It's Still A Schizophrenic Market

by: George Simone

DOW up 150 points on Wednesday, down 185 on Friday, it hardly gets any more schizophrenic than that.

On the supposed "taper day" last Wednesday, the Fed came out and unexpectedly announced that it was not going to cut back its QE programs at all, because the U.S. economy is still too weak to cut it on its own, without the Fed's stimulus programs.

This is just what the market participants wanted to hear, so they celebrated by driving the DOW up triple digits. But by Friday reality set in and the same euphoria imbued crowd began to wonder when the Fed would begin its QE taper, if the U.S. government would shut down on October first and if consequently Washington would trigger a default on the U.S. debt.

The answer to each of these questions was too scary for investors to contemplate, so "puff" went the euphoria bubble and Friday's sell-off was on. As if it wasn't enough for the non-taper announcement by the Fed to flummox the market, Friday's "quadruple witching" date exacerbated the rush to the downside.

This could be a good development because the heightened volatility caused by the witching could help the market to break out of its zigzag pattern and find a definitive momentum, up or down.

But for now, this is still a market for professional day-traders as they keep their attention riveted on the screens. For the ordinary mortals in this game it is still best to continue staying in cash, and watch the market as it goes through its gyrations.

Check these charts and note that even though most indexes are reaching for the upside, for as long as their underlying Moving Average configurations remain bearish [green line above the red line] this market is coming down.

That at the same time some key market indicators show this to be still a bull market on its way to the upside, just shows that this market still suffers from a split personality.

Check the SPX and SPXL bull components of this Troika and note that even though these indexes were spiking higher, their underlying MA lines configurations remained stubbornly bearish [green line above the red] which is a sign that this rally has no legs and that the bears are gaining the upper hand.

But when you check the SPX bear component of this Troika you will note that while this index is trying to lift off the bottom, its MA lines configuration is about to turn negative and when the green line slips above the red, it will be a sign that the bulls are getting in position to rally again. Also note that the MACD momentum index and the RSI strength indicator remain deep in their respective negative territories and that any selloff from here has no legs either.

Go figure.

Here are two more charts, which show that despite all the headwinds facing the market, time is on the side of the bulls. The X vs. X index remains stuck to the bottom of a deep pit. At the same time its MA lines configuration continues to be sharply negative [green line above the red] and that will keep downside pressure on the bear.

Also note that the "short" NASDAQ index PSQ is way down at the bottom of its chart and also continues to be pressured down by its sharply bearish MA lines configuration.

This insiders' sentiment index NFO, shows a good reflection of the market's split personality. While this index has been spiking to the upside, its MA lines configuration remains bearish [green line above the red.] This is another indication to stay in cash, observe and wait.

This NASDAQ index COMPQ soared up too high too fast and needs to pull back and consolidate before advancing further. But with its MA lines configuration bullish, and with the MACD momentum index as well as the RSI strength indicator both in their respective bullish territories, NASDAQ is all set to lead the market higher in due time.

Although this CRB commodity supply index, COMPQ, appears to be in a bit of slump, it remains well supported by its bullish MA lines configuration, and that bodes well for the commodity market.

By contrast, the commodity demand index, BDI, doesn't seem to have a limit to the upside. Although this index remains well supported by its bullish MA lines configuration [green line below the red] it begs the question: Where is the soaring demand for commodities coming from? Sure, China's industrial production is revving up again, so we'll see.

Note that the MACD momentum index along with the RSI strength indicator are both way up in their respective bullish territories, all of which bodes well for the commodity market in the months ahead. Within the same context note that shipping, transports and China ETFs are doing well.

GOLD just does not seem to be able to get out of the slump it finds itself in. But with its MA lines configuration still strongly bullish [green line below the red] the yellow metal will soon find a reason to rally again. We'll see.

Usually the greenback USD moves inverse to gold, but not this time. So maybe this will be the catalyst to get gold to rally again. Note that the greenback's MACD momentum index and RSI strength indicator are both down in their respective bearish territories, which adds to the weakness of the U.S. dollar and possible recurring strength in gold.

Although with all that headwind out there buffeting the market and make it prudent to stay in cash a bit longer, here are some favorite ETFs in case the market comes your way.

Leveraged Bull ETFs:

Silver 2x (NYSEARCA:AGQ), Healthcare 3x (NYSEARCA:CURE), Financials 3x (NYSEARCA:FAS), Mid Caps 3x (NYSEARCA:UMDD),

Russell 2000 3x (NYSEARCA:URTY), Small Caps 3x (NYSEARCA:TNA), DOW 30, 3x (NYSEARCA:UDOW),

Health Care 2x (NYSEARCA:RXL), Biotech 2x (NASDAQ:BIB), S&P 500 3x (NYSEARCA:UPRO), Financials 2x (NYSEARCA:UYG),

S&P 500 3x (NYSEARCA:SPXL) Midcaps 2x (NYSEARCA:MVV), Energy 3x (NYSEARCA:ERX), Russell 2000, 3x (NYSEARCA:UKK),

Real Estate 3x (NYSEARCA:DRN), Nat Gas 3x (NYSEARCA:UGAZ), DOW 30, 2x (NYSEARCA:DDM), S&P 500 2x (NYSEARCA:SSO),

Semis 3x (NYSEARCA:SOXL), Oil & Gas 2x (NYSEARCA:DIG), NASDAQ 100, 3x (NYSEARCA:QLD), Materials 2x (NYSEARCA:UYM),

Technology 3x (NYSEARCA:TECL), Emerging Markets 3x (NYSEARCA:EDC), Mid Caps 3x (NYSEARCA:MIDU),


Non Leveraged Long ETFs:

Home Construction (BATS:ITB), Home Builders (NYSEARCA:XHB), Biotech (NYSEARCA:BBH), Energy (NASDAQ:PXI),

Biotech (NYSEARCA:FBT), Energy (NYSEARCA:PXE), Transports (BATS:IYT), Alerian (NYSEARCA:AMJ), Financials (NYSEARCA:FXO),


Mid Caps 400 (NYSEARCA:IJJ), Healthcare (NYSEARCA:IYH), Telecoms (BATS:IYZ), Banks (NYSEARCA:KBE), Semis (NYSEARCA:USD),

Real Estate (BATS:REM), Financials (NYSEARCA:VFH), Info Tech (NYSEARCA:VGT), Shipping (NYSEARCA:SEA),

Transports (NYSEARCA:XTN), China (NASDAQ:PGJ).

Leveraged Bear ETFs:

Gold Miners 2x (NYSEARCA:DUST), Silver 2x (NYSEARCA:ZSL), Inverse Gold 3x (NASDAQ:DGLD), Oil 2x (NYSEARCA:DTO),

Emerging Markets 2x (NYSEARCA:EEV), Emerging Markets 3x (NYSEARCA:EDZ), NASDAQ 100, 2x (NYSEARCA:QID),

Technology 3x (NYSEARCA:TECS), Materials 2x (NYSEARCA:SMN), NASDAQ 3x (NASDAQ:SQQQ), Real Estate 2x (NYSEARCA:SRS)

Oil & Gas 2x (NYSEARCA:DUG), S&P 500 2x (NYSEARCA:SDS), DOW 30, 2x (NYSEARCA:DXD), Nat Gas 3x (NYSEARCA:GASX),

Russell 2000, 2x (NYSEARCA:TWM), Financials 2x (NYSEARCA:SKF), S&P 500 3x (NYSEARCA:SPXU), Semis 3x (NYSEARCA:SOXS),

Energy 3x (NYSEARCA:ERY), Russell 2000 3x (NYSEARCA:SRTY), Small Caps 3x (NYSEARCA:TZA),

Financials 3x (NYSEARCA:FAZ), Nat Gas 3x (NYSEARCA:DGAZ).

None Leveraged Short ETFs:



High Yield (SBJ), 20 yr Treasury (TBE), 10 yr Treasury (NYSEARCA:TBX), Russell 2000 (TBM)

VIX Short Index (NASDAQ:XIV).


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.