After nose-diving to a four-month low by the end of June, the benchmark S&P 500 index is up sharply for its strongest six-day rally since December. Last Friday when most of the market traded in the red, the S&P tech sector was the only one to rally, but it was enough to get this index along with other major market indices to soar.
This appears to have some prominent market strategists convinced that there is nothing right now that could prevent this market from pushing higher or trigger a sharp selloff. Well, records show that when ever expert market seers make statements like that, it's a warning signal for the market.
Check the [SPX] chart and note that even though this index surged during the past week of trade with both the RSI strength indicator and MACD momentum bars deep in their respective bullish territories, the Moving-Average lines configuration remained sharply bearish with the green line staying above the red line.
For as long as that is the case, no rally can be sustained.
But last week's star performer by far has been the NASDAQ index [COMP] which after a steep nosedive in late June and early July soared right out of its three-month trading range. While most of this index's components went south during last Friday's trade, a few heavyweight large-cap technology stocks were caught in the public's euphoria, and that did the trick.
Google, Amazon, Netflix, Facebook and Apple on the way, all showed stellar results in expansion and earnings so that the sheer size of these behemoths pushed NASDAQ right through the roof.
So it is to no surprise that the RSI strength indicator and the MACD momentum bars of the NASDAQ index rallied strongly into their respective bullish territories.
But something strange is happening with NASDAQ's Moving-Average lines configuration which is getting precariously close to turning bearish with the red line poised to slip below the green line. Note that this configuration remained steadily bullish for the whole market with the green line below the red line from last February to early July, which gave all indexes a chance to rally.
This appears to be changing, and not just for NASDAQ. So should the red line slip below the green line, expect one heck of a splash down below.
Check the Troika and note that its main component [RSP] does not look all that hot. Sure, this index soared along with the major markets during the past few trading sessions, but now appears to have hit a ceiling. The reason for this is that while this index was rallying, the MA lines configuration [large gap between the green line above the red] remained sharply bearish.
Sure, the MACD momentum bars rose strongly above the demarcation line which is certainly bullish, but the best the RSI strength indicator could do was to rise up to the neutral line where it got stuck, and that isn't much to grow about.
The bull-component of this Troika [SPXL] also shows a sharply bearish MA lines configuration [green line above the red.] But with the RSI strength indicator and the MACD momentum bars in bullish territories, the SPXL can go either way.
Last week's strong rallies got the bear of this Troika [SPXS] back into a deep hole at the bottom of a deep pit. With the RSI strength indicator and MACD momentum bars deep into their respective negative territories, the only thing bullish for the bear is the MA lines configuration [green line below the red.]
This implies that the only way a selloff can occur is if the bulls stumble. The bear isn't even in the game. This also means that should a selling squall get triggered it will be a buying opportunity and not a damaging correction.
Yup, it looks like there will be some interesting times ahead for the market.
The confidence index [XIV] leaves no doubt those investors' sentiment remains bullish. While this index has snapped back from its steep nosedive a couple of weeks ago, the MACD momentum bars rose sharply above the demarcation line, and that's bullish. The RSI strength indicator is back above the neutral line, and that's bullish too.
But the all-important MA lines configuration has turned bearish with the red line sliding below the green line, which implies that investors' sentiment is about to turn bearish too. But for what reason is anyone's guess. So keep the buying opportunity in mind.
It appears that the market forecasting junk-bond canary [JNK] has given up warbling a bullish tune for the market. Sure, the MACD momentum bars managed to rise above the demarcation line and that's bullish. But notice the extremely bearish MA lines configuration [large gap between the green line above the red] and that the RSI strength indicator is back in its bearish territory again. All in all, this is not a favorable forecast for the bulls in this market.
For the market to shift into a sustained advance it needs the support of the cyclical industrial sectors [FCL] of the economy, and is just not getting it. After a four-week consolidation period followed by a sharp selling squall this index did rally, but not enough to get a decent advance started. While the MACD momentum bars have turned bullish above the demarcation line, the best the RSI strength indicator could do was to stick to the neutral line, and so can slip to either side.
The commodity index [CRB] reflects the weakness in the cyclical industrial sectors. Every segment of this CRB index is bearish and that does not bode well for the economy nor the market.
The yellow metal [GOLD] has turned into a basket case some time ago. It still is a basket case and by the looks of its chart will remain a basket case for some time to come.
This index keeps digging itself deeper into a deep hole, the MA lines configuration remains exceedingly bearish with the green line solid above the red line, and the MACD momentum bars comatose along the demarcation line.
Oil [WTIC] just hasn't got a chance to get out of the slump it finds itself in. After a consolidation period from early May to the end of June oil decided that the easiest way out of this was to the downside, without an end in sight.
The MA lines configuration is bearish [green line above the red] the RSI strength indicator appears to be stuck at the bottom of its bearish trend channel, and the MACD momentum bars are solidly bearish below the demarcation line.
So all in all, it appears that the market will continue on its sideways track to nowhere with some wild zigs and zags in between. So, in case the market comes zigzagging your way, here are some favored ETFs to keep on tap.
Technology, Consumer Discretionary, Biotech, Health-Care.
Leveraged Bull ETFs:
Technology 2x (NYSEARCA:ROM), NASDAQ 2x (NYSEARCA:QLD) and 3x (NASDAQ:TQQQ), Biotech 2x (NASDAQ:BIB), Technology 3x (NYSEARCA:TECL), S&P 500, 3x (NYSEARCA:SPXL), India 3x (NYSEARCA:INDL), 20 year Treasury 3x (NYSEARCA:TMF), China 3x (NYSEARCA:YINN), Healthcare 3x (NYSEARCA:CURE), Financials 3x (NYSEARCA:FAS), Small-Caps 3x (NYSEARCA:TNA), Financials 2x (NYSEARCA:UYG), DOW 2x (NYSEARCA:DDM), Europe 3x (NYSEARCA:EURL);
Non-Leveraged Long ETFs:
Mid-Caps (NASDAQ:QQQ), Biotech (NYSEARCA:XBI), Info-Tech (NYSEARCA:VGT), S&P 500 (NASDAQ:XBIT), Technology (NYSEARCA:XLK), Internet (NYSEARCA:FDN), Japan (NYSEARCA:DXJ), China (NYSEARCA:PEK), Biotech Products (NASDAQ:BBP), Health-Care (NASDAQ:PSCH), Regional Banking (NYSEARCA:KRE), Retail (NYSEARCA:RTH), Software (BATS:IGV), Consumer Discretionary (NYSEARCA:XLY), Consumer Cyclical (NASDAQ:PEZ);
Leveraged Bear ETFs:
Brazil 2x (BZO), Mid-Caps 2x (NYSEARCA:MZZ), Gold 2x (NYSEARCA:GLL), Gold Miners 3x (NYSEARCA:JDST), Semis 2x (NYSE:SSG), Energy 3x (NYSEARCA:ERY), Oil&Gas 2x(NYSEARCA:DUG), Basic Materials 2x (SMN), Oil 2x (NYSEARCA:DTO), Russell 2000, 2x (NYSEARCA:TWM), DOW 2x (NYSE:DXD), S&P 500, 2x (NYSEARCA:SDS);
Non-Leveraged Short ETFs:
Gold (NYSEARCA:DGZ), DOW (NYSE:DOG), Euro (NYSEARCA:EUFX), China (NYSEARCA:YXI), Mid-Caps (NYSE:MYY), EAFE (NYSEARCA:EFZ), Emerging Markets (NYSEARCA:EUM) Oil&Gas (NYSEARCA:DDG), Financials (NYSEARCA:FINZ), NASDAQ (NASDAQ:SQQQ), Russell 2000 (NYSEARCA:RWM), Equity Bear (NYSEARCA:HDGE);