants were concerned that an improving economy could cause the Fed to tighten its easy-money spigot sooner rather than later. On top of that, Washington's politicians passed a budget which would avoid another government shutdown.

    So when the Fed announced its tapering intentions on December 18, Wall Street indeed slummed at first, but then rallied over 700 points as measured on the DOW by December 31st.

    Go figure.

    But by the end of the first trading session of 2014, the DOW was down over a hundred points, the first time that had happened since 2008. So after closing 2013 with the biggest rally in 16 years, Wall Street came to a dead stop last Thursday. Mixed signals from the Fed have market participants in a wait-and-see attitude. Fed chairman Ben Bernanke assured investors that its first issue of tapering does not mean that the Fed won't continue its highly accommodative monetary policy for as long as needed.

    This market has gone for more than two years without a meaningful correction, which has some market strategists convinced that the odds of increased volatility leading up to a major selloff are starting to increase. The Fed's tapering of its easy-money flow could be the catalyst to usher in such volatile selling squalls. So don't pack the parachutes away just yet.

    (click to enlarge)

    Note that while the S&P percent index soared during the recent rally, it did so despite forming a very bearish MA lines configuration [green line above the red.] Also, the MACD momentum bars which strongly supported this rally are fading away rapidly, all of which are caution signals.

    (click to enlarge)

    Now check the Troika and note that its [SPX] and [SPXL] bull components still have very bullish MA lines configurations [green lines below the red lines.] But the gaps between the green and red are beginning to shrink, and so are their respective MACD momentum bars. More caution signals.

    Note that the [SPXS] bear component of this Troika is trying to come out of the hole at the bottom of a deep pit where the bear had been hiding during this rally. Also note that its MACD momentum bars which had been strongly bearish are not that bearish any longer.

    (click to enlarge)

    So according to these charts' projections an assumption can be made that the market has rallied too far too fast and is losing traction. If this is going to develop into a sizable selloff remains to be seen. But this would be a good thing because it would put the market in a position to find renewed traction from which to advance further and for some time to come.

    The NASDAQ 100 index [NDX] still maintains a very bullish MA lines configuration, a sign that the technology sectors will continue to march to higher highs. But even here is a caution signal in that its MACD momentum bars have pulled back to the break-even line.

    It seems that the market as a whole is trying to figure out what the Fed's tapering intentions are all about.

    (click to enlarge)

    Okay - at first glance this commodity index [DBC] is still looking pretty sick. But at long last, its MA lines configuration [green line below the red] has turned bullish, which could indicate a turn of fortune to the upside for commodities.

    (click to enlarge)

    The small-cap market leader [TNA] shows some wicked volatility as this index continues to move from the lower left to the upper right of its chart. But at the same time its MA lines never wavered from their bullish configuration [green line below the red] as they have since last September.

    Even though this index along with the market could take a steep nosedive, for as long as this MA lines configuration remains bullish, so will the core of the market.

    (click to enlarge)

    Although gold [GOLD] is trying to climb out of a deep hole at the bottom of a deep pit, it won't succeed for as long as its MA lines configuration remains so exceedingly bearish [green line above the red.]

    (click to enlarge)

    So this oil index [WTIC] took a steep nosedive after a failed attempt to rally. But for as long as its MA lines configuration remains bullish [green line below the red] oil will rally again, and this time make it stick.

    (click to enlarge)

    Okay - all in all this market remains bullish, but as these charts indicate, its battles to reach higher highs will be interspersed by some volatile nosedives. This will represent some great opportunities for ETF traders who have the skill to cash in at the top of rallies, and redeploy at the bottom of selling squalls.

    Here are some favoured ETFs which are poised to perform well under the appropriate market conditions.

    Leveraged Bull-ETFs:

    China 3x (YIM), Russell 2000, 3x (URTY), Healthcare 3x (CURE), Small Caps 3x (TNA), Biotech 2x (BIB), NASDAQ 100, 3x (TQQQ), Semis 3x (SOXL), Financials 3x (FAS),

    S&P 500 3x (UPROW), Developed Markets 3x (DZK), Technology 3x (TECL),

    DOW 30, 3x (UDOW), Mid-Caps 2x (MVV), Energy 3x (ERX), Japan 2x (EZJ),

    Materials 2x (UYM), Alerian 2x (MLPL), Emerging Markets 2x (EET).

    Non-Leveraged Long ETFs:

    China (PGJ), Biotech (PBE), Aerospace (ITA), Healthcare (PSCH), Industrials (PRN),

    Pharma (PJP), Transports (XTN), Small-Caps (RZV), S&P 500 (RPV), Internet (FDN),

    Industrials (FXR), Capital Markets (KCE), Discretionary (XLY), Transports (XTN).

    Leveraged Bear ETFs:

    Gold Miners 2x (DUST), Gold 3x (DGLD), Silver 3x (DSLV), Oil 2x (SCO), DOW 30, 2x (DXD),

    Materials 2x (SMN), Emerging Markets 2x (EEV), S&P 500, 2x (SDS), NASDAQ 2x (QID),

    Russell 2000, 2x (TWM), Small-Caps 3x (TZA), Financials 3x (FAZ), Semis 3x (SOXS),

    NASDAQ 3x (SQQQ), Russell 2000, 3x (SRTY), Small-Caps 2x (TWM).

    Non-Leveraged Short ETFs:

    Gold (DGZ), Emerging Markets (EUM), DOW 30 (DOG), S&P 500 (SH), NASDAQ (PSQ),

    Russell 2000 (RWM), Active Bear (HDGE), Oil (DNO).

    GOOD LUCK!

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

    Jan 06 8:20 AM | Link | Comment!
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