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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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  • That Was Quick, But Will It Last? 0 comments
    Aug 11, 2014 6:36 PM

    That was quick, but will it last?

    On August first this blog suggested that a great buying opportunity was in sight and right on cue the DOW rallied 180 points last Friday. But now what?

    Last Thursday's close to the downside continued a recent string of weakness as the tit-for-tat game in the Ukraine as well as the Middle East is raising investors' concerns about global economic growth. So now they are selling first and ask questions later. This is why buying on dips as investors had become accustomed to has been put on the shelve for awhile.

    But enter last Friday and Wall Street rallies 180 points on the DOW. Why?

    Nobody knows, but as some market strategists have it, a spike in investors' bearish sentiment had reached the highest level so far this year, and that triggered this rebound rally. But if that is all there is to last Friday's rally, then the market really is in trouble.

    But then again, the market may have found some traction on the way down to this rally [?] and so it is more than just a bouncing ball occasion. We'll see.

    Checking with the market, note that this XLP: XLY index remains in an extremely bearish mode, and that is exceedingly bullish for the market. Keep in mind that this is a contrarian indicator, rising when investors' confidence is waning and falling when this confidence improves. Sticking with that rationale, the bulls are definitely in charge but lack the conviction to seize the opportunity and set the market on track to higher highs.

    But for as long as the Moving Average configuration of this index remains bearish [green line above the red line] the market remains in a strongly bullish mode. Still, the MACD momentum bars of this index will have to get off the neutral demarcation line in order to put some guts behind the rallies.

    (click to enlarge)

    As usual, the market forecasting junk-bond canary [JNK] is trying to project a rebound rally and thereby signaling that all is well with the market. But for as long as its MA lines configuration remains so exceedingly bearish [green line above the red] and its MACD momentum index and RSI strength indicator continue to be stuck deep in their respective bearish territories, the market remains vulnerable to the downside.

    (click to enlarge)

    That the long-term trend to the upside by this bull market remains intact is demonstrated by the weekly charts of this Troika. Note that the two bull-components [RSP] and [SPXL] keep sporting strongly positive MA lines configurations [green lines below the red] and for as long as that is the case, major markets remain geared to the upside.

    Meanwhile, the bear component of this Troika [SPXS] is trying to lift its head out of the hole it has been in for quite some time, but for as long as the bear's MA lines configuration remains negative with the green line above the red, the market remains geared to the upside.

    But again, the MACD momentum index remains mainly neutral for the bulls and the bears which means no conviction to the up or downside, and so any rally or selloff won't stick.

    (click to enlarge)

    (click to enlarge)

    (click to enlarge)

    Although the NASDAQ [NDX] had engaged in a bit of a nosedive, its MA lines configuration remains strongly bullish. That will drive this market higher, especially since now this index is out of nosebleed territory and therefore can resume its next leg up on solid traction.

    But with its MACD momentum bars deep in bearish territory and the RSI strength indicator in dead neutral, the NDX may have to do some consolidating before reaching for higher highs again.

    (click to enlarge)

    At first glance, the small-cap index [RUT] appears to have hit bottom, and is now in a rebound mode. But for as long as its MA lines configuration [green line below the red] remains so extremely bearish, small-caps remain too weak to lead the market to the upside. Yet, the small-caps leadership is required for the market to resume a sustainable advance.

    Also note that there is absolutely no MACD upside power behind this index nor strength in its RSI. So a genuine and sustainable rally may have to wait a bit longer before kicking into gear, as surely it will eventually.

    (click to enlarge)

    The commodity market [DBC] tried a bouncing-ball rally, but no luck. For as long as the MA lines configuration of this index remain so extremely bearish [green line above the red] commodities generally will be crawling sideways along the bottom at best. MACD momentum in this market is dead and the RSI strength indicator keeps sitting at the bottom of its bearish territory. The question here is how much longer can major markets rally without having the commodities being part of it?

    (click to enlarge)

    Although the [NFO] insiders in this game are attempting a bounce-back rally after heading for the hills last month, they are having a tough time convincing the market. The MA lines configuration of this index remains strongly bearish [green line above the red] and both the MACD momentum index and RSI strength indicator are weighed way down in their respective bearish territories. That implies increased volatility in either direction of the market.

    (click to enlarge)

    The yellow metal [GOLD] still appears to be in a consolidation mode and for as long as its MA lines configuration remains bullish [green line below the red] gold may get a chance to rally again. But for this to happen it needs the help of a bullish MACD momentum index and RSI strength indicator, both of which are now sitting at dead neutral. (click to enlarge)

    Oil [WTIC] remains a basket case. Its MA lines configuration continues to be extremely bearish [green line above the red] and both its MACD momentum index and RSI strength indicator appear to be stuck at the bottom of their respective bearish territories. So there is not much hope for a rally in the oil market.

    (click to enlarge)

    OK - so the bulls continue to be in charge of this market but unless they start to put some muscle behind these rallies, market participants had better remain cautious.

    For now, the potential return in trading ETFs is not worth the risk and so staying with cash on the sidelines is still the best strategy at this stage of the game.

    Favored ETF sectors:

    Consumer Discretionary, Energy, Healthcare, Industrials, Biotech, Nat-Gas.

    Leveraged Bull-ETFs:

    Semis 3x (NYSEARCA:SOXL), NASDAQ 3x (NASDAQ:TQQQ), Technology 3x (NYSEARCA:TECL), Healthcare 3x (NYSEARCA:CURE), Energy 3x (NYSEARCA:ERX), Biotech 2x (NASDAQ:BIB), Technology 2x (NYSEARCA:ROM), S&P 500 3x (UROW), Jr. Gold Miners 3x (NYSEARCA:JNUG), Mid-Caps 3x (NYSEARCA:UMDD), Small-Caps 3x (NYSEARCA:TNA), Russell 2000, 2x (NYSEARCA:UWM).

    Non-Leveraged Long ETFs:

    India (NYSEARCA:INXX), Biotech (NYSEARCA:PBE), China (NYSEARCA:FXI), Semis (NYSEARCA:SMH), Biotech (NASDAQ:IBB), Semis (NYSEARCA:XSD), Technology (NASDAQ:QTEC), NASDAQ (NASDAQ:QQQ), Transports (NYSEARCA:IYT), Russell 2000 (NYSEARCA:IWM), Home Construction (NYSEARCA:ITB), Health Care(NYSEARCA:IXJ) Small-Caps (NYSEARCA:EES), Mid-Caps (NYSEARCA:IVOO), Large Caps (NYSEARCA:FBGX), Discretionary (NYSEARCA:VCR), Technology (IY W), S&P 500 (NYSEARCA:SPYG), VIX Bull (NYSEARCA:SVXY),

    Leveraged Bear ETFs:

    DOW 30, 3x (NYSEARCA:SDOW), DOW 30, 2x (NYSEARCA:DXD), Materials 2x (NYSEARCA:SMN), S&P 500 2x (NYSEARCA:SDS), Small-Caps 3x (NYSEARCA:TZA), Russell 2000, (NYSEARCA:TWM), Biotech 2x (NASDAQ:BIS), Semis 3x (NYSEARCA:SOXS), Financials 2x (NYSEARCA:SKF), Energy 3x (ERX), NASDAQ 2x (NYSEARCA:QID), S&P 500 2x (SDS).

    Non-Leveraged Short ETFs:

    DOW 30, (NYSEARCA:DOG), OIL (NYSEARCA:DNO), EAFE (IFU), Equity-Bear (NYSEARCA:HDGE), S&P 500 (NYSEARCA:SH), Mid-Caps (NYSEARCA:MYY), Materials (NYSEARCA:SBM), NASDAQ (NYSEARCA:PSQ), Russell 2000 (NYSEARCA:RWM), Emerging Markets (NYSEARCA:EUM), Alerian (NYSEARCA:MLPS), Financials (NYSEARCA:SEF).

    GOOD LUCK!

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