With triple digit rallies last Thursday and Friday, Wall Street got back on track as the benchmark S&P 500 index is having its best month in four years. Extended easy-money QEs by the European and China's central banks plus better than expected third-quarter corporate earnings reports got the market's upside juices flowing again.
The main drivers behind this two-day rally were the same worn-down technology, healthcare, financial and material sectors that drove the market into the ground last August and September. That selloff had produced a lot of gloom and doom among Wall Street's denizens, many of whom believe that these two rallies were nothing more but dead cats bouncing.
Could be, and would explain the record-high short positions held by hedge-funds and other financial institutions. If they are right, then a major correction by the market is in the cards. But if they are wrong [which they have been so far] then these rallies last week have only began to begin a major bull-run.
Last week's blog featured charts that suggested that such an advance was in the making and these charts have not changed their bullish projections this week either.
Check this benchmark index [SPX] and note that for whatever reason it got a bit too exuberant and shot up too high too fast. This means that the market has become top-heavy and needs to pull back or at least consolidate the latest gains. Other than this the SPX remains solidly bullish. Its RSI strength indicator is high in bullish territory and the MACD momentum bars are solid on top of the demarcation line.
Most importantly, the Moving-Average configuration has turned bullish with the red line crossing above the green line.
Ever since last April the SPX has been moving mainly sideways along the 2100 level in a consolidation mode. Should this turn out to be a ceiling, watch out down below. But should it turn out to be a new base to higher highs, enjoy the ride.
The small-caps [SML] and mid-caps [IJH] have to be among the leaders in this market for any rally to gain any substance. Both indexes had a good liftoff from the bottom and now appear to be consolidating. The MACD momentum bars are bullish and so are the MA lines configurations which are still a bit bearish with the green lines above the red. But it appears that this is about to reverse and that could give a boost to this rally.
This NASDAQ index [NAS] rallied much too high too fast, mainly on the back of its main component the technology sector [XLK] which did the same. So a pullback here is necessary for both indexes to find renewed traction to higher highs.
Note that the NASDAQ index still hasn't't closed the bearish MA gap between the green line above the red. Once this happens, expect NASDAQ to rally in a sustained advance.
The weekly DOW chart [INDU] projects a somewhat bearish scenario for the market. Sure, this index has rallied sharply on the strength of renewed bullish MACD momentum as the bars are rising back on top of the demarcation line. While the RSI strength indicator is also back in bullish territory, the MA lines configuration is still bearish with the green line above the red.
For this rally to gain any staying power, the red line will have to cross above the green.
Encouraging for the market is that this [50R] indicator is remaining bullish. But even here, it has shot up too far too fast and needs to pull back to consolidate. But for as long as this index stays above the 50 level on its scale this market should maintain its bullish stance.
Note that the MA lines configuration is exceedingly bullish with a large gap between the red line above the green, which means that this market needs to cool off a bit. With the MACD momentum bars fading, this appears to be now happening.
Check this [SPXS] chart and note that it shows a totally beaten-down bear. So if you're a bull in this game, rejoice!
This bear-index is digging itself deeper into the ground, the MA lines configuration is extremely bearish for the bear [green line above the red] and so is the RSI strength indicator [there is none] along with the MACD momentum bars which are sharply negative below the demarcation line.
The only hope for the bears is that they'll hit the ground so hard a bounce-back rally could ensue.
The commodity market [CRB] is still trailing the major indexes. Its RSI strength indicator appears to be stuck in its bearish territory, and the upside momentum has vanished with the bars below the demarcation line.
Yet, the MA lines configuration is growing bullish with the red line above the green. This could mean that something positive is brewing within the internals of the commodity market and maybe fire-up a rally under this thing.
This weekly gold chart [GOLD] shows that despite its recent rally this yellow metal is still struggling to get ahead. The MA lines configuration [green line above the red] is bearish while the RSI strength indicator is sitting at dead-neutral.
But with the MACD momentum bars back on top of the demarcation line, there is hope that something bullish is going on internally which could get gold to rally again.
After a sharp rally earlier this month followed by an equally sharp decline, oil [WTIC] is back in a consolidation mode along the 45 dollar level. While the RSI strength indicator and MACD momentum bars have slipped back into bearish territories, the MA lines configuration with the red line above the green remains remarkably bullish. That could indicate that something positive is happening with the price of oil.
This market-forecasting junk-bond canary is of a split mind. While the MACD momentum bars remain extremely bullish above the demarcation line, the MA lines configuration with a large gap between the green line above the red remains extremely bearish. So this forecast can be used by either the bulls or the bears.
But with this index in a rally mode and the RSI in its bullish territory, the bulls got it.
While this confidence index [XIV] had a pretty good rally during the first half of this month, it now appears to be stalling. But with the RSI strength indicator still in bullish territory and the MACD momentum bars solid above the demarcation line, the market seems to be waiting for the MA lines configuration to turn bullish too when the red line crosses above the green.
All in all, this market wants to engage in a sustainable advance but first needs to catch its breadth. This is why any pullback from here is a buying opportunity.
So should the market come your way, here are some favored ETFs to keep on tap.
Discretionary, Staples, Financials, Industrials, Technology;
Leveraged Bull ETFs:
S&P 500, 2x (NYSEARCA:SSO), NASDAQ 2x (NYSEARCA:QLD), Financials 2x (NYSEARCA:UYG), Oil&Gas 2x(NYSEARCA:DIG), Retail 2x (NYSEARCA:RETL), Technology 3x (NYSEARCA:TECL), DOW 2x (NYSEARCA:DDM), Mid-Caps 2x (NYSEARCA:MVV), Small-Caps 3x (NYSEARCA:URTY), Financials 3x (NYSEARCA:FAS), Semis 3x (NYSEARCA:SOXL), Semis 2x (NYSEARCA:USD), Materials 2x (NYSEARCA:UYM);
Non-Leveraged Long ETFs:
Semis (NYSEARCA:XSD), Staples (NYSE:RHS), Internet (NYSEARCA:FDN), Discretionary (NYSEARCA:XLY), Software (BATS:IGV), Consumer Goods (NYSEARCA:IYK), Home Construction (BATS:ITB), Technology (NYSEARCA:IGM), REIT (NYSEARCA:RWR), S&P 500 (NYSEARCA:VOOG), S&P 100 (NYSEARCA:OEF), Industrials (BATS:IYJ), Financials (NYSEARCA:IYG), Mid-Caps (EWRM), Small-Caps (NYSEARCA:IJR);
Leveraged Bear ETFs:
Energy 3x (NYSEARCA:ERY), Oil&Gas 2x (NYSEARCA:DUG), Emerging Markets 3x (NYSEARCA:EDZ), Gold 2x (NYSEARCA:GLL), Mid-Caps 3x (NYSEARCA:SMDD), Small-Caps 2x (NYSEARCA:SDD), NASDAQ 3x (NASDAQ:SQQQ), S&P 500, 2x (NYSEARCA:SDS), DOW 3x (NYSEARCA:SDOW), Financials 2x (NYSEARCA:SKF), China 3x (NYSEARCA:YANG);
Non-Leveraged Short ETFs:
Commodities (NYSEARCA:DDP), Small-Caps (NYSEARCA:SBB), Regional Banking (NYSEARCA:KRS), Base-Metals (NYSEARCA:BOS), Oil&Gas (NYSEARCA:DDG), Equity Bear (NYSEARCA:HDGE), NASDAQ (NYSEARCA:PSQ), Energy (NYSEARCA:EUM), S&P 500 (NYSEARCA:SH), Financials (SEF);