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Stuck Between Two Hard Places?

At the first trading session after the Memorial Day long weekend the DOW suffered its worst decline in three weeks, rattling complacent market participants who wonder what's next. The market dropped on better than expected forecast data, and bullish comments by Fed officials suggesting that the Fed could hike its fund's rate sooner rather than later, and the market would not like that.

But only a day after this selling squall the DOW rallied triple digits, recovering most of the previous day's selloff with the technology sector leading the market higher. Heavy duty stock buy-backs and M&A activity did the trick, and the rally was back on.

But by last Friday, reports of stalled earnings growth, pricey stock valuations, weakening economic performance and shrinking industrial production put a kibosh on this rally and the DOW ended down triple digits again.

So Wall Street finds itself stuck between good news that is bad for the market on one side, and bad news that is also bad for the market on the other side.

As some market strategists have it, Wall Street's recovery that began in March of 2009 has two or three more years to run. Fat cash levels, healthy corporate earnings and historically low interest rates along with the Fed's ongoing easy money policies will continue to fuel stock buybacks and M&A activities where the bigger fish keep swallowing the smaller fry, and thereby keep stock prices reaching for higher highs.

But the market is beginning to realize that this type of financial engineering was [and up to a point still is] the primary reason that kept this rally going for the past six years. While that is good for Wall Street, it is coming at the cost of less business investments, new plants and equipment, new hiring's research and development and that worries experts who follow that kind of stuff.

As they see it, investors have about a couple of years left riding this gravy train, before it derails. Still, there is this nagging doubt in Wall Street that not all is going to be well with this market in the weeks and months ahead.

Check this bullish percent index chart [BPS] which makes it appear as if most of the bulls have gone into hiding. While this index seems to have hit bottom and is now consolidating, its Moving Average lines configuration remains extremely bearish with a large gap between the green line above the red line.

The RSI strength indicator is out cold at the bottom of its trading channel while the MACD momentum bars remain at dead neutral along the demarcation line. While this is an improvement from the bearish positions between last April and the middle of May, it is not a positive development for an ongoing rally.

The index of stocks above their 50 day Moving Averages [SPXA] isn't much to crow about either. While this index keeps zigzagging its way sideways, its MA lines configuration remains bearish [green line above the red] the RSI strength indicator has slipped into bearish territory and so have the MACD momentum bars. These are signs of weak market internals.

Although the DOW did a triple digit nosedive last Friday, this index [INDU] remains well supported by a strongly bullish MA lines configuration. But with the RSI strength indicator slipping into bearish territory and ditto for the MACD momentum bars, the DOW is vulnerable to the downside.

Check the Troika and note that its main component [RSP] keeps consolidating sideways, and that is bullish for this index. While this move remains will supported by a positive MA lines configuration [green line below the red] the RSI strength indicator as well as the MACD momentum bars are touching their respective bearish territories. More mixed-up signals, that doesn't bode well for the market.

Note that the bull component [SPXL] shows similar configurations, which is a caution signal for market participants.

Even though the bear component of this Troika [SPXS] appears to have hit bottom and has snapped back up a little, it still is in no condition to rally and afflict real damage to the market. Its MA lines configuration remains strongly negative [green line above the red] while the RSI strength indicator and MACD momentum bars are dead-neutral at their respective demarcation lines.

NASDAQ maintains a bullish mode, mainly because of the strong performances of the semiconductors and technology sectors. This index [NDX] is well supported by a bullish MA lines configuration [green line below the red] and a RSI strength indicator which seems to be in its bullish territory most of the time.

But the MACD momentum bars remain mainly neutral on top of the demarcation line, and that is a caution signal for NASDAQ traders.

Last month it appeared that the commodity market [DBC] was coming out of its doldrums and back to life again, but that is still a bit iffy. Although this index had itself a little snap-back rally last week and remains well supported by a bullish MA lines configuration [green line below the red] the RSI strength indicator continues to be stuck in its bearish territory and so are the MACD momentum bars. Maybe they will turn bullish next week as well, but until that happens, the bear keeps lurking somewhere among the commodities.

This market-forecasting junk-bond canary [JNK] remains neutral but with a bullish bias as it has been since the middle of April. While this index continues in its consolidation mode, it remains well supported by a strongly bullish MA lines configuration [green line below the red] and the market likes that. The RSI strength indicator appears to be solid in its positive territory, and that is also a bullish omen for the market.

But that the MACD momentum bars remain in dead neutral along the demarcation line means that there is no momentum for the up or downside in this game. For as long as that is the case, expect the market to keep on zigzagging its way sideways to nowhere.

This transportation index [IYT] is projecting a bleak scenario for the economy and consequently the market. While this index continues its freefall, it remains under pressure from an exceedingly bearish MA lines configuration [green line on top of the red line.] At the same time the RSI strength indicator and MACD momentum bars continue to be stuck in their respective territories, all of which has the bears in this game inching their way out of hibernation.

The small-caps [RUT] have to be part of this market's leadership for any rally to develop staying power. Now, this index sure projects a mixed picture in that regard. While the RUT index keeps consolidating on its way out of the hole it had been in since early May, its MA lines configuration remains extremely bearish with the green line forming a large gap above the red line.

The RSI strength indicator is at dead neutral on its border line, so the bull does not get much help from that corner either. But check the MACD momentum bars which are solid in bullish territory above the demarcation line, which leaves no doubt that bullish momentum is building for the small-caps and thereby for the market.

Just give it enough time for the Moving Average to turn bullish as well with the green line below the red, and you'll be faced with a heck of a surge to the upside by the market.

The yellow metal [GOLD] appears to be losing its luster again. This index has a tough time picking itself off the bottom. The MA lines configuration is about to turn bearish whit the green line poised to rise above the red line, the RSI strength indicator has lost its moxie and is back in bearish territory and so are the MACD momentum bars.

So all in all, there is no bullish glitter in the gold sector.

Oil [WTIC] is in a consolidation mode and projects a blurred picture. The MA lines configuration remains extremely bullish, and that's the problem. The large gap between the green line below the red line suggests that crude is overbought, top-heavy and ready to keel over.

Although the RSI strength indicator is in its bullish territory, the MACD momentum bars are hanging from the demarcation line and that's bearish for oil. So if you're in this market, flip a coin.

The market insiders [NFO] who supposedly know all about this game seem to be confused like the rest of the market participants. There are so many cross-currents where one set of indexes is bullish, another one is bearish but most are neutral.

Note that while this insiders' index shows a strong MA lines configuration [green line below the red] the RSE strength indicator sits at dead neutral and the all-important MACD momentum bars are slipping back into bearish territory again.

No wonder most of the market's participants remain at the sidelines - waiting!

But should the market snap into a sustainable trend, one way or the other, here are some favored ETFs to keep on tap, just in case.

ETF sectors:

Semis, Utilities, NASDAQ, Health Care, Consumer Staples, Energy;

Leveraged Bull ETFs:

China 3x (NYSEARCA:YINN), Biotech 2x (NASDAQ:BIB), Health Care 3x (NYSEARCA:CURE), Semis 3x (NYSEARCA:SOXL), NASDAQ 2x (NYSEARCA:QLD), Mid Caps 3x (NYSEARCA:MIDU), Financials 3x (NYSEARCA:FAS), Russell 2000 3x (NYSEARCA:URTY), S&P 500, 3x (NYSEARCA:UPRO), DOW 30, 3x (NYSEARCA:UDOW);

Non-Leveraged Long ETFs:

China (NYSEARCA:ASHS), Biotech (NYSEARCA:XBI), Financials (NYSEARCA:CHIX), Health Care (NYSEARCA:IHF), Pharma (NYSEARCA:IHE), Technology (NYSE:CQQQ), Semis (NYSEARCA:XSD), Real Estate (NYSE:TAO), Small Caps (NYSE:RZG), Russell 2000 (NYSEARCA:IWO), NASDAQ (NASDAQ:QQQ), Large Caps (NYSEARCA:SPYV);

Leveraged Bear ETFs:

Energy 3x (NYSEARCA:ERY), Oil&Gas 2x (NYSEARCA:DUG), Emerging Markets 3x (NYSEARCA:EDZ), Gold 2x (NYSEARCA:GLL), DOW 30, 2x (NYSE:DXD), S&P 500 3x (SPXU), NASDAQ 2x (QID), Financials 3x (NYSEARCA:FAZ), Russell 2000, 2x (NYSEARCA:TWM), Small Caps 3x (NYSEARCA:TZA), China 2x (NYSEARCA:FXP), Biotech 2x (NASDAQ:BIS), Semis 3x (NYSEARCA:SOXS);

Non-Leveraged Short ETFs:

Gold (NYSEARCA:DGZ), Emerging Markets (NYSEARCA:EUM), DOW 30 (NYSE:DOG), S&P 500 (NYSEARCA:SH), Russell 2000 (NYSEARCA:RWM), NASDAQ (NYSEARCA:PSQ), Mid Caps (NYSE:MYY), Equity Bear (NYSEARCA:HDGE), Total Markets (NYSEARCA:TOTS), Commodity (NYSEARCA:DDP), Oil (NYSEARCA:SZO), Materials (SDM), China (NYSEARCA:YXI);

GOOD LUCK!