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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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  • Keep Things Simple. 0 comments
    Jul 28, 2014 3:12 PM

    Wall Street nosedived during last Friday's trade as some large-cap companies missed the Street's estimates and some lousy durable goods orders combined to spark investors' concerns that corporate Investments into their businesses remains a non-event. That and rising skepticism is fuelling anxiety of a looming market correction.

    Some prominent market strategists claim that the market is at risk because of rising bond-yields and unsustainable high valuations. Add to this the rising geopolitical turmoil in the Middle East and Ukraine, and the stage is set for the market to head south for awhile.

    Other strategists point to the corporate profit reports that are coming in better than expected and that should carry the market to higher highs. But what the market "should" do according to some analysts' concepts doesn't carry much weight among market strategists who have proven track records. To them, the key to staying ahead of the crowd is not estimating what should happen, but determining why the market is behaving in a certain manner, and here the concept "should" does not enter into the equation. The fact is that the bulls in this game are just as smart but not smarter than the bears and vice-versa, and this is why correct interpretations of charts [or close to it] become imperative.

    But these charts have become so sophisticated and complex that even experienced chart-watchers are having a tough time deciphering which way is up or down for the market. This is why keeping it "simple" and easy to visualize what is going on behind the indexes is so important for any successful market strategist.

    Here is where the Troika featured in these series of blogs comes in. This Troika-combo was leading the market down between October /07 to March /09 and hasn't stopped leading the market from one record high to the next ever since. The interaction between the bulls and bears as depicted by the Moving-Average trend lines, the MACD momentum and RSI strength indicators all combine to keep market strategists on the right track with the market.

    Check this blog's latest Troika which this time appears on weekly charts, and note that while the two bull-components [RSP] and [SPXL] remain well supported by their respective bullish Moving Average lines configuration [green line below the red line] these indexes have stretched too far too fast and are in need of some consolidation, including some kind of a pullback.

    The respective RSI strength indicators are hitting overbought ceilings, which is a sign that the bulls are close to the point of exhaustion and need to take a rest. The bear of this Troika [SPXS] remains in deep hibernation, which means that a decent pullback by the market will be a buying opportunity. Note that the bear's MA lines configuration remains exceedingly negative [green line above the red] and that will keep the bear subdued for some time to come.

    (click to enlarge)

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    Small-Caps [SML] suffered their third-straight down-week and are underperforming the large-caps. That is unusual and has market strategists wondering if that signals the end of the rally and causes the broader market to slide down from here.

    So far the SML remains well supported by its bullish MA lines configuration [green line below the red] but the gap is narrowing and that means creeping weakness among the small-caps. Its MACD momentum bars are hanging from their demarcation line into bearish territory as they have since the end of last year, hence the lousy performance of the small-caps. The RSI strength indicator keeps stuck on the neutral line, all of which is a caution signal for the broader market as well.

    (click to enlarge)

    This market forecasting junk-bond canary [JNK] is in a lousy mood lately. Although its MA lines configuration is still bullish [green line below the red] the gap is precariously narrowing. Should the red line slip below the green a sharp selloff has to be anticipated. Also note that the MACD momentum index and RSI strength indicator are still stuck in their respective bearish territories, which are further signs that this bull needs a rest.

    (click to enlarge)

    Everything about this weekly NASDAQ 100 index [NDX] is exceedingly bullish, in fact too much so. This index has shot up too far too fast and now finds itself in nosebleed territory. Even though well supported by its bullish MA lines configuration [green line below the red] its RSI strength indicator is hitting the overbought ceiling, which could give NASDAQ a headache and cause this index to pull back a bit. Meanwhile, the MACD momentum bars are well established in their bullish territories and that will give NASDAQ the fuel needed to move higher.

    (click to enlarge)

    The overall commodity market [DBC] appears to have hit bottom and is now consolidating. The RSI strength indicator appears to be doing the same and the MACD momentum bars are closing in on the neutral demarcation line. But with the MA lines configuration still bearish [green line above the red] commodities will have a tough time rallying anytime soon.

