Last Thursday the DOW took the fifth nosedive in a row after initial claims for jobless benefits fell more than expected, which is bullish for the market but bearish for the Fed's easy money policies. At the same time, separate data showed that the U.S. economy expanded faster than anticipated in the third quarter, which only added to the up-is-down psyche of the market.
Sure enough, this bullish news spooked the market enough to take another hit on the prospect that the Fed could taper its easy money Q Es sometime soon.
But then comes Friday along with a jobs report that blew the lid off experts' estimates, and Wall Street kicked into a euphoric rally that had gained 200 points by the end of trade.
Only a month ago, such a super jobs report would have panicked the market into a major selloff. So could it be that at long last good economic news for Main-Street goes ditto for Wall Street? If that holds true, then be prepared for a steady market advance in the months ahead. But first, the market has some road blocks to overcome.
Check this benchmark index [OEX] and note that while this index is riding an exceedingly bullish Moving Average lines configuration [green line below the red line] to higher highs, its MACD momentum index has been fading away ever since the first part of November. So now the momentum bars are hanging below the base line into bearish territory, which means that the market has been rallying on nothing more but the fumes of an empty gas tank.
That makes this rally suspect and the market vulnerable to a deep nosedive. Although the RSI strength indicator is still in positive territory, it stands no comparison with the strength the OEX has been rallying with. So the empty gas tank comes to mind.
Also, market strategists are wondering what will happen when Washington's politicians have to re-hash last October's fiscal cliff fiasco by February. By the way, what aided this strong rally last Friday was the large short interest overhanging the market. When this rally caused these shorts to slip and lose money, the holders of these positions had to scramble and cover their assets, which gave the market an extra boost to the upside.
Check the Troika, and note that its two bull components [SPX] and [SPXL] are back in a rally mode on top of a very strong MA lines configuration [green lines below the reds] which of course is bullish for the market. But then note the MACD momentum bars which had been fading from their bullish positions since October, and have now slipped into bearish territories. This runs contrary to these two indexes' bullish MA lines configurations, and is bearish for the market.
Yep, there will be roller-coaster market action in the months ahead.
Now check the [SPXS] bear component of this Troika and note that the bear is still hibernating in a deep hole at the bottom of a deep pit. Also, its MA lines configuration is thoroughly bearish for the bear as the green line is trending down above the red. So far, that's bullish for the bulls.
But check the MACD momentum bars of the SPXS and note that after consolidating throughout November they are now on the up-swing, which means that the bear is getting ready to come out of hibernation.
While the commodity producers' index [CRB] has come off the bottom and is now in recovery mode, its MA lines configuration remains extremely bearish [green line above the red] and for as long as that is the case the commodity market as a whole has little chance to rally in a sustained fashion. But note the MACD momentum bars which are strong in bullish territory. This confirms that the commodity market has lifted off the bottom, and after some consolidation is getting ready to rally again.
The commodity demand index [BDI] is still in a state of "irrational exuberance" which is not supported by its MA lines configuration [green line is still above the red.] So is its RSI strength indicator which shows that the BDI is much overbought. But check the MACD momentum bars which for the first time since last September have solidly settled in bullish territory.
OK, so the strong rally in the BDI is a bit too much of a good thing, and therefore a pullback would be beneficial for the commodity market. But both the CRB and BDI do indicate that commodities generally will soon be on the upswing again.
The investors' fear index [VIX] is sending out a mixed caution signal. Its RSI strength indicator shows that there is only little strength behind the rallying attempt by the VIX. Also, the extremely bearish [for the VIX] MA lines configuration indicates that investors' fear in the market has little chance to flare up any time soon. But the MACD momentum bars show that the pressure of the VIX remains geared to the upside. So investors had better watch it.
The [SPXR] index shows that the participation rate of bullish stocks in the market has steadily come down since the beginning of November. The MACD momentum bars appear to be stuck in bearish territory, which could lead to a declining market in the weeks ahead.
Only if the MA lines configuration remains bullish [green line below the red] can a steady market decline be avoided.
Covering approximately 98 % of the global equity markets, this index [ACIM] reflects an encouraging scenario of the combined performance by the developed and emerging markets.
First, the MA lines configuration remains solidly bullish [green line below the red.] The MACD momentum bars are a bit on the weak side, but manage to remain in bullish territory.
Also, the RSI strength indicator appears to be strong in bullish territory, so that there is nothing fundamentally weak in the global equity markets. Although this won't prevent sharp swings in either direction, the trend remains your friend to the upside.
This [NDX] chart is as good as it gets, and the only thing wrong with NASDAQ is that its RSI strength indicator shows a bit of an overbought condition. That is keeping the MACD momentum bars from soaring up into bullish territory too fast too soon, and that is a good thing. The MA lines configuration remains steadily bullish to the upside [green line below the red] which implies that technology and manufacturing will be market leaders in the months ahead.
Although the steady and strongly bullish MA lines configuration of this next chart [KNOW] implies that the insiders in this game remain bullish, the "irrational exuberance" shown last month was a bit much, and so the MACD momentum bars did not let them get away with it by diving into bearish territory. Also, the RSI strength indicator went from overbought to neutral, which is all to the good because it keeps the market on an even keel to the upside.
Meanwhile, all is quiet on the gold front. The yellow metal [GOLD] became a basket case when its MA lines configuration turned bearish last September [green line above the red.] The RSI strength indicator shows that there is none, and the MACD momentum bars have faded away. All of which leaves the price of gold sagging into a void down below.
Now, oil [WTIC] is suddenly showing some "moxie" which has pushed this index up too fast too far and therefore has to pull back before finding upside traction again. Although the MACD momentum bars appear to be solid in bullish territory, for as long as the MA lines configuration remains bearish [green line above the red] crude oil won't have a chance to rally to any extend.
With crude coming back to life, this energy index [GJX] followed suit. With its MACD momentum bars solidly in bullish territory and ditto for the RSI strength indicator, energy appears to have found renewed traction to the upside. But unless its MA lines configuration turns bullish [green line below the red] energy has to pull back again.
So all in all with these conflicting indicators chances are that there will be roller-coaster market action in the weeks ahead. Now, ETF traders love volatility because it allows timely switching from bull to bear ETFs and back again.
But roller-coaster markets with their sharp peaks and troughs are difficult to trade and best left alone. So the best strategy for now is to stay with cash on the sidelines, and watch the market unfold. But for when the time is right and the market comes your way, here are some favoured ETFs to keep on tab.
Leveraged Bull ETFs:
NASDAQ 3x (NASDAQ:TQQQ),
Non-Leveraged Long ETFs:
Leveraged Bear ETFs:
Non-Leveraged Short ETFs:
Long Bond Treasury (NASDAQ:DLBS).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.