Wall Street had itself some pretty good rallies last week, triggered mainly by a rebound in oil prices which boosted oil companies stock and hopes that a Greek debt deal with its creditors was in the works. Global investors seem to believe that the bottom for the commodity market is close, especially when it comes to crude oil.
But even though last week saw extraordinary strong rallies in the markets, trading was choppy during most of these sessions. The reason appeared to be that data showed lower than expected fourth-quarter economic growth in the U.S. as consumer spending wasn't' much to crow about and the manufacturing sector along with construction spending left things to be desired in January.
So how come Wall Street's bullish stance in the past weeks?
As some prominent economists have it, it's mostly because of the undiminished buy-back and buy-in craze practiced by the corporate sector. Here, cash is still flush but instead of spending it on improving industrial capacities, financial engineering improve the balance sheets faster and consequently have stock prices move to higher highs.
Buybacks have been and continue to be the primary reason that the S&P 500 index soared from one record level to the next. So it appears that a great deal of the U.S. industrial sector is being kept afloat on hot air supplied by the Fed's easy-money low interest rate posture and not by the real thing of industrial production. Maybe that's why the internals of the economy are no match to the internals of the stock market.
Check this weekly inverse VIX index [XIV] which reflects investors' sentiment in this game. If these market participants could feel some genuinely strong tailwinds coming from the economy, this index would be soaring, not nose-diving. Note that the XIV's Moving-Average lines configuration has turned bearish [green line above the red line] and ditto for the MACD momentum signal bars which are hanging from the demarcation line deep into bearish territory. The RSI strength indicator isn't of much help either, as it appears to be stuck in bearish territory also.
But look at this market-forecasting junk-bond canary [JNK] which is just shouting it out:
"Sell the farm and buy the market!"
Everything about this index is exceedingly bullish. While this little bird is finally back in a rally mode, its MA lines configuration [green line below the red] has turned bullish, the MACD momentum bars continue to be bullish on top of their demarcation line and the RSI strength indicator remains solid in its bullish territory.
So, with this push and pull in opposite directions, traders in this game can expect plenty of volatility during the sessions ahead.
Check this bull index [SPXL] and note that despite last week's strong rallies this market is struggling. This index keeps consolidating with volatile swings in between while its MA lines configuration has turned bearish [green line above the red.
Yet, with both its MACD momentum bars and RSI strength indicator in their respective bullish territories, something positive for the bulls may still emerge.
When you check this weekly chart of the same bull, you'll notice that the MA lines configuration remains bullish [green line below the red] which leaves no doubt that the long-term trend of this bull remains solidly entrenched to the upside. But the intermediate trend signals caution, as this bull appears to be hitting a ceiling and the MACD momentum bars are sinking into bearish territory south of the demarcation line. But with the RSI strength indicator going in the opposite direction into its bullish territory, the stage is set for more volatility ahead.
Although the bear [SPXS] is trying hard to get something in its favor going, he has a tough time of it. Even with sharp and volatile spikes to the upside, this bear is unable to break lose off the bottom. While the MA lines configuration remains somewhat bullish [green line below the red] it looks like this indicator will turn negative sometime soon. The RSI strength indicator and MACD momentum bars are already in their respective bearish territories, there isn't much danger looming from the bears' camp.
The cyclical sector of this market [FCL] needs to get back into a rally mode for a sustainable market advance to kick into gear. Right now this index is consolidating along with the MACD momentum and RSI strength indicators and that is a good thing. Although the MA lines configuration has turned bearish [green line above the red] it is not by much and so could turn bullish again before too long.
The small-caps [RUT] are an important part of the market's leadership, but the best this index could do since last November was to sit there and consolidate and that isn't good enough. It is always a warning signal and shows that something is lagging with the internals of this market.
In this case it is the MA lines configuration which is totally neutral and could cause the market to flip to the bullish or bearish side in a flash.
While the NASDAQ [NDX] continues its bullish trend from the lower left to the upper right on its weekly chart, it appears to be getting tired and topping out. Although the MA lines configuration remains bullish [green line below the red] the MACD momentum bars are staying south of the demarcation line, and that doesn't look good for the bulls in this game.
Although the RSI strength indicator is still in its bullish territory, it appears to be getting tired and that coming from the NASDAQ can adversely affect the market as a whole.
The commodity market [DBC] keeps working hard to get out of a bearish environment it has been engulfed in since last June. While the MACD momentum bars appear to be solid in bullish territory north of the demarcation line, the RSI strength indicator is also touching bullish territory.
While all of this is positive for the commodity market, for as long as the MA lines configuration remains so extremely bearish [large gap between the green line above the red] commodities generally won't have a chance to rally in a meaningful way.
It looks like crude-oil [WTIC] has finally hit bottom and is now in a rally mode. This index appears to be gaining upside momentum, a move that is strongly supported by the MACD momentum bars which are solid in bullish territory north of the demarcation line.
The RSI strength indicator also managed to get back into bullish territory, all of which, of course, is positive for oil. But there is still the problem of an exceedingly bearish MA lines configuration [large gap between the green line above the red] and for as long as that is the case, crude's rally cannot be maintained.
Gold has taken a few steep nosedives lately, and last Friday was no exception. The yellow metal [GOLD] declined lately on the strength of the U.S. dollar which in turn rallied sharply as rising concerns over the Europe and Ukraine situations prompted investors into an increased risk-off posture. This caused a safety-flight to the greenback and another nose-dive for gold.
So it appears that for the short-run any gains or losses for the Gold-ETF investor will be tied to the risk-off trades in the markets which are pro U.S. dollar and negative for the price of gold.
But this can reverse pretty quickly and gold's declines may prove to be attractive entry points for gold market's participants.
Check this yellow metal's index [GOLD] and note that it shot up way too fast and had to pull back to consolidate and try for some renewed traction. Also note that the MA lines configuration is still way too bullish with too large a gap between the green line below the red. This means that gold is still too top-heavy and ready to keel over some more.
This is all for the good, because it gives gold a chance to form a base from which it can rally in a sustainable fashion.
Although for now, this could be a good time to stand aside and just watch the market unfold, here are some favored ETFs in case it unfolds your way.
Consumer Discretionary, Energy, Technology, Financials and Materials.
Leveraged Bull ETFs:
Mid-Caps 3x (MWJ), India 2x (NYSEARCA:INDL), Healthcare 3x (NYSEARCA:CURE), Semis 3x (NYSEARCA:SOXL), NASDAQ 3x (NASDAQ:TQQQ), Technology 3x (NYSEARCA:TECL), Real Estate 3x (NYSEARCA:DRV), Retail 2x (NYSEARCA:RETL), Biotech 2x (NASDAQ:BIB), S&P 5003x (NYSEARCA:SPXL), Financials 3x (NYSEARCA:FAS), DOW 30, 3x (NYSEARCA:UDOW), Alerian 2x (NYSEARCA:MLPL);
Non-Leveraged Long ETFs:
China (NYSEARCA:ASHR), Semis (NYSEARCA:SMH), Materials (NYSEARCA:XLB), Healthcare (NYSEARCA:IYH), Biotech (NYSEARCA:FBT), Transports (BATS:IYT), Pharma (NYSEARCA:IHE), Technology (NASDAQ:QTEC), Medical (NYSEARCA:IHI), NASDAQ (NASDAQ:QQQ), S&P 500 (BATS:NOBL), Mid-Caps (NYSEARCA:MDY), Energy (NYSEARCA:XLE), Russell 2000 (NASDAQ:VTWO), Financials (NYSEARCA:IYF);
Leveraged Bear ETFs:
Mid-Caps 3x (NYSEARCA:MIDZ), Semis 3x (NYSEARCA:SOXS), Oil 2x (NYSEARCA:SCO), Technology 3x (NYSEARCA:TECS), Small-Caps 3x (NYSEARCA:TZA), Energy 2x (NYSEARCA:DUG), Industrials 2x (NYSEARCA:SIJ), Financials 3x (NYSEARCA:FAZ), Materials 2x (SMN), Industrials 2x (SIJ), S&P 500 3x (NYSEARCA:SPXS);
Non-Lev Short ETFs:
Oil (NYSEARCA:DNO), Emerging Markets (NYSEARCA:EUM), Russell 200 (NYSEARCA:RWM), Financials(SEF), Equity Bear (NYSEARCA:HDGE), S&P 500 (NYSEARCA:SH), Small-Caps (NYSEARCA:SBB), DOW 30, (NYSE:DOG), Oil & Gas (NYSEARCA:DDG);