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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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  • To Taper Or Not, That's The Question.  0 comments
    Aug 19, 2013 10:10 AM

    Last Friday, August 16, Wall Street tanked to its biggest weekly loss so far this year.

    Still, it was not a panic selloff considering how far the market has rallied over the past months.

    Signs of an improving job market within an expanding economy sent the market tumbling because it fuelled speculation that the Fed may curtail its easy money policies sooner rather than later.

    This just shows that market participants keep focusing on how the economy will influence the Fed's decisions in regards to its massive QE programs. So it appears that to "taper or not to taper "these easy-money flows is still the main driver behind any rally at this point.

    This begs the question, when are the economy and the markets going to march to the beat by their own drummers instead of the sugar-sweets dished out by the Fed? As the experts out there have it, if they don't do so sometime soon, any sustained progress for both is doubtful.

    But let's check the SPX, SPXL and SPXS Troika, and see what the market has to say about that. Note that the [SPX] component had itself one heck of a nosedive, after consolidating nicely last July and August. Although this breakout to the downside is a bearish signal, for as long as the MA lines of this index remain in their currently positive configuration [green line below the red line] the bulls will continue to be in charge of the market.

    The bull-component of this Troika [SPXL] also had a sudden steep slide, but again, for as long as its MA lines configuration remains bullish [green line below the red] the upside mode of the market remains intact. Also note that the RSI strength indicator of this index has lost some of its muscles and has slid into negative territory. While this reflects the current weakness of the market, the MACD momentum index is still in a bullish mode and that bodes well for the internal upside momentum to continue.

    The recent selloff has snapped the bear component of this Troika [SPXS] out of its hibernation and off the bottom. But with its MA lines in such a negative configuration [green line above the red] the bears won't have a chance to maintain their grip on the market.

    Also note that while the RSI strength indicator for the bears has flexed its muscles and has risen into positive territory, the MACD momentum index is still negative for the bears, and therefore the rally by the bears will be short-lived.

    (click to enlarge)

    (click to enlarge)

    (click to enlarge)

    The market-forecasting junk bond canary index [JNK] spiked up in July in spite of its bearish MA lines configuration [green line above the red.] This was a sign that this rally couldn't't last and sure enough, the selloff started shortly after.

    Now the opposite is the case, as this index is spiking down in spite of a strongly bullish MA line configuration [green line below the red] which is a sign that this decline will also be short-lived.

    We'll see.

    (click to enlarge)

    This T-Note index [TNX] reflects the "bogeyman" which put the "kibosh" on the rally and triggered the selloff, because rising yields in Treasuries are in competition with the yields in the stock market. With this TNX index well supported by a bullish MA lines configuration, expect interest rates generally to move higher.

    Also note the strong support for rising rates by the MACD momentum index and the RSI strength indicator, both of which are deep in their respective bullish territories.

    (click to enlarge)

    The DOW transportation index [TRAN] hasn't't been much to crow about ever since it started to wobble last June and thereby signaled that a sharp selling was in the cards. So along with the DOW it had its correction, but the TRAN did so in spite of a very bullish MA line configuration.

    This is another sign that the market is searching for traction at a lower level, from which to rally again.

    (click to enlarge)

    OK, so the market had itself another Fed induced "taper-tantrum" but according to this VIX Futures index [UVXY] who cares?

    This index is still in a deep hole at the bottom of a deep pit; its MA lines configuration is extremely bearish for the bears [green line above the red] and both its MACD momentum index along with its RSI strength indicator remain way down in their respective bearish territories.

    So where is the market's participants' anxiety and fear?

    But this air of complacency in the market is just what has some prominent market strategists warning that the roof is about to cave in.

    It's just that these charts don't project it that way.

    (click to enlarge)

    After consolidating for most of July and into August, this [XLY] index shows that the essential consumer component of the economy got cold feet and jumped out the window.

    But the continuously strong bullish MA lines configuration of the XLY suggests that this was once again a Fed's "taper anxiety" attack, which has nothing to do with the bullish underpinnings of the market.

    (click to enlarge)

    Despite the strong surge to the upside by the commodity market, this [DBC] index shows that even though its MA lines configuration has finally turned bullish [green line below the red] it still looks quite weak and doesn't justify such a surge.

    But then again, check the MACD momentum index and RSI strength indicator of this index both of which are deep in their respective bullish territories, which suggests that after an initial pullback, commodities will finally take part in this rally.

    (click to enlarge)

    After being in a deep hole at the bottom of a deep pit for most of June, [GOLD] managed to climb out of this hole in early July. But still being stuck at the bottom of the pit, GOLD remained a bear.

    But during last week's trading sessions the yellow metal surged off this bottom and doing so for the first time in months on top of a bullish MA line configuration [green line below the red.] and that makes gold a genuine bull.

    Also note the MACD momentum index and RSI strength indicator, both of which have finally managed to rise into their respective bullish territories.

    (click to enlarge)

    Wobbling mostly sideways since last April the greenback [USD] looks tired and that is one of the reasons why gold and oil had a chance to rally.

    Note that the MA lines of this index remain in a bearish configuration, and that will keep the U.S. dollar pressured to the downside. Also note that the MACD momentum indexes as well as the RSI strength indicator both remain in their respective negative territories and that adds to the bearishness of the greenback.

    (click to enlarge)

    Aided by the weakness of the U.S. dollar, oil [WTIC] is still a bull. Although well supported by its strongly positive MA lines configuration, the price of oil appears to be stalling and consolidating by mainly moving sideways.

    Meanwhile, the MACD momentum index for oil along with the RSI strength indicator remain in their respective bullish territories and that should help to keep the price of oil up there. (click to enlarge)

    Although the insiders in this game [KNOW] got themselves a pretty close haircut during the past few trading sessions, the bullish MA lines configuration of this index suggests that they were buying into the market's swoon.

    This is why the MACD momentum index is keeping on the bullish side of the fence, even though the RSI strength indicator slipped to the weak side of the equation. This shows that after rallying quite substantially since October 2011 this market is tired, in need of a breather and is doing just that.

    (click to enlarge)

    While the market is spinning its wheels searching for traction, here are some favoured ETFs to keep on tap in case momentum starts picking up in either direction.

    With gold breaking out to the upside, these gold related ETFs look interesting.

    Leveraged Gold ETFs:

    DB Gold 2x (NYSEARCA:DGP) Ultra Gold 2x (NYSEARCA:UGL) Gold Miners 2x (NYSEARCA:NUGT)

    Gold Shares 3x (NASDAQ:UGLD) Ultra Silver 2x (NYSEARCA:AGQ)

    Non Leveraged Gold ETFs:

    SPDR Gold (NYSEARCA:GLD) Asian Gold (NYSEARCA:AGOL) Comex Gold (NYSEARCA:IAU) DB Gold (NYSEARCA:DGL)

    Gold Explorers (NYSEARCA:GLDX) Junior Gold Miners (NYSEARCA:GDXJ) Gold Miners (NYSEARCA:GGGG)

    Leveraged Bull ETFs:

    Semis 3x (NYSEARCA:SOXL) Health Care 3x (NYSEARCA:CURE) Energy 3x (NYSEARCA:ERX) Financials 3x (NYSEARCA:FAS)

    Mid Caps 3x (NYSEARCA:MIDU) Small Caps 3x (NYSEARCA:TNA) S&P 500 3x (NYSEARCA:UPRO) DOW 30, 2x (NYSEARCA:DDM)

    Financials 2x (NYSEARCA:UYG) Biotech 2x (NASDAQ:BIB) Oil & Gas 2x (NYSEARCA:DIG) Technology 2x (NYSEARCA:ROM)

    Tech 3x (NYSEARCA:TECL) NASDAQ 100, 3x (NASDAQ:TQQQ) Russell 2000, 3x (NYSEARCA:URTY)

    Non Leveraged Long ETFs:

    Biotech (NYSEARCA:BBH) Energy (NYSEARCA:XLE) Financials (NYSEARCA:XLF) Health Care (NYSEARCA:XHS) Real Estate (NYSEARCA:RWX)

    Japan (NYSEARCA:IJH) Small Caps (NYSEARCA:IJR) S&P 500 (NYSEARCA:SPHB) Financial Services (NYSEARCA:IYG)

    Small Caps (NYSEARCA:DWAS) Consumer Discretionary (NYSEARCA:VCR) Home Construction (NYSEARCA:ITB)

    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) Mid Caps 3x (NYSEARCA:MIDZ) Small Caps 3x (NYSEARCA:TZA) Technology 3x (OTC:TECZ)

    Nat Gas 3x (GASK) Gold Miners 3x (NYSEARCA:DUST) S&P 500 3x (NYSEARCA:SPXS) Oil 2x (NYSEARCA:SCO)

    DOW 30, 2x (NYSEARCA:DXD) Russell 2000, 3x (NYSEARCA:SRTY) Gold 2x (NYSEARCA:GLL) Health Care 2x (NYSEARCA:RXD)

    Japan 2x (NYSEARCA:EWV) 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) Emerging Markets (NYSEARCA:EUM) Equity Bear (NYSEARCA:HDGE)

    Oil (NYSEARCA:DNO)

    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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