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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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  • A "Goldilocks" Market? 0 comments
    Aug 5, 2013 3:53 AM

    After being down seventy points on the DOW in early trade last Friday, and despite a disappointing jobs report, Wall Street came back to close up 30 points in the green. The Fed has repeatedly stated that the plusses and minuses in the jobs market would determine the "taper or not to taper" strategies by the Fed.

    Well, this latest jobs report last Friday keeps the Fed as well as Wall Street stuck in that middle ground where data is not good enough for the Fed to taper its QE easy money programs any time soon, but also not bad enough not to taper down these programs beginning this fall.

    That is the recipe for a "Goldilocks" market where the not too hot and not too cold environment implies that the worst of the economic data flow is behind us, and therefore rising stock prices lie ahead.

    This positive outlook of the market could be the reason why a steadily rising money-flow keeps pouring into ETF funds that invest primarily in North American equities.

    As the bulls in this game have it, the market is a discounting mechanism and being at an all-time high means that for whatever reason, the trend keeps pointing this way.

    Not so fast say the bears. As they see it, even though major stock indexes are at record highs, the number of stocks participating in this latest rally is well below earlier last month. This suggests that the market has hit the ceiling with a pop, which caused a nosebleed that is draining the market's strength.

    So the upside momentum is stalling and could easily shift to the downside. Also, economic growth is puttering along at best, and while the corporate earnings season so far has been positive, it isn't much to crow about either. All of this suggests that the market needs some time out to digest the big moves to the upside, and trade sideways within a relatively narrow trading range for awhile.

    OK, so check the "unorthodox" chart interpretations below, and see what the market has to say about that.

    Check the [SPX] large cap component of this Troika combo, and note that its bearish MA lines configuration [green line above the red line] has turned bullish [green line below the red] which indicates that after some time out for some consolidation, the market will be set on an upside course. Meanwhile, the MACD momentum index and RSI strength indicator remain deep in their respective bullish territories, and that bodes well for the markets overall.

    Now check the [SPXL] bull component of this Troika which is sporting a bullish MA lines configuration [green line below the red] and thereby supports any rally by the S&P 500 index. But this bull finds itself a bit too high on a slippery slope and needs to pull back a bit in order to find some traction for the market to continue to higher highs.

    Note this Troika's bear component [SPXS] and how between early June and early July it developed some upside momentum that could have put the bears in charge of the market. But this index could not manage a positive [for the bears] MA lines configuration which has turned sharply negative and that put the bears back into a deep hole at the bottom of a deep pit.

    The bottom line here is that this Troika projects a continued strong market advance, and any pullback has to be considered part of a consolidation process and buying opportunity.

    OK, check the "unorthodox" chart interpretations below, and see what the market has to say about that.

    Note that this sidekick of the Troika, the market forecasting junk bond canary [JNK] had itself quite a bounce-back rally after its steep nosedive in June. But during this rally its MA lines configuration remained strangely bearish [green line above the red] which indicated that this rally could not last.

    So now that this index had its downside correction its MA lines have turned positive again, and that confirms the bullish stance of the Troika.

    This next chart presents the second canary [X:X] of the market. When this index is climbing while supported by a bullish [green line below the red] MA configuration, it's bearish for the market. But, as is the case now, this index is declining below a negative MA lines configuration, it is bullish for the market.

    That this index is digging a hole into the ground begs the question - how much more bullish can this market get?

    Soaring on a sugar-high on top of a bearish MA lines configuration, this NASDAQ 100 index [NDX] ran out of steam and into a nosedive. But now that this MA configuration has turned bullish again [green line below the red] it is setting NASDAQ up for a bull-run of its own. But for now, this index is in need of some sideways consolidation.

    The commodity supply index[CRB] had a pretty rough time ever since last March, when its MA lines configuration turned bearish [green line above the red.] But after this recent sharp nosedive this configuration has turned bullish [green line below the red] which implies that the commodity market has hit bottom and is getting ready to advance again.

    This Baltic commodity demand index [BDI] shows that its surge into the stratosphere last June was way overdone and that the current pullback and consolidation is way overdue. But with its strongly bullish MA lines configuration this index is also projecting commodity demand, especially the metals, to soon pick up again.

    Although [GOLD] had itself a pretty good rally out of a deep hole at the bottom of a deep pit, it is still at the bottom of the pit. For as long as its MA lines configuration remains this bearish [green line above the red] the yellow metal will remain stuck in the pit.

    During a strong consolidation period between May and June on top of a bullish MA lines configuration, oil [WTIC] had laid the foundation for a sustainable rally. Now, consolidating again and still with the support of a bullish MA lines configuration, oil [energy] remains a bull.

    Also note that the MACD demand index along with the RSI strength indicator remain deep in their respective bullish territories, and that will help to keep the price of oil up there.

    When all is said and done, the insiders who [KNOW] turned bullish in June and July, but they did so on top of a bearish MA lines configuration [green line above the red] which caused the surge of optimism to stall.

    But toward the end of July this MA configuration turned bullish again, and that gave the insiders a heavy dose of optimism. Also note that both the MACD momentum index and RSI strength indicator remained deep in their respective positive territories and will lend support to the bullish sentiment in this game.

    But all of this is a bit much and a healthy pullback is called for. This would give traction for a continuous bull market in the months ahead.

    To take advantage of further rallies in this bull market, here are some favoured ETFs that are positioned to perform well.

    Leveraged Bull ETFs:

    Biotech 2x (NASDAQ:BIB) Russell 2000 3x (NYSEARCA:URTY) Financials 3x (NYSEARCA:FAS) Small Caps 3x (NYSEARCA:TNA) Healthcare 3x (NYSEARCA:CURE) Mid Caps 3x (NYSEARCA:MIDU) Regional Banks 2x (NYSEARCA:KRU) Mid Caps 400 3x (NYSEARCA:UMDD) Semis 3x (NYSEARCA:SOXL) S&P 500 3x (NYSEARCA:SPXL) DOW 30, 3x (NYSEARCA:UDOW) NASDAQ 100 3x (NASDAQ:TQQQ) China 3x (NYSEARCA:YINN) Energy 3x (NYSEARCA:ERX) Japan 2x (NYSEARCA:EZJ) OIL 2x (NYSEARCA:UCO) NASDAQ 100 2x (NYSEARCA:QLD) Techs 3x (NYSEARCA:TECL) Techs 2x (NYSEARCA:ROM) Oil & Gas 2x (NYSEARCA:DIG) Russell 2000 2x (NYSEARCA:UKK)

    Non-Leveraged Long ETFs:

    Biotech (NYSEARCA:BBH) Discretionary (NYSEARCA:XLY) Real Estate (NYSEARCA:RWX) Energy (NYSEARCA:XLE) Financials (NYSEARCA:XLF) Health Care (NYSEARCA:XHS) Mid Caps (NYSEARCA:IJH) Small Caps (NYSEARCA:IJR) Japan (NYSEARCA:DXJ) S&P 500 (NYSEARCA:SPHB) Health Care (NYSEARCA:FXH) Small Techs (NYSEARCA:DWAS) Cons Discretionary (NYSEARCA:VCR) Home Construction (NYSEARCA:ITB).

    When markets are selling off.

    Leveraged Bear ETFs:

    DB Gold 2x (NYSEARCA:DZZ) Semis 3x (NYSEARCA:SOXS) Emerging Markets 3x (NYSEARCA:EDZ) Energy 3x (NYSEARCA:ERY) Financials 3x (NYSEARCA:FAZ) Health Care 2x (NYSEARCA:RXD) Mid Caps 3x (NYSEARCA:MIDZ) Small Caps 3x (NYSEARCA:TZA) Technology 3x (OTC:TECZ) Nat Gas 3x (GASK) Gold Miners 3x (NYSEARCA:DUST) Gold 2x (NYSEARCA:GLL) Oil 2x (NYSEARCA:SCO) S&P 500 3x (SXU) Russell 2000 3x (NYSEARCA:SRTY) DOW 30, 2x (NYSEARCA:DXD) NASDAQ 100, 2X (NYSEARCA:QID)

    Non-Leveraged Short ETFs:

    Gold (NYSEARCA:DGZ) DOW 30 (NYSEARCA:DOG) Mid Caps (NYSEARCA:MYY) Russell 2000 (NYSEARCA:RWM) Small Caps 600 (NYSEARCA:SJB) Equity Bear (NYSEARCA:HDGE) Emerging Markets (NYSEARCA:EUM) Oil (NYSEARCA:DNO).

    When trading these ETFs keep in mind that this is a bull's market. So for trading purposes use leveraged bull ETFs, and for investment holdings use non-leveraged long ETFs.

    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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