    (click to enlarge)

    It takes the consumer to give the market a push to higher highs. But even though the consumer discretionary index [XLY] remains well supported by its bullish MA lines configuration [green line below the red] this index appears to need still further consolidation. The RSI strength indicator sits on the neutral line and the MACD momentum bars are closing in to do the same, which means that consumer sentiment can go either way but appears to be leaning to the bullish side.

    (click to enlarge)

    The yellow metal [GOLD] appears to be in a consolidation phase. Its MA lines configuration is slowly turning bullish [green line below the red] and the MACD momentum index along with the RSI strength indicator are consolidating along their respective demarcation lines. All of this bodes well for gold in the weeks ahead.

    (click to enlarge)

    The weekly index of oil [WTIC] appears to be in zigzag fashion geared to the upside. Its MA lines configuration has turned bullish [green line below the red] and both the MACD momentum index and RSI strength indicator are hugging their respective demarcation lines. All of this bodes well for crude in the weeks ahead.

    (click to enlarge)

    Put it all together, and we're still in a market that guides to the sidelines. Trading ETFs in a situation like this it's just like going fishing. Let the small fry go and wait for the right-sized setups to come along as they always do, eventually.

    Here are some favored ETFs to keep on tap:

    Leveraged Bull ETFs:

    Gold-Explorers 3x (NYSEARCA:GLDX), Silver 2x (NYSEARCA:AGQ), Gold-Miners 2x (NYSEARCA:NUGT), Gold 3x (NASDAQ:UGLD), Silver 3x (NASDAQ:USLV), Jr. Gold Miners 3x (NYSEARCA:JNUG), Energy 3x (NYSEARCA:ERX), Oil & Gas 2x (NYSEARCA:DIG), S&P 500 3x (NYSEARCA:SPXL), DOW 30, 3x (NYSEARCA:UDOW), 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), Semis 3x (NYSEARCA:SOXL), Biotech 2x (NASDAQ:BIB), Health-Care 3x (NYSEARCA:CURE).

    None-Leveraged Long ETFs:

    Jr. Gold-Miners (NYSEARCA:GDXJ), Biotech (NYSEARCA:BBH), Discretionary (NYSEARCA:VCR), Technology (NYSEARCA:XLK), Semis (NASDAQ:SOXX), Financials (NYSEARCA:IYF), Russell 2000 (NYSEARCA:IWN), NASDAQ (NASDAQ:QQQ), Transports (NYSEARCA:XTN), S&P 500 (NYSEARCA:IVW), Gold-Miners (NYSEARCA:GDX), Russell 1000 (NYSEARCA:IWF).

    Leveraged Bear ETFs:

    Russell 2000, 3x (NYSEARCA:SKK), Mid-Caps 3x (NYSEARCA:MYY), Semis 3x (NYSEARCA:SOXS), Oil 2x (NYSEARCA:SCO), Technology 3x (NYSEARCA:TECS), Small-Caps 3x (NYSEARCA:TZA), Energy 2x (NYSEARCA:DUG), Financials 3x (NYSEARCA:FAZ), Materials 2x (NYSEARCA:SMN), NASDAQ 2x (NYSEARCA:QID), Gold-Miners 2x (NYSEARCA:DUST), Nat-Gas 2x (NYSEARCA:KOLD), Russell 2000, 3x (NYSEARCA:SRTY), S&P 500, 3x (NYSEARCA:SPXU), Biotech 2x (NASDAQ:BIS).

    Non-Leveraged Short ETFs:

    Mid-Caps (MYY), Materials (NYSEARCA:SBM), Financials (NYSEARCA:SEF), Russell 2000 (NYSEARCA:RWM), DOW 30 (NYSEARCA:DOG), Financials (SEF), Oil (SZOI), S&P 500 (NYSEARCA:SH), Small-Caps (NYSEARCA:SBB), Equity Bear (NYSEARCA:HDGE), EAFE (NYSEARCA:EFU).

    GOOD LUCK!

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