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A Bright And Dark Side To The Market?

First to the bright side as depicted by this weekly chart of the S&P 500 index. Ever since October 2011 the Moving Average lines of this index were in a bullish configuration [green line bellow the red line] driving this index to higher highs. So far this bullish configuration remains intact, and for as long as that is the case, so will this rally.

Note that the RSI strength indicator is sitting in the middle of its bullish territory, neither overbought nor oversold and that is positive for the market. The MACD momentum signal bars are back above the demarcation line and that is bullish. Put it all together and see why this market remains in a bullish gear to higher highs - in the long run.

But it is in the short-run as shown by this same chart's daily configurations where the market's dark side lies.

Sure, this S&P 500 daily index has been and maybe still will be soaring to higher highs but it would be on diminishing upside momentum. Note how the MACD momentum bars were bulking on top of the demarcation line late last October and early November, and now have faded to neutral. When these bars slip below this line, watch out down below.

The MA lines configuration has turned extremely bullish with a large gap between the green line below the red. This means that in the short run this market has reached a top that is unsustainable. Also note that the RSI strength indicator has been pushed past the border of bubble territory, and that is bearish for the market.

But it's still too early to tell if those spikes to higher highs are signs of strength or just bounce-back rallies from the steep selloff last October. In any case, investors are still eager to take advantage of any dips and thereby prevent the market from reaching down to where genuine traction lies. Even some fund managers keep on buying, chasing a train that has long left the station.

Still, something is going on out there that bodes well for the market in the years ahead. For the last couple of months this market kept looking for catalysts that would give it reasons to rally, but had a tough time finding any. Then last Friday out of the blue, Mario Draghi the head of the European Central bank announced that he would pull out all the stops and open wide the ECB's easy money spigot in order to rescue the euro-zone's economy. This just shows that this is still an environment where the activity of central banks dominates the globe's financial markets. Remembering what the Fed's easy money QE programs did to Wall Street, investors lost no time shifting this rally into high gear.

The second good financial news item was dropped by China when it announced last Friday that it would liberalize money transactions in and out of China. Most prominent market strategists see this as a huge opportunity for the international financial markets. As some central bank-heads put it, allowing money to flow freely in and out of China will have a major impact on the shape of the global financial system in the years ahead.

Of course, that is good news for the stock market. But first, Wall Street will have to correct the currently sharply overbought conditions before the market can find the track to its nirvana.

Meanwhile, asset managers are not wasting any time registering with U.S. authorities new ETFs that are designed to track China's domestic shares and debt instruments. These ETFs would allow any U.S. or Canadian brokerage account to gain exposure to Chinese securities that were previously off-limits for the retail investor. This is why U.S. ETF fund providers want to be there when China's financial scene opens up.

Check the Troika and note that the two bull components [RSP] and [SPXL] have shot up much too high too fast and have become top-heavy and ready to keel over. Their respective MA lines configurations [green lines below red] show overblown gaps, sure signs that the bull in this game is way overbought and in dire need for some major consolidation.

The respective RSI strength indicators are both in bubble territory, which is bearish for the market. Meanwhile, the respective MACD momentum signal bars are sitting at dead neutral close to the demarcation lines, which means that the bulls are not sure if to rally from here or go home.

The bear of this Troika [SPXS] continues to hide way down in a deep hole while its MA lines configuration [green line above red] continues to be extremely negative for the bears. The RSI strength indicator is flat at the bottom of its range, while the MACD momentum bars are flat as well, dead on the demarcation line.

What all of this means is that any selloff or correction has to come through a stumble by the bulls, not an awakening by the bears.

This market forecasting junk bond canary [JNK] continues to chirp a bearish tune for the market. Sure, it had itself a bit of a snapback bounce last Friday, but the overall forecast for the market appears to be to the downside.

While the MA lines configuration is still bullish [green line below the red] the RSI strength indicator is weak in bearish territory, and the MACD momentum bars are hanging from the demarcation line deep into bearish space as well. That is not the kind of JNK configuration that rallies are made of, and raises one more "watch it" signal.

The NASDAQ 100 index [NDX] has also rocketed too high too fast and is now getting dizzy spells from the lack of oxygen up there. The MA lines configuration is way out of whack being overly bullish with a wide space between the green line below the red. The RSI strength indicator is next to bubble territory and the MACD momentum signal bars are at dead neutral along the demarcation line, all of which does not for a bullish outlook make.

The small caps [SML] were partly leading the latest leg of this rally, when exhaustion set in and the small caps topped out. Just as with the other major indexes, the MA lines configuration remains extremely bullish with a wide gap between the green line below the red. Yet, the MACD momentum bars are fading below the demarcation line, which means that the upside momentum in this market keeps fading also.

While the RSI strength indicator is still in positive territory which is bullish, it is only a matter of time before the red MA line slips below the green line, and that would be a signal for a correction.

The commodity market is showing a sign of life as this [CRB] commodity index is trying to lift off the bottom while the MACD momentum bars are slowly climbing back above the demarcation line again. But for as long as the MA lines configuration remains bearish with the green line above the red, there isn't much hope for a commodity rally. That the RSI strength indicator is seemingly unable to make it back up above the neutral line, also weighs on this index.

The yellow metal [GOLD] is making a real effort to get out of the hole and back into the game again. While this index is in a bit of a rally mode, the MACD momentum bars are strong on top of the demarcation line and the RSI strength indicator is back in bullish territory once more.

But for as long as the MA lines configuration remains bearish [green line above the red] gold will have a hard time rallying in a meaningful way.

Oil [WTIC] is trying to lift off the bottom, but with the MA lines configuration bearish [green line above the red] the MACD momentum index deep in bearish territory and ditto for the RSI strength indicator, oil hasn't got a chance to rally.

According to these charts, the market is making all the right moves leading up to a correction. But this would only be temporary if for no other reason than that there is no global alternative to Wall Street. It's the only game left in town that really matters.

In case the market comes your way, here are some favored ETFs to consider.

ETF sectors:

Energy, Industrials, Materials, Biotech.

Leveraged Bull ETFs:

India 2x (NYSEARCA:INDL), Healthcare 3x (NYSEARCA:CURE), Semis 3x (NYSEARCA:SOXL), NASDAQ 3x (NASDAQ:TQQQ), Semis 2x (SOXL), Technology 3x (NYSEARCA:TECL), Real Estate 3x (NYSEARCA:DRN) Retail 2x (NYSEARCA:RETL), Financials 3x (NYSEARCA:FAS), DOW 30, 3x (NYSEARCA:UDOW), Alerian 2x (NYSEARCA:MLPL), Biotech 2x (NASDAQ:BIB), Health Care 2x (NYSEARCA:RXL), S&P 500, 3x (NYSEARCA:SPXL), S&P 500, 2x (NYSEARCA:UPRO), Mid-Caps 3x (NYSEARCA:MIDU), China 2x (NYSEARCA:XPP), Jr.Gold Miners 3x (NYSEARCA:JNUG), Materials 2x (NYSEARCA:UYM), China 3x (NYSEARCA:YINN).

Non Leveraged Long ETFs:

China (NYSEARCA:ASHR), Semis (NYSEARCA:SMH), Materials (NYSEARCA:XLB), China Financials (NYSEARCA:CHIX), Healthcare (NYSEARCA:IYH), China (NYSEARCA:GXC), Biotech (NYSEARCA:FBT), Healthcare (NYSE:RYH), Semis (SMY), Transports (BATS:IYT), Pharma (NYSEARCA:IHE). Technology (NASDAQ:QTEC), Medical (IHII), NASDAQ (NASDAQ:QQQ), Japan (NYSEARCA:HEWJ) Technology (NYSEARCA:XLK), S&P 500 (BATS:NOBL), Retail (NYSEARCA:RTH), Energy (NYSEARCA:XLE), China (NYSE:MCI), Jr. Gold Miners (GDWJ).

Leveraged Bear ETFs:

Oil 3x (DWTI), Gold Miners 2x (NYSEARCA:DUST), Oil&Gas 2x (NYSEARCA:DUG), Energy 3x (NYSEARCA:ERY), Emerging Markets 2x (NYSE:EEV), Russell 2000, 3x (NYSEARCA:SRTY), Small Caps 3x (NYSEARCA:TZA), Jr. Gold Miners (JDSP), DOW 30, 2x (NYSE:DXD), S&P 500, 2x (NYSEARCA:SDS), Financials 2x (NYSEARCA:SKF), NASDAQ 100, 2x (QIF), Financials 3x (NYSEARCA:FAZ), Biotech 2x (NASDAQ:BIS), Semis 3x (NYSEARCA:SOXS), S&P500, (SPXU).

Non Leveraged Short ETFs: