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A Dark And Bright Side To The Market?

In these series of weekly market blogs the February 28 edition warned that the "bull-trap" rallies at that time kept smart money out of the market and in cash, waiting until things in the market got a little clearer and to see what the major indexes were up to. This blog also suggested that just standing there and not "doing something" is often the best strategy in a volatile market like this one.

For now, this is still the best strategy to use for a while longer - but then what?

To answer that question, let's check the "dark side" of the market first. Note that the more bullish this X: X chart, the more bearish the market, and is that chart ever bullish for the dark side!

This index went parabolic to the upside, its Moving Average configuration is exceedingly bullish [green line below the red line,] its MACD momentum bars are solidly above the demarcation line in bullish territory and its RSI strength indicator is bullish to the extreme.

What all of this means is that the bear has its fangs deep in the neck of the bull, and is not about to let go.

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But when you check the "bright side" of the market you'll note that this market-forecasting junk bond canary [JNK] keeps warbling its bullish tune [green line below the red] just as it has since the beginning of this major rally in March of 2009. What this means is that this selloff is nothing serious, except for those market participants who stayed in this game last February, when they shouldn't have. But this current market-rout will be a godsend for those investors who moved into cash and are standing at the sidelines, waiting for the opportune time to get back into the market.

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Check the Troika and note that its bull components [SPX] and [SPXL] are still showing very strong MA configurations [green lines below the reds.] This indicates that despite recent sharp selloffs the internals of the market remain bullish and triggered to the upside. But for as long as these two indexes' MACD momentum bars and RSI strength indicators remain in their respective bearish territories, the market is skidding on a slippery slope and sliding lower.

But when the SPX and SPXL find traction again, the rally will be back on.

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When you check the Troika's bear component [SPXS] you'll note that even though this bear has managed to climb out of the deep hole it was in for so long, its MA lines configuration [green line above the red] show that the bear is still in no condition to inflict serious damage to the market.

Still, that both the MACD momentum bars and RSI strength indicator have managed to rise into their respective bullish territories is a sign that more selling squalls lie ahead.

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The NASDAQ 100 index [NDX] reflects a disaster area that needs rebuilding before the market can resume reaching for higher highs. This index is in a steep nosedive that will continue for as long as its MA lines configuration stays bearish [green line above the red.]

That the NDX shows its MACD momentum bars and RSI strength indicator both in their respective bearish territories are warnings that the market as a whole is still in trouble and vulnerable to further selloffs.

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It appears that with the equity markets in a selloff mode, market participants are shifting cash to the commodity market. This is why this commodity index [DBC] is sporting a bullish MA lines configuration [green below the red] and has both its MACD momentum bars and RSI strength indicator positioned in their respective bullish territories.

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The recent sector rotations are the result of defensive market action. This major advance that started in March/09 was led mainly by the cyclical small and midcap sectors in which the discretionary, techs and financials dominated, while utilities and staples were the laggards.

These rolls are in the process of reversing which has many market strategists convinced that this current downside correction still has legs.

Check this small cap index [SML] and yes, this index is in a freefall. Its RSI strength indicator and MACD momentum bars are deep in their respective bearish territories, all of which points to deeper selloffs ahead. But also note the sharply bullish MA lines configuration [green line below the red] which is an indication that sometime during the near weeks this market rout will come to a screeching halt, the cyclical sectors will resume their leadership in the market and put the "bull run" back into gear.

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Despite the geo-political turmoil out there, it doesn't seem to do serious harm to the global markets [ACIM.] The MA lines configuration of this index [green below the red] remains strongly bullish, while the RSI strength indicator is mainly neutral. The MACD momentum bars are somewhat hanging from the demarcation line into bearish territory, but not by much. All of this is an indication that the Wall Street rout is localized and temporary.

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The yellow metal [GOLD] doesn't seem to know if it should go up, down or sideways. Its MA lines configuration is turning bearish, as the green line is just beginning to edge above the red line. The RSI strength indicator is mostly neutral and so are the MACD momentum bars, all of which makes this a waiting game for gold.

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Oil [WTIC] is still a bull, but a hesitant one. Its MA lines configuration is neutral, while both its RSI strength indicator and MACD momentum bars remain in their respective bullish territories. While this means that the price of oil can go either way, the bias is to the upside. All it needs is some confirmation from its MA configuration.

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Check this weekly DOW chart and note that despite all its volatile zigzags the market is still mostly moving sideways while being well supported by its strongly bullish [green line below the red] Moving Average configuration. That makes it a good time, especially during this holiday-shortened week, to keep one's fingers crossed and watch the market's action from the sidelines.

This is also a good time to check the leveraged and non-leveraged short and long ETFs featured in previous blogs, and keep track of those that have some guts behind them with a commensurate price appreciation.

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GOOD LUCK and happy Easter.

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