The benchmark charts of the past February blogs showed that the market had become overextended, top-heavy and prone for a pullback. Also, while the indexes kept surging and the RSI strength indicator remained bullish, the underlying MACD momentum bars had shrunk close to the demarcation line, signaling that there was no appreciable momentum to either the up or downside of the market.
Since that time, this blog suggested to stay out of the market and just watch and wait. This suggestion hasn't changed any, especially with the deteriorating geopolitical happenings out there.
Last week's triple-digit Dow selloffs were triggered mainly by the heightened hostilities in the Middle-East. Here, Saudi Arabia is leading a coalition of the Sunni ruled nations, while Iran is backing the opposing Shiite tribes, and that has the Saudis and Iran locked in a proxy war. That situation can easily spin out of control and drag other major players into this conflict.
As Wall Street knows well, that's the kind of stuff that major selloffs are made of, as it can get investors' nerves to twitch.
Add to this that the recently soaring greenback will crimp profit margins of major U.S. international corporations, and the stage is set for "little chickens" to cry out that the sky is falling.
But check this market's fear index [VIX] which remains remarkably calm in spite of all that turmoil out there. The Moving-Average configuration remains bearish for the VIX [green line above the red line] but bullish for the market. At the same time the RSI strength indicator and MACD momentum bars for the VIX remain neutral, which means that these weak internals of this "fear-index" will keep this market calm, even in choppy circumstances. Only if the VIX rises above the 20 level on its scale should investors anticipate a meaningful selloff.
The Contra-VIX bull index [XIV] did come down from its overbought and top-heavy peak, but not enough and so the market will have to pull back some more before finding suitable traction for a meaningful advance.
The extremely bullish MA lines configuration shows a gap much too wide with the green line below the red, which means that despite last week's selloff this market is still overbought, top-heavy and needs to pause and consolidate before it is able to rally in a sustained fashion.
The RSI strength indicator is still in its bullish territory and thereby lending support to the current rally. But the MACD momentum bars are out cold and empty along the demarcation line, which means that there are only fumes left in this rally's gas tank to keep this market moving sideways at best.
Check the Troika and note that its benchmark [RSP] index took a bit of a nosedive that wiped out the gains of the previous volatile sessions. As this RSP chart shows, these sharp zigzag market actions have kept the major indexes flat, without much gain for the bulls or the bears.
That begs the question, is this market consolidating to form a top or a bottom? The RSI strength indicator is mainly neutral and so are the MACD momentum bars which continue to be biased to the downside. But for as long as the MA lines configuration remains bullish [green line below the red] the main trend of this market remains poised to the upside.
Check the Troika's bull index [SPXL] which also shows the market to be in a consolidation mode. After a step by step advance this index took quite a nosedive last week and is now back to where it was last January and February.
This means that the market is still trying to find a sense of direction, but after some wild swings the best it can come up with is to flat-line sideways. But the RSI strength indicator and MACD momentum bars have broken south from their respective demarcation lines, and that doesn't bode well for the bulls in this game.
But for as long as the MA lines configuration remains bullish [green line below the red] the market's main trend remains poised to the upside.
The bear-leg [SPXS] of this Troika is finding it tough to completely climb out of the hole it still finds itself in. The negative MA lines configuration [green line above the red] is keeping a damper on the bear's attempt to rally. But with the RSI strength indicator and MACD momentum bars both in positive territories; the bear still could make it to the upside and play a little havoc with the market.
The semis market proxy [USD] had a little snap-back rally last Friday, but not enough to bring the market back to a bullish stance. The MA lines configuration has turned neutral with the green and red lines practically merged. Should the red line slip below the green, it would be a bearish signal for the market. Conversely, should the red line stay above the green, it would boost the bullish sentiment in this game.
Meanwhile, the RSI strength indicator remains neutral as it sits smack on its demarcation line, while the MACD momentum bars are totally bearish in negative territory, and that is another bearish signal for the market.
For the market as well as the economy to perform positively, they need the growth oriented cyclical industries [FCL] to lead the parade, but it seems to have a tough time getting on with it. After some sharp peaks and valleys, this index seems to be consolidating while its MA lines configuration is still in a bullish mode [green line below the red.]
But with the RSI strength indicator and the MACD momentum bars back in their respective bearish territories, the cyclical sector is struggling and that presents an iffy situation for the stock market.
The market forecasting junk-bond canary [JNK] is mostly neutral, and that is a good reflection of the market. The only indicator still somewhat bullish is the MA lines configuration [green line below the red] but even that is getting closer to neutral, meaning more caveats for the market.
Although this weekly NASDAQ chart [NDX] shows that this index is well entrenched in a bullish formation as it keeps moving from the lower left to the upper right, caution is called for.
