Check this benchmark index [SPX] at last Friday's close and note that the market broke even although the labor report came in strongly bullish. Most of the time during this six-year bull-run the market would have tanked on such good economic news because investors would have perceived it as bearish news for Wall Street.
They would have expected the Fed to cut back on its easy-money QE sweets the market has gotten used to. But now the Fed has signaled that the economy is sufficiently strong enough that they will probably starting to raise rates this December. This means that the market will have to stand on its own feet and that implies a new tack for market participants, especially the bulls.
Investors will have to pay closer attention to market behavior in order to decipher which side of the game the market is slanting to. Note that the SPX by last Friday's close had rallied back to the same level the market had consolidated at between last May and October. Now this level has become a ceiling the market appears to have difficulty breaking in order to reach higher highs.
First, this market has rallied too high too fast and is now running out of steam. The Moving-Average lines configuration is way overbought with this large gap between the red line above the green line.
The RSI strength indicator is hitting the top of its trading channel, and the MACD momentum bars keep fading while the market keeps advancing. This is not the kind of stuff that sustainable rallies are made of.
Check the weekly DOW chart [INDU] and note that this index has corrected its sell-off damage from last August and September and is now reaching for its all-time high again. The RSI strength indicator is back in its bullish territory and so are the MACD momentums bars for the first time since last January.
But the MA lines configuration [red line below the green] remains sharply bearish. This indicates that after this strong rally out of the September hole the market has hit a ceiling and is geared for a correction of some sort.
After the exceedingly bullish double bottom in August and October, NASDAQ has not disappointed and rallied to where it stood last August shortly before the steep nosedive. But now [NAS] has become extremely overbought with this large gap between the red line above the green.
Also showing an extremely overbought and therefore bearish configuration is the RSI strength indicator which keeps hitting the ceiling of its trading range. Although the MACD momentum bars are still bullish on top of the demarcation line, they are fading fast. All of this signals that NASDAQ is setting up for some sort of a correction.
The small and mid-cap sectors of the market [SML] and [IJH] are joined at the hip and where one of them goes, the other one is not far behind. Now, for the market to engage in a sustainable advance, these two sectors have to lead the parade.
Although both indexes rallied a bit too enthusiastically out of the hole they'd dropped into last August and September and thereby got themselves a bit overbought, they are on the right track to regain the leadership in this game and guide the market to higher highs. The large gaps between the red MA lines above the green MA lines reflect the overbought conditions of both indexes.
So a bit of a pullback here would be bullish for the market. Bullish also are the RSI strength indicators and the MACD momentum bars, solid in their respective bullish territories
The bear in this game [SPXS] continues to hibernate at the bottom of a deep pit and shows no inclination to come out of there anytime soon. So, don't blame any selloff on the bear. Blame it on the bull who apparently can't stop from stumbling after the recent sprint to the upside.
The one thing that could awaken the bear is the extremely oversold MA lines configuration with the large gap between the green line above the red line.
When this gap begins to narrow, it's time to look out for the bear.
After losing its strength last August and September, investors' confidence in this bull market is back on track. While this confidence index [XIV] is consolidating, its MA lines configuration is back in a bullish mode with the red line above the green. Sure, the large gap between these two lines shows that the market is somewhat overbought, but at this stage of the game, that's O.K.
Note that the RSI strength indictor remains solid in its bullish territory while the MACD momentum bars remain neutral on top of the demarcation line. So what this indicator shows is that there's still a touch of "iffy" in the market, but that's O.K. too.
The commodity market [GTX] just doesn't seem to be able to get itself out of the funk it's in. Every component of this index remains bearish, and nothing more needs to be said about this thing.
This gold index [GOLD] appears to be digging a deeper hole to hide in. Yet, its MA lines configuration remains extremely bullish and overbought with this large gap between the red line above the green. This is what got gold to become top-heavy and consequently keel over.
But for as long as the red MA line remains above the green MA line gold remains bullish and could be a good buying opportunity for the long haul.
Oil [WTIC] had a nice rally followed by a good consolidation period during September and October. But now, things are looking a bit dicey for oil. The RSI strength indicator has slipped into bearish territory and the MACD momentum bars are sitting at dead neutral along the demarcation line.
Now the MA lines configuration is set to turn bearish with the red line poised to cross below the green line and that could cause the price of oil to take a nosedive.
The insiders in this game [NFO] are supposed to know all about the market and they sure are bullish with this index is in a strong rally mode. The MA lines configuration remains positive with the red line above