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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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  • Now What? 0 comments
    Jan 6, 2014 8:20 AM

    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 (NYSEARCA:URTY), Healthcare 3x (NYSEARCA:CURE), Small Caps 3x (NYSEARCA:TNA), Biotech 2x (NASDAQ:BIB), NASDAQ 100, 3x (NASDAQ:TQQQ), Semis 3x (NYSEARCA:SOXL), Financials 3x (NYSEARCA:FAS),

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

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

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

    Non-Leveraged Long ETFs:

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

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

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

    Leveraged Bear ETFs:

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

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

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

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

    Non-Leveraged Short ETFs:

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

    Russell 2000 (NYSEARCA:RWM), Active 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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