Going into February and March, the small-cap sectors in the market [IWM] became overbought, top-heavy and susceptible to a selloff. So the market pulled the plug and sure enough, down they came. Meanwhile, the large-caps [SPX] kept hanging in there in a sideways consolidation.
This stark diversion between the SPX and IWM has the bears in this game convinced that the market and the "risk-off trade" is in place.
Not only that, companies' earnings-growth isn't much to grow about, stocks are mostly fully valued at current levels, the economic expansion is slower than anticipated and the Fed's tapering process signals that this goose doesn't intend to continue laying golden eggs for much longer and the geopolitical troubles between Russia and the Ukraine weighs on the market as well.
All of this shows that any expectations for the repeat of the "risk-on trade" from the 2013 and last February are nothing more but a bull's wishful thinking. Yet, chart-records show that for most of the time the market has resolved divergences between large and small caps to the upside.
So we'll see if the same will be the case this time around.
But for now, both bulls and bears can use this diversion to make a case for either side. The bears can say that the sharp selloff in the small-caps is a precursor for a sharp market correction in all caps. But the bulls can point to the resiliency of the large-caps as a precursor for the market to resume its romp to the upside, sometime soon.
But for as long as the MACD momentum bars for most of the charts featured in this series of blogs remain in dead neutral near their respective demarcation lines, the market will continue zigzagging sideways.
Small-caps and mid-caps are an integral part of the cyclical sectors [CYC] in the market. Check this chart and note that it continues to be well supported by its Moving-Average configuration [green line below the red.] Also note that the RSI strength indicator remains solid in its bullish territory. All of this implies that despite the sharp selloff, the small-caps remain very much in play and in due time will present excellent buying opportunities.
But for as long as the MACD momentum bars remain neutral to bearish close to the demarcation line, there simply is not enough upside momentum for a sustainable market advance.
Check these [SVXY] VIX-bull and the [JNK] junk-bond charts and note that both are well supported by their respective bullish MA lines configurations [green lines below the reds] and RSI strength indicators that are steady in their respective bullish territories. What is missing, are the MACD upside momentum bars which would signal the makings of a sustainable rally.
Both of these indicators act like the canary in a coalmine and have demonstrated an uncanny ability to forecast market directions. But without momentum to either side, they at present are neutral, which means more waiting time for the market to make up its mind.
When you check the Troika, you'll note that this chart combination is totally undecided and neutral. The MA lines configuration of the two bull components [RSP] and [SPXL] are hanging together without a sense of direction. The RSI strength indicator and MACD momentum bars are directionless as well, which means that this bull is not going anywhere, anytime soon.
Check the bear component [SPXS] and note that while this bear is being held down by its negative MA lines configuration [green line above the red] its MACD momentum bars have faded away and its RSI strength indicator is still in negative territory. What all of this means is that the bear is back in hibernation.
NASDAQ [COMPQ] is still struggling to find traction to the upside. But with its extremely bearish MA lines configuration [wide gap between the green lines above the red] it will take some time. Also, the RSI strength indicator is still in bearish territory, while its MACD momentum bars are flat on the demarcation line. All of this will continue to have a bearish impact on NASDAQ.
The commodity market [GTX] shows a surprisingly bullish MA lines configuration [green line below the red]. But for as long as its RSI strength indicator and MACD momentum bars remain in their respective bearish territories, this index remains strongly bearish.
Although this gold index [GOLD] continues its sideways consolidation, for as long as its RSI strength indicator and MACD momentum bars remain in their respective bearish territories, the bias of the yellow metal continues to be to the downside.
That its MA lines configuration [green line above the red] remains exceedingly bearish, only adds to the negative outlook for gold.
With its MA lines configuration fairly bullish [green line below the red] oil [WTIC] appears to have found a base of support around the $100.- level. But with its RSI strength indicator in bearish territory and ditto for its MACD momentum bars, the bias for the price of oil remains to the down side.
Market strategists are advising their clients to position themselves in the rotating leadership and safety of dividend-paying stocks, which could gain momentum in the months ahead. But for now it is still best to just keep cash on the sidelines and watch the market for the right signals to reenter the game.
Here are some favoured ETFs for the tracking list in case the market comes your way.
Leveraged Bull ETFs:
DOW 30, 2x (NYSEARCA:DDM), Biotech 2x (NASDAQ:BIB), Mid-Caps 3x (NYSEARCA:MIDU), Russell 2000, 2x (NYSEARCA:UWM), S&P 500 3x (NYSEARCA:UPRO), Small-Caps 3x (NYSEARCA:TNA), Russell 2000, 3x (NYSEARCA:URTY), NASDAQ 100, 2x (NYSEARCA:QLD), DOW 30, 3x (NYSEARCA:UDOW), Mid-Caps 2x (NYSEARCA:MVV), Financials 3x (NYSEARCA:FAS).
Non-Leveraged Long ETFs:
Leveraged Bear ETFs:
Financials 3x (NYSEARCA:FAZ), NASDAQ 100, 2x (NYSEARCA:QID), DOW 30, 3x (NYSEARCA:SDOW), S&P 500, 2x (NYSEARCA:SDS), Semis 3x (NYSEARCA:SOXS), NASDAQ 100, 3x (NASDAQ:SQQQ), Russell 2000, 3x (NYSEARCA:SRTY), S&P 500, 3x (NYSEARCA:SPXS), Technology 3x (NYSEARCA:TECS).
Non-Leveraged Short ETFs: