By passing more milestones, this record breaking rally appears to be set to keep on pushing higher. The DOW is hitting one all-time closing high after another, the S&P 500 soared past a record 1800 level and the tech heavy NASDAQ composite reached above 4000 for the first time in 13 years. It was back then that dot-com tech companies were sporting triple digit valuations, which most analysts thought absolutely justified even though most of these companies had little or no earnings potential.
When consequently this dot-com bubble burst, the NASDAQ took a 3900 point nosedive by October 2003, with plenty of investors wondering why they did not strap on a profit-taking parachute during these heady trading sessions of 2000.
Check this DOW chart [INDU] and note that this index has soared over1200 points since last October on nothing more but expectations that the Fed under the new chair-leader Janet Yellen will continue its easy-money QE programs into the foreseeable future. But if these QEs are all there is to justify this rally since last May, watch out down below.
Also note that during this October rally the DOW has been well supported by an extremely bullish MA lines configuration [green line below the red line] which also shows a bubble-blowing formation just as it did last August. On top of that, the RSI strength indicator is hitting the ceiling 70 overbought level, and that calls for a pullback.
But most importantly, while the DOW is engaged in an exceedingly strong rally, the MACD momentum bars are fading away. This indicates that the market is soaring to higher highs on nothing more but the fumes of an empty gas tank.
Just like Wall Street, even though the global market [ADR] is riding high on top of a bullish MA lines configuration [green line below the red] its MACD momentum bars are fading fast. This means that the global investor will be in need of a parachute as well.
Ever since last May, this broadly based rally was driven mainly by the Fed's easy money QE programs to get a slowly recovering economy up to speed. So, bad economic news is good news for the market because it implies ongoing monetary accommodation by the Fed. It keeps interest rates down and makes equities more attractive than bonds.
This also improves corporate profit margins which are growing not on improvements in corporate performance like growth in sales, but on share buy-backs and debt refinancing based on the Fed's cheap money policy of super-low interest rates.
It also allowed corporations to cut down their labor force and corporate infrastructures to the point that there is nothing left to cut. Add to this that the economy is slowly improving and that interest rates are rising again. Therefore, the need for the Fed's QE programs is fading, and so is the upside momentum in the stock market.
Check the Troika and note that the two bull components [SPX] and [SPXL] continue to be strongly positive on top of their respective MA lines configurations [green below the red.] But also note that the upside momentum bars of the MACD index have faded to the point where they are ready to collapse, along with the market.
Now check the bear component of this Troika [SPXS] which continues to make a bull-case for the bulls. The SPXS is still in a deep hole at the bottom of a deep pit [the bulls like that] while the bear's MA lines configuration [green line above the red] remains exceedingly bearish [the bulls like that too.]
But note the MACD momentum bars, which have faded to zero. This means that the bear has no more downside momentum left and therefore could rally anytime soon.
This [R:O] index shows that the small-cap sections are rallying strongly ahead of the large-caps and that is bullish for the market looking forward. But for as long as the MA lines configuration of this index remains bearish [green line above the red] this rally is suspect and this index could soon turn south again, and that would be bearish for the market.
This transportation index [TRAN] has had a pretty strong rally on top of a very bullish MA lines configuration [green line below the red] which means the economy is indeed strengthening. But with the RSI strength indicator hitting an overbought ceiling and the MACD momentum bars fading, this rally could screech to a halt pretty quick.
Now that could be bullish for the market, because it would cause the Fed to keep its easy-money spigot open for a while longer.
The emerging markets [EEM] are not much help for the bull either. Although this index is rallying, its MA lines configuration is again bearish [green line above the red] and the MACD momentum bars are fading as well.
The technology laden NASDAQ [NDX] looks pretty healthy. This index is rallying strongly with the support of a bullish MA lines configuration [green line below the red] and MACD momentum bars that are reaching into bullish territory again. Still, with its RSI strength indicator hitting the ceiling, NASDAQ is overbought and needs to pull back in order to find renewed traction to the upside.
Although its MACD momentum bars are back in bullish territory again, the commodity market [GTX] is still pretty weak. Although this index had a nice little rally lately, for as long as its MA lines continue such a bearish configuration [green line above the red] there is no chance for a sustainable rally.
With both [GOLD] and oil [WTIC] showing such exceedingly bearish MA lines configurations, neither has a chance to rally substantially any time soon.
Putting it all together, it becomes apparent that the gut of the market is fading away, but it still wants to go higher. The reason why is anybody's guess, so let the 'trend be your friend' by giving you a chance to take profits while the taking is still good.
Just keep the leveraged bear and non-leveraged short ETF parachutes handy, just in case.
Non-Leveraged Long ETFs:
Leveraged Bear ETFs:
Small Caps 2x (TWM).
Non-Leveraged Short ETFs:
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.