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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 Website... More
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  • So, Whereto From Here? 0 comments
    Apr 8, 2013 2:18 AM

    A growing line-up of bearish economic reports points to a big correction sometime soon.

    Europe is in a deep recession, GDP for the U.S. is mostly flat, the important ISM manufacturing index came in disappointing and so did the PMI purchasing managers index. Not to mention North America's rising unemployment, the U.S. sequestration and declining earnings forecast. So it is not surprising that last Friday's April 5 U.S. jobs report came in much weaker than expected and knocked Wall Street for a loop.

    But then, after a 170 point drop by the DOW, the market engaged in a late session push that erased most of the day's losses. Realization had set in that with this selling squall the Fed; had the incentive to continue its policy of low interest rates and quantitative easing a while longer, and thereby add some juice to this rally.

    It just shows that a lot of pent-up demand has been waiting on the sidelines watching the parade go by, and now with prices lower want to join in.

    Check these three Troika charts and note that the SPX and its SPXL bull-trend side-kick are maintaining their same positive MA lines configurations {green lines below the red} they started this rally with last December. At the same time, the negative SPXS bear-trend MA lines configuration {green line above the red} pushed the bear into a deep hole, at the bottom of a deep pit.

    So, according to this Troika there is no end in sight for this bull-market. Mind you, there will be zig-zags along the way to higher highs that can whipsaw the portfolio of an unwary market participant into oblivion. So watch it, and stay the upside course with the main momentum.

    (click to enlarge) (click to enlarge)

    (click to enlarge)

    To augment this bullish scenario of the Troika is this JNK junk-bond canary. This little birdie has an uncanny ability to correctly forecast the Troika's and thereby the market's behavior.

    Note that since last November it's MA lines configuration remained bullish, and so did the market. After a January swoon its MA lines configuration turned briefly negative, but has remained bullish ever since.

    (click to enlarge)

    Two major indexes closely watched by market strategists are the DOW Industrials and its side-kick the DOW Transportation index, TRAN. Both of them will have to pull in tandem one way or the other to indicate that a solid trend has been established by the market.

    Now, market strategists of the bearish persuasion argue that because the TRAN hit a ceiling in March and has declined ever since the rally in the DOW is suspect and a sharp selloff by the market has to be anticipated.

    Well, they had a selloff last Friday, but the bears could not make it stick. The reason is that both the DOW and its TRAN are maintaining their bullish MA lines configuration, and for as long as that is the case this rally will stay intact.

    (click to enlarge)

    (click to enlarge)

    But there is one big, fat fly in the sweet juice of this bull-market, and that is the steep nosedive in the commodity index, GTX. It indicates that the global economies are having problems, and for as long as that is the case the global stock markets remain vulnerable to catching problems too.

    (click to enlarge)

    Along with the sick commodity market, gold is a basket case also. Ever since this index displayed a bearish MA lines configuration {green line above he red} the yellow metal has been in a downdraft and will remain that way until this configuration turns bullish {green line below the red.}

    (click to enlarge)

    By contrast, gold's demise is the Greenback's gain. Although the U.S. dollar has paused to catch its breath after the strong runup since February, it illustrates that despite its woes and the idiocies of its Congress, the U.S. is still the safest place for money to flow into.

    (click to enlarge)

    It appears that crude oil, just like gold, is a basket case too. Although it tried a rally attempt in March, but with its MA lines configuration bearish, it no-can-do. (click to enlarge)

    Along with the small-cap indices, this NASDAQ 100 index had a tough time making headway since early March, and even had itself a steep nosedive during last Friday's trade. But as its strongly bullish MA lines configuration suggests, this lays the groundwork for sharp rallies and buying opportunities ahead.

    (click to enlarge)

    After last Friday's steep nosedive followed by a sharp rebound, the temptation is to jump back into the market again. But give the market a chance to digest this swing and similar zig-zag maneuvers, and wait for signals that suggest the direction of a dominating momentum. This decreases the probability of being whipsawed in or out of the market, before the market has a chance to find a direction.

    Let somebody else be the hero to jump in first. If you can get the underlying momentum right, there will be plenty of opportunities for gains.

    In any case, here are some favorite ETFs to consider when the time is right. Although the market executed some volatile swings lately, the main momentum still lies with the bulls.

    Leveraged Bull ETFs:

    Small Caps 3x (NYSEARCA:TNA), Mid Caps 3x (NYSEARCA:MIDU), Mid Caps 400, 2x (NYSEARCA:MVV)S&P 500, 3x(NYSEARCA:UPRO), S&P 500 Bull 3x(NYSEARCA:SPXL), DOW 30, 3x(NYSEARCA:UDOW), Semis Bull 3x(NYSEARCA:SOXL), Russell 2000, 3x(NYSEARCA:URTY), Biotechs 2x(NASDAQ:BIB), Basic Materials 2x(NYSEARCA:UYM), Financials 2x(NYSEARCA:UYG), NASDAQ 100,2X(NYSEARCA:QLD).

    Non-Leveraged Long ETFs:

    Home Construction (ITBO), Home Builders (NYSEARCA:XHB), Biotech (NYSEARCA:BBH), Biotech (NYSEARCA:XBI), Biotech (NASDAQ:IBB).

    In case the market tanks, here are some favoured leveraged Bear-ETFs:

    Short Gold 2x(NYSEARCA:DZZ), Short Silver 2x(NYSEARCA:ZSL), Short Basic Materials 2x(NYSEARCA:SMN), Short DOW 30, 2x(NYSEARCA:DXD), Short Mid Caps 2x(NYSEARCA:MZZ), Short S&P 500, 2x(NYSEARCA:SDS).

    Non Leveraged Short ETFs:

    Short Gold (NYSEARCA:DGZ), Short DOW 30 (NYSEARCA:DOG), Short Russell 2000 (NYSEARCA:RWM), Short NASDAQ 100(NYSEARCA:PSQ), Short Financials (NYSEARCA:SEF), Active Bear (NYSEARCA:HDGE)

    GOOD LUCK!

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

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