Last Friday, Wall Street experienced a selling squall that erased most of the week's gain for the major benchmark indexes. Mixed earnings news and escalating troubles in Ukraine is making market participants a bit edgy.
On top of that, portfolio managers continue to unwind last year's winning bets in technology, social media and biotech, all cyclical sectors which are heavily concentrated in the NASDAQ and small-cap sectors, [NDX] and [RUT.] These two sectors are market leaders, and if they are not out front during any rally, that rally won't have legs.
Note that the NDX and RUT indexes show exceedingly bearish Moving-Average lines configurations [green lines above the red lines] and that puts downsides pressure on the market. But while their respective RSI strength indicators are also in bearish territories, there is a glimmer of hope in the MACD momentum bars, which have actually managed to hang on to the bullish north of their demarcation lines.
By nature, the stocks listed on NASDAQ and the RUT small cap sector are cyclicals that have been hammered badly during the first half of April. But during that time the MA lines configuration by the cyclicals [CYC] remained bullish [green line below the red] and that gave this index the support needed to snap back with a pretty decent rally.
Also, the momentum bars of the CYC are tentatively back in bullish territory, and even though the RSI strength indicator is still sitting close to the neutral line, the cyclicals appear to be setting up for a comeback. If they succeed, the market could be back in gear to the upside.
But as it often happens, the slack in cyclicals is being made up by the strength in the non-cyclical utilities and staple sectors and that, so far, has kept the rally on track. The recent turbulence has been concentrated in the high-flying momentum stocks and when they took a deep nosedive, market participants worried that they would take the whole market down with them.
So far this hasn't happened, but it puts the market in the middle of a "no-man's land" where neither bulls nor bears have the upper hand and the market is set to move sideways in zigzag fashion within a relatively narrow trading range.
Check this S&P 500 [SPX] weekly chart and note that while this index rallied throughout this year, its MACD "fuel-tank" momentum bars were empty and sinking into bearish territory, south of the demarcation line. But at the same time the exceedingly bullish MA lines configuration [green line beneath the red] along with its bullish RSI strength indicator kept the rally going. So which is which? The bulls and bears can't both be right.
The bull which has been running since March/09 is looking tired and has shown signs of fatigue so far this year. This is a good enough reason for investors to stay in cash by the sidelines and just watch the market unfold for a while.
Check this Troika and note that the two bull components [SPX] and [SPXL] are maintaining positive MA lines configurations, [green lines below the red.] Even though their respective RSI strength indicators are sitting at dead neutral, the MACD momentum bars have tentatively moved into bullish territory. This could be a sign that the bull is beginning to get its mojo back and a setup for a breakout to the upside.
Bolstering this bullish probability is the bear component [SPXS] of this Troika which is still stuck inside a deep hole at the bottom of a deep pit. Also note that the MA lines configuration of the SPXS is thoroughly bearish for the bears [green line above the red.] Also, its MACD momentum bars show zero momentum while its RSI strength indicator remains stuck in bearish territory. So, one has to assume that last Friday's selling squall was a feeble attempt by the bear to do damage to the market, without much success.
All in all, this Troika remains biased to the bullish side and while cautious, so is the market.
The NASDAQ market with its preponderance of tech issues still appears to be in trouble. Its MA lines configuration remains sharply bearish [wide gap between the green line and the red] while the RSI strength indicator appears to be stuck in bearish territory. But the MACD momentum bars managed to rise into bullish territory, and that could be a precursor to a rally on NASDAQ.
Well supported by its bullish MA lines configuration [green line below the red] the commodity market [GTX] had itself a pretty good surge to the upside. That its RSI strength indicator managed to stay in its bullish territory, also helped. But now that its MACD momentum bars have faded to neutral, expect the GTX to consolidate at a lower level.
This market-forecasting junk bond canary [JNK] just keeps projecting bullish markets ahead. Its MA lines configuration remains bullish [green line below the red] and the RSI strength indicator is solidly in its bullish territory. But the MACD momentum bars have faded to neutral ever since the early part of April, and that has JNK stalling out at the top, which could put a kibosh on this rally.
The yellow metal [GOLD] continues to struggle in trying to get a rally started. But with its MA lines configuration still strongly bearish [green line above the red] gold won't stand a chance. But notice that the MACD momentum bars are hiding in dead neutral and so is the RSI strength indicator. This means that the bears don't have much of a chance to bring the precious yellow down either, and so gold will properly continue to move sideways within its current trading range.
Oil [WTIC] is also trying to get out of the slump it finds itself in. Although well supported by its bullish MA lines configuration [green line below the red] its RSI strength indicator has slipped into bearish territory, and so have oil's MACD momentum bars. This indicates that the price of crude is being pushed and pulled in both directions, and it remains to be seen if either bulls or bears are winning this one.
Some savvy market strategists are reminding investors that April marks the end of the best "six-month" performance in this section of the stock market cycle which lasts from the start of November to the end of April.
Also, 2014 is a midterm U.S. election year which experts see as the market's most dangerous of the four-year presidential cycle, and that puts more emphasis on the "go away in May" syndrome.
Well, maybe. But as far as the market is concerned nothing is written in stone, and so these blogs will continue to be guided by the Moving-Average configurations, and so far so good.
Even though it is still best to stay in cash and watch the market's behavior from the sidelines, here are some favored ETFs to keep track of in case the market comes your way.
Leveraged Bull ETFs:
Gold Miners 3x (NYSEARCA:NUGT), Jr. Gold Miners 3x (NYSEARCA:JNUG), Energy 3x (NYSEARCA:ERX), Oil & Gas 2x (NYSEARCA:DIG), Materials 2x (NYSEARCA:UYM), Emerging Markets 3x (NYSEARCA:EDZ), DOW 30, 2x (NYSEARCA:DDM), S&P 500, 3x (NYSEARCA:UPRO), S&P 500 3x (NYSEARCA:SPXL), Russell 2000, 2x (NYSEARCA:UWM), Nat-Gas 3x (NYSEARCA:UGAZ), Technology 2x (NYSEARCA:ROM), Small-Caps 3x (NYSEARCA:TNA), NASDAQ 100, 3x (NASDAQ:TQQQ), Health-Care 3x (NYSEARCA:CURE), Mid-Caps 3x (NYSEARCA:UMDD), Biotech 2x (NASDAQ:BIB), Semis 3x (NYSEARCA:SOXL), Financials 3x (NYSEARCA:FAS).
Non-Leveraged Long ETFs:
Gold Miners (NYSEARCA:GDX), Jr. Gold Miners (NYSEARCA:GDXJ), Spain (NYSEARCA:EWP), EAFE (NYSEARCA:EFA), Materials (NYSEARCA:XLB), S&P 500 (NYSEARCA:IVE), Health-Care (NYSEARCA:VHT) Russell 2000 (NYSEARCA:IWO), Biotech (NYSEARCA:XBI), Regional Banking (NYSEARCA:KRE), Internet (NYSEARCA:FDN), Russell 1000 (IWT).
Leveraged Bear ETFs:
Semis 3x (NYSEARCA:SOXS), Technology 3x (NYSEARCA:TECS), Biotech 2x (NASDAQ:BIS), Financials 3x (NYSEARCA:FAZ), Russell 2000, 2x (NYSEARCA:TWM), NASDAQ 100, 2x (NYSEARCA:QID), Technology 2x (NYSEARCA:REW), Small-Caps 3x(NYSEARCA:TZA), Russell 2000, 3x (NYSEARCA:SRTY), S&P 500, 3x (NYSEARCA:SPXU), Emerging Markets 3x (EDZ), NASDAQ 100, 3x (NASDAQ:SQQQ), Russell 2000, 2x (NYSEARCA:SKK).
Non-Leveraged Short ETFs:
Equity Bear (NYSEARCA:HDGE), Mid-Caps (NYSEARCA:MYY), NASDAQ 100 (NYSEARCA:PSQ), S&P 500 (NYSEARCA:SH), Emerging Markets (NYSEARCA:EUM), Gold Miners (NYSEARCA:DUST), DOW 30 (NYSEARCA:DOG), EAFE (NYSEARCA:EFZ), Russell 2000 (NYSEARCA:RWM).