Sure, the MA lines configuration is solidly bullish with its green line below the red, and so is the RSI strength indicator. But for as long as the MACD momentum bars remain bearish below the demarcation line, NASDAQ keeps skating on thin ice.
The commodity index [CRB] is trying to get out of the hole and start a rally going. Although if is receiving some help from the MACD momentum bars which are bullish on top of the demarcation line, for as long as the MA lines configuration remains bearish [green line above the red] the commodity market hasn't got a chance to rally.
That the RSI strength indicator is back in its bearish territory below the demarcation line, is also a "watch it" signal for the commodity sector.
That the geopolitical risk in the Middle East is heating up, appears to present [GOLD] with a catalyst to finally get a sustainable rally going. The MACD momentum bars are certainly bullish on top of the demarcation line, and so is the RSI strength indicator.
But the hugely bearish MA lines configuration bubble with the green line well above the red line indicates that gold's rally is done, and the price for gold will be on its way down again. Still, with Saudi Arabia and Iran facing each other in a proxy war, anything can happen.
So don't count gold out, just yet.
Oil [WTIC] managed to snap out of a hole but appears to lack a catalyst that could cause it to move higher. While the MACD momentum bars are bullish on the demarcation line, the RSI strength indicator remains neutral at best. Meanwhile, the MA lines configuration remains bearish for as long as the green line stays above the red line, and for how long that will last is anyone's guess.
Put is all together, and you'll find a market that is searching for direction. With major indexes showing extremely bullish Moving-Average configurations with a large gap between the green line below the red line, while the connected MACD momentum bars are bearish on or below their respective demarcation lines, too many cross-currents are whipping the market triple digits in opposite directions from one day to the next.
So it's still best to stand aside watching and waiting for the next leg of this bull-run to develop, as surely it will.
Meanwhile, here are some favored ETFs to keep on tap for when that situation occurs.
Russell 2000, Mid Caps, Small Caps, Discretionary, Financials, Health Care, Industrials, Materials, Technology.
Leveraged Bull ETFs:
China 3x (NYSEARCA:YINN), Oil & Gas 2x (NYSEARCA:DIG), Emerging Markets 3x (NYSEARCA:EDC), Energy 3x (NYSEARCA:ERX), Materials 3x (NYSEARCA:UYM), Mid Caps 2x (NYSEARCA:MVV), Mid Caps (NYSEARCA:MIDU), Mid Caps (NYSEARCA:UMDD), India 3x (NYSEARCA:INDL), Health Care 2x (NYSEARCA:RXL), DOW 3x (NYSEARCA:UDOW), Industrials 2x (NYSEARCA:UXI), S&P 500, 2x (NYSEARCA:SPUU), Retail 2x (NYSEARCA:RETL), S&P 500, 3x (NYSEARCA:SPXL), S&P 500, 3x (NYSEARCA:UPRO), Financials 3x (NYSEARCA:FAS), Biotech 2x (NASDAQ:BIB), NASDAQ 3x (NASDAQ:TQQQ), Real Estate 3x (NYSEARCA:DRN), NASDAQ 2x (NYSEARCA:QLD), Technology 3x (NYSEARCA:TECL), Small Caps 3x (NYSEARCA:TNA), Semis 3x (NYSEARCA:SOXL);
Non-Leveraged Long ETFs:
Biotech (NYSEARCA:XBI), India (NYSEARCA:INCO) Semis (NYSE:PSI), Biotech (NYSEARCA:FBT), Retail (NYSEARCA:RTH), Japan (NYSEARCA:HEWJ), Health Care (NYSEARCA:XHS), Germany (NASDAQ:DXGE), Semis (NYSEARCA:SMH), NASDAQ (NASDAQ:QQQ), Technology (NYSE:RYT), Russell (NYSEARCA:IWY), Discretionary (NYSEARCA:FXD), Home Construction (BATS:ITB), Materials (NYSE:RTM);
Leveraged Bear ETFS:
OIL 2x (NYSEARCA:DTO), Energy 3x(NYSEARCA:ERY), Financials 2x (NYSEARCA:SKF), S&P500, 2x (NYSEARCA:SDS), DOW 2x (NYSE:DXD), Russell 2000, 2x (NYSEARCA:TWM), NASDAQ 2x (QID), Small Caps 3x (NYSEARCA:TZA), Real Estate 2x (NYSEARCA:SRS) Biotech 2x (NASDAQ:BIS), Semis 3x (NYSEARCA:SOXS);
Non-Leveraged Short ETFs:
OIL (NYSEARCA:DNO), Emerging Markets (NYSEARCA:EUM), Active Bear (NYSEARCA:HDGE), Russell 2000 (NYSEARCA:RWM), Dow (NYSE:DOG), S&P 500 (NYSEARCA:SH), Financials (SEF), Mid Caps (NYSE:MYY), NASDAQ (NYSEARCA:PSQ);