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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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  • Is Wall Street Hitting A Ceiling? 0 comments
    Apr 20, 2014 2:28 PM

    Just when all seemed lost during the opening sessions last Tuesday and Wednesday, the market staged snapback reversals that have been its hallmarks so far this year. But these 100 point swings during intraday "whim" trades are signs that all is not well on the "street of dreams" and that marketwise the sidelines still look pretty comfortable at this stage of the game.

    Pulling back several times so far this year, the market triggered fears of a broader decline, only to recover and move higher each time. This suggests that for as long as market participants use these pullbacks as buying opportunities, these selling squalls will be limited. Yet, plenty of damage has been inflicted by the market not only to sectors and equities, but also on investors' bullish psyche. This could foreshadow a tough stretch for the broader indexes in the weeks ahead.

    Check this weekly DOW chart [INDU] and note that even though this index is still well supported by an extraordinarily strong Moving Average configuration [green line below the red line] the market appears to have hit a ceiling, and the best it can do from here is to move sideways for a stretch. But should this MA configuration begin to narrow, watch out down below.

    Also note that while the RSI strength indicator is still in bullish territory, the MACD momentum bars are hanging from the demarcation line into bearish territory. This indicates that the rallies since last January were fuelled by nothing more but the fumes of an empty gas tank - and how much longer can that last?

    (click to enlarge)

    Check the two bull-components of this Troika [SPX] and [SPXL] and note that while they are still supported by bullish MA lines configurations, this support is narrowing. Their MACD momentum bars are back to dead neutral while their RSI strength indicators are mainly neutral as well. What that shows is that as far as the bull is concerned, there isn't much enthusiasm for a sustained rally.

    But when you check the bear-component of this Troika [SPXS] you'll note that there isn't much enthusiasm for a selloff either.

    The MA lines configuration [green line above the red] is still negative for the bear while its MACD momentum bars are at dead neutral. Its RSI strength indicator has slipped into negative territory, which is another sign that the bear continues to weaken. So, as this Troika has it, neither bulls nor bears have the upper hand right now, and that is a good time to stand aside and see which one is coming out on top.

    (click to enlarge)

    (click to enlarge)

    (click to enlarge)

    But when you check the NASDAQ 100 [NDX] and the small caps [RUT] indexes, you'll note that these two leave no doubt that the market is geared to the downside. Keep in mind that for any major move to the upside to succeed, the NDX and RUT will have to lead the advance. But for now, these two indexes still reflect a disaster scenario, even though they had themselves a pretty good snapback rally. But this attempt to the upside in not being supported by their respective MA lines configurations, which are still sharply bearish [green lines above the reds.]

    Also note that the MACD momentum bars of both indexes remain deep in bearish territory as they have been since early March. Ditto for their respective RSI strength indicators, which have been spending most of that time south of their demarcation lines.

    (click to enlarge)

    (click to enlarge)

    Similarly, this X: X index has been extremely bullish since the middle of March, which of course is extremely bearish for the market. So watch it.

    Yes, looking at the market through these kinds of indicators can be pretty confusing at times. But they work!

    (click to enlarge)

    Yet, check this market-forecasting junk bond canary [JNK] which since last November steadfastly kept signaling rising markets ahead, and still keeps chirping the same bullish tune. But now it appears to be getting tired. Although still well supported by its exceedingly bullish MA lines configuration [green line below the red] its MACD momentum bars have been losing their upside momentum since early March, and that could be a precursor for a string of market corrections ahead. While the RSI strength indicator is still in bullish territory, its strength is waning, and that is another "caution" signal.

    (click to enlarge)

    This commodity producer's index [CRB] and commodity demand index [BDI] are twins joint by the hip. Because scared money is getting out of equities and into commodities the CRB is benefiting the most. This is why its MA lines configuration is strongly bullish [green line below the red] while its MACD momentum bars and RSI strength indicator are in bullish territory as well. By contrast, the BDI demand index is totally bearish, as if to wonder what to do with all that stuff. Note that its MA lines configuration is turning bearish [green line above the red] and its MACD momentum bars are deep in bearish territory.

    The only positive [?] thing the BDI has going for itself is that its RSI strength indicator has collapsed and is blowing a huge bubble on the downside, which is usually a sign of an impending snapback rally ahead. But just like stocks, commodities are best left alone and just observed from the sidelines. The exceptions are oil and gas [energy] which because of the Ukraine fiasco have for now hit a bullish streak.

    (click to enlarge)

    (click to enlarge)

    The yellow metal [GOLD] is trying to rally, but it just hasn't got what it takes to do so. This index is taking a nosedive, its MA lines configuration is bearish [green line above the red] its MACD momentum bars are stuck in neutral and its RSI strength indicator is down in bearish territory. Not mush of an upside chance here.

    (click to enlarge)

    Contrasting gold, everything about oil [WTIC] is bullish. This index keeps reaching for higher highs [maybe too much too fast?] the MACD momentum bars are solidly in bullish territory and so is the RSI strength indicator. Big question though, what is causing this upside rush and will it last? If the troubles in Ukraine are the answer, this oil rally hasn't got legs. Still, a trader might as well ride this oil-bull for as long as this rally lasts.

    (click to enlarge)

    Ever since the beginning of time [March 9/2009] these indexes have performed beautifully, especially when they were sending "caution" signals, as they are doing now. This why it is best to stay at the sidelines for now, doing nothing except to nibble on anything that is energy related and has some decent upside-momentum behind it.

    Also keep track of the ETFs featured in these blogs. They have proven to perform well when the time is right.

    Leveraged Bull ETFs:

    Energy 3x (NYSEARCA:ERX), Nat Gas 3x (NYSEARCA:GASL), Oil & Gas 2x (NYSEARCA:DIG), Oil 2x (NYSEARCA:UCO), Regional Banking 2x (NYSEARCA:KRU), China 3x (NYSEARCA:YINN), Real Estate 3x (NYSEARCA:DRN), S&P 500 3x (NYSEARCA:SPXL), S&P 500 3x (NYSEARCA:UPRO), DOW 30, 3x (NYSEARCA:UDOW), DOW 30, 2x (NYSEARCA:DDM), Mid-Caps 3x (NYSEARCA:UMDD), Technology 3x (NYSEARCA:TECL), S&P 500, 2x (NYSEARCA:SSO), Financials 3x (NYSEARCA:FAS), NASDAQ 2x (NYSEARCA:QLD) Small Caps 3x (NYSEARCA:TNA), Developed Markets 3x (NYSEARCA:DZK), Japan 2x (NYSEARCA:EZJ), Health Care 3x (NYSEARCA:CURE), Semis 3x (NYSEARCA:SOXL), Financials 2x (NYSEARCA:UYG), Emerging Markets 3x (NYSEARCA:EDC).

    Non-Leveraged Long ETFs:

    Energy (NYSEARCA:XLE), Solar (NYSEARCA:TAN), Oil Services (NYSEARCA:OIH), Home Construction (NYSEARCA:ITB), Discretionary (NYSEARCA:VCR), Retail (NYSEARCA:XRT), Materials (NYSEARCA:XLB), Industrials (NYSEARCA:IYJ), Technology (NYSEARCA:XLK), Semis (NASDAQ:SOXX), Financials (NYSEARCA:IYF), Russell 2000 (NYSEARCA:IWN), Info Tech (NYSEARCA:VGT), NASDAQ (NASDAQ:QQQ), Russell 1000 (NYSEARCA:IWF), Technology (NYSEARCA:IYW), Transports (NYSEARCA:XTN), Japan (NYSEARCA:DXJ), S&P 500 (NYSEARCA:IVW), EAFE (NYSEARCA:EFA), Global Equity (NYSEARCA:ONEF), Regional Banking (NYSEARCA:KRE).

    Leveraged Bear ETFs:

    Biotech 2x (NASDAQ:BIS), Health Care 2x (NYSEARCA:RXD), Russell 2000, 2x (NYSEARCA:SKK), Emerging Markets 3x (NYSEARCA:EDZ), Nat Gas 3x (NYSEARCA:DGAZ), Mid-Caps 2x (NYSEARCA:MZZ), Oil 2x (NYSEARCA:DTO), Small-Caps 3x (NYSEARCA:TZA), NASDAQ 2x (NYSEARCA:QID), Russell 2x (NYSEARCA:TWM), Technology 2x (NYSEARCA:REW), Financials 3x (NYSEARCA:FAZ), DOW 30, 2x (NYSEARCA:DXD), Mid-Caps 3x (NYSEARCA:MIDZ), S&P 500 3x (NYSEARCA:SPXU), S&P 500 3x (NYSEARCA:SPXS), Jr. Gold Miners 3x (NYSEARCA:JDST), Energy 3x (ERX), Oil & Gas 2x (NYSEARCA:DUG), NASDAQ 3x (NASDAQ:SQQQ), Small-Caps 2x (NYSEARCA:SDD).

    Non-Leveraged Short ETFs:

    Emerging Markets (NYSEARCA:EUM), Russell 2000 (NYSEARCA:RWM), Financials (NYSEARCA:SEF), Mid-Caps (NYSEARCA:MYY), NASDAQ (NYSEARCA:PSQ), S&P 500 (NYSEARCA:SH), DOW 30, (NYSEARCA:DOG), Small-Caps (NYSEARCA:SBB), Oil & Gas (NYSEARCA:DDG), EAFE (NYSEARCA:EFZ), Equity 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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