Wall Street's latest rallies have come on extremely low trading volume, but that hasn't hurt investors' bullish sentiment any. The major indexes have been grinding higher in August in spite of all the global turmoil and the geopolitical minefield out there.
This market's low volume melt-up rallies has some market strategists advising their clients to stay at the sidelines for awhile to see if this melt-up will finally develop into a genuine rally, or have the market just keep on grinding higher.
Check this XLP: XLY inverse ratio chart and note that for as long as this index keeps heading South with a bearish Moving Average lines configuration [green line above the red line] the market will head in the opposite direction up North. Also note that for as long as the MACD momentum bars are mainly flat-lined along the demarcation line, the market's bias is to the upside.
The DOW chart [INDU] shows how a low-volume momentum surge can whipsaw the market from one extreme to the next. Although the DOW is bullish with its MACD momentum bars and the RSI strength indicator in their respective bullish territories, for as long as the MA lines configuration remains bearish, [green line above the red] the market has no upside support and just float higher.
Check the Troika and note that the two bull components [RSP] and [SPXL] are sporting MA lines configurations that are still bearish but are about to turn bullish when the green MA lines slip below the corresponding red lines again.
Add to this the very bullish MACD momentum indexes and RSI strength indicators and see why the market could be setting up to finally kick into a genuine and sustainable advance.
Corroborating this bullish outlook is the bear-component of this Troika [SPXS] which after trying hard to claw the market down in early August, is now back digging a deep hole at the bottom of a deep pit. But because of the extreme low volume and participation levels any rally continues to be suspect and can turn on a dime.
NASDAQ [COMPAQ] continues its steady march to the upside. Although its bullish MA lines configuration [green line below the red] is precariously narrowing the gap, the MACD momentum bars and RSI strength indicator remain deep in their respective bullish territories.
Still, with this index way up in nosebleed territory, smart-money market participants are not participating and remain mostly on the sidelines.
Although this CRB commodity index appears to be lifting off the bottom, for as long as its MA lines configuration [green line above the red] remains so exceedingly bearish, commodities generally will have a tough time getting a sustainable rally going. Yet, with its MACD momentum bars finally reaching above the demarcation line and its RSI strength indicator close to reaching bullish territory also, there is something positive happening inside the commodity market.
The small-cap sectors of the market [SML] had themselves an impressive rally coming off the bottom in August, but now are still struggling. Although the MACD momentum bars and RSI strength indicator remain both in their respective bullish territories, for as long as the SML's Moving Average configuration remains bearish [green line above the red] the small-caps can't get their act together and thereby render the whole market vulnerable to the downside.
As it has done since last July, [GOLD] appears to still be in the process of consolidating along the bottom. But for as long as its MA lines configuration remains bearish [green line above the red] and the MACD momentum and RSI strength indicators both in their respective bearish territories, the yellow metal hasn't got a chance to rally.
Although oil [WTIC] had itself a pretty good rally lifting off the bottom, for as long as its MA lines configuration [green line above the red] remains so extremely bearish, oil remains a basket case.
The good news is that the U.S. economy turned in a better than expected performance in the second quarter. The bad news is that this could prompt the Fed to raise interest rates sooner than expected. Maybe that's why market participants aren't participating in this melt-up rally the way they could. We'll see.
Favored ETF sectors:
Energy, Financials, Health-Care, Technology, Small-Caps, Biotech, Semis.
Leveraged Bull ETFs:
Alerian 2x (NYSEARCA:MLPL), NASDAQ 3x (NASDAQ:TQQQ), Technology 2x (NYSEARCA:ROM), Nat-Gas 3x (NYSEARCA:GASL), S&P 500,3x (NYSEARCA:UPRO), Oil 2x (NYSEARCA:UCO), Technology 3x (NYSEARCA:TECL), Russell 2000, 2x (NYSEARCA:UKK), Jr. Gold Miners 3x (NYSEARCA:JNUG) Mid-Caps 3x (NYSEARCA:MIDU), DOW 30, 2x (NYSEARCA:DDM), Health-Care 3x (NYSEARCA:CURE), Russell 2000, 3x (NYSEARCA:URTY), Financials 3x (NYSEARCA:FAS), Semis 3x (NYSEARCA:SOXL).
Non-Leveraged Long ETFs:
Jr. Gold Miners (NYSEARCA:GDXJ), Biotech (NYSEARCA:XBI), Health-Care (NYSEARCA:XLV), Biotech (NYSEARCA:FBT), NASDAQ (NASDAQ:QQQ), Russell 3000 (NYSEARCA:IWM), Internet (NYSEARCA:FDN), Energy (NYSEARCA:FXN), Oil Services (NYSEARCA:OIH), Biotech Genome (NYSEARCA:PBE), Technology (NYSEARCA:XLK), Semis (NYSEARCA:SMH), DIRECTV (DTV).
Leveraged Bear ETFs:
Technology 2x (NYSEARCA:REW), Emerging Markets 3x (NYSEARCA:EDZ), Semis 3x (NYSEARCA:SOXS), Materials 2x (NYSEARCA:SMN), Emerging Markets 2x (NYSEARCA:EEV), Semis 2x (NYSEARCA:SSG), Financials 3x (NYSEARCA:FAZ), Financials 2x (NYSE:SLF), Russell 2000, 2x (NYSEARCA:TWM), Mid-Caps 3x (NYSEARCA:MIDZ), Russell 2000, 3x (NYSEARCA:TZA), Biotech 2x (NASDAQ:BIS), Russell 2000, 3x (NYSEARCA:SRTY), Gold Miners 3x (NYSEARCA:DUST), Mid-Caps 3x (NYSEARCA:SMDD), DOW 30, 2x (NYSEARCA:DXD), Oil&Gas 2x (NYSEARCA:DUG), Energy 3x (NYSEARCA:ERY), S&P 500, 2x (NYSEARCA:SDS), Small-Caps 2x (NYSEARCA:SDD), S&P500, 3x (NYSEARCA:TECS).
Non-Leveraged Short ETFs:
Emerging Markets (NYSEARCA:EUM), Financials (NYSEARCA:SEF), Russell 2000 (NYSEARCA:RWM) Equity Bear (NYSEARCA:HDGE), Mid-Caps (NYSEARCA:MYY), NASDAQ (NYSEARCA:PSQ), DOW 30 (NYSEARCA:DOG), EAFE (NYSEARCA:EFZ), S&P 500 (NYSEARCA:SH), Small Caps (NYSEARCA:SBB).