George Simone's  Instablog

George Simone
Send Message
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
My company:
ETF Advantage Report
My blog:
ETF Advantage Report
  • Watch It! 0 comments
    Jun 30, 2014 10:01 AM

    Wall street is doing a double-take as last week's disappointing economic data has investors concerned that corporate profits won't live up to their expectations, especially since corporate guidance isn't much to crow about either. So it is no surprise that the recent large-cap selloff squalls reflect a change in investors' behavior.

    Up to now, large-cap companies' stocks have been star performers during this year's market rally. But a recent weak GDP report for the U.S. along with sluggish consumer data have put the long-expected second quarter economic rebound into question, and is hitting large-caps especially hard. All in all, it appears that the economy is still struggling to find traction after last winter's hard conditions, and that is making the market vulnerable after reaching recent record highs.

    Yet, market participants have repeatedly shrugged off weak economic numbers under the assumption that the economy would start picking up speed in the spring. Well, spring has come and gone and the economy is still down in the dumps, although recovering slowly.

    That has some savvy market strategists wondering about the longevity of this rally, and so are advising their clients to take a "watch it" stance in the market.

    From a technical standpoint, check this weekly DOW chart and note that this index is sporting a double-top which rivals the peaks of Kilimanjaro. Keep in mind that double-tops in this game are most of the time a precursor to a steep market selloff. Also note the negative MACD momentum bars which indicate that so far since May this rally was fuelled by nothing more but the fumes of an empty gas tank.

    Meanwhile, the NASDAQ safe-haven for small and mid-cap stocks [NDX] has reached nose-bleed territory and could do with a bit of a consolidating pullback. But this index remains exceedingly bullish and continues to be well supported by its positive Moving Average configuration [green line below the red line] as well as its RSI strength indicator and MACD momentum bars, both of which are in their respective bullish territories. This reflects a renewed risk appetite by investors, who are heading back to the more volatile small and medium type sectors.

    (click to enlarge)

    So what is the most likely scenario for the market in the weeks and months ahead? First the impending selling squalls, triggered by the high stock evaluations and lack of upside momentum by the large-cap sectors. This will leave the space free for the small-cap and mid-cap sectors to kick into gear and recapture the upside-leader ship in the market.

    Check this Troika and note that while the large-cap sectors [SPX] and [SPXL] remain well supported by their respective bullish MA lines configurations [green lines below the red] as well as their respective RSI strength indicators which are well in bullish territories. But for as long as the respective MACD momentum bars keep south of the demarcation lines; this large-cap rally has no legs.

    But with the Troika's bear component [SPXS] showing a completely negative MA lines configuration [green line above the red] this bear doesn't have what it takes to bring the bull to its knees, and so the market will continue to mosey sideways in see-saw fashion, until a sharp but short-lived selloff will clears the air.

    (click to enlarge)

    (click to enlarge)

    (click to enlarge)

    Meanwhile, the small-cap sector [SML] continues to be well supported by its bullish MA lines configuration [green line below the red] and the RSI strength indicator which is solid in bullish territory. Also, for the first time this year, the MACD momentum bars are making an effort to rise above the demarcation line again. This would give the small-caps the moxie needed to resume the leadership in this market.

    (click to enlarge)

    This commodity index [GTX] is struggling to keep from keeling over. It's a tough go, but for as long as its MA lines configuration remains bullish [green line below the red] commodities generally still have a chance to rally again, after a brief consolidation period.

    (click to enlarge)

    Although [GOLD] had itself a pretty good rally, it is now topping out. While its MA lines configuration appears beginning to turn bullish [green line sliding below the red] its MACD momentum bars remain neutral, and so the rally attempt is fading.

    (click to enlarge)

    After consolidating for a week or so, oil [WTIC] appears to have lost its upside momentum as its MACD momentum bars have slipped south of the demarcation line. But with its RSI strength indicator still in bullish territory, oil could continue to consolidate around the 105 level. That the MA lines configuration for oil remains bullish [green line below the red] indicates that the bias for oil continues to be to the upside.

    (click to enlarge)

    Wall Street's fear index [VIX] has hit rock bottom, an indication that there is very little of it if any, fear that is. Also, the MA lines configuration [green line on top of red] is adding downside pressure on the VIX and on any investors' fear that may still be in the market. But here it is well to keep in mind that not only does "irrational exuberance" signal a market's top, so does "irrational complacency." In both instances many investors assume that there is no downside to the upside.

    Note that the MACD momentum bars are totally negative south of the demarcation line, so there is no weight to keep the VIX down. This means that the slightest pretext opposite to the VIX could catapult this fear-index to the upside and trigger a steep selloff.

    (click to enlarge)

    Putting it all together, it is still best to let small gains slip away and continue waiting on the sidelines for more advantageous setups to come along.

    Meanwhile, here are some favored sectors and ETFs to keep track of, while waiting.

    Small-Caps, Mid-Caps, Technology, Telecoms and Oil-Services.

    Leveraged Bull ETFs:

    Nat-Gas 2x (NYSEARCA:GASL), Semis 3x (NYSEARCA:SOXL), India 2x (NYSEARCA:INDL), Energy 3x (NYSEARCA:ERX), Jr. Gold-Miners 3x (NYSEARCA:JNUG), NASDAQ 100, 3x (NASDAQ:TQQQ), Health-Care 3x (NYSEARCA:CURE), Technology 3x (NYSEARCA:TECL), Biotech 2x (NASDAQ:BIB), S&P 500, 3x (NYSEARCA:SPXL), Mid-Caps 3x (NYSEARCA:MIDU), Small-Caps 3x (NYSEARCA:TNA), Alerian 2x (NYSEARCA:MLPL)

    Materials 2x (NYSEARCA:UYM), DOW 30, 3x (NYSEARCA:UDOW).

    Non-Leveraged Long ETFs:

    India (NYSEARCA:INXX), Solar Energy (NYSEARCA:TAN), Pharma (NYSEARCA:XPH), Nat-Gas (NYSEARCA:FCG), Semis (NYSEARCA:XSD), Biotech (FBE), Oil/Gas Exp. (NYSEARCA:XOP), Biotech (FBE), Transports (NYSEARCA:XTN), Technology (NASDAQ:QTEC), Discretionary (NYSEARCA:VCR), Canada (NYSEARCA:EWC), Small Caps (NYSEARCA:VB).

    Leveraged Bear ETFs:

    DOW 30, 2x (NYSEARCA:DXD), Financials 2x (NYSEARCA:SKF), Gold 3x (NASDAQ:DGLD), Russell 2000, 2x (NYSEARCA:TWM), Emerging Markets 2x (NYSEARCA:EEV), Oil 2x (NYSEARCA:SCO), S&P 500, 2x (NYSEARCA:SDS), Financials 3x (TUV), NASDAQ 100, 2x (NYSEARCA:QID), Small Caps 3x (NYSEARCA:TZA), Nat-Gas 2x (NYSEARCA:KOLD), Semis 3x (NYSEARCA:SOXS), Gold Miners 2x (NYSEARCA:DUST), Jr. Gold Miners 3x (TDST),

    Non-Leveraged Short ETFs:

    DOW 30 (NYSEARCA:DOG), Russell 2000 (NYSEARCA:RWM), EAFE (NYSEARCA:EFZ), Emerging Markets (NYSEARCA:EUM), S&P 500 (NYSEARCA:SH), Active Bear (NYSEARCA:HDGE), NASDAQ 100 (NYSEARCA:PSQ), Mid-Caps (NYSEARCA:MYY), Oil/Gas (NYSEARCA:DDG).

    GOOD LUCK!

Back To George Simone's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Most Commented
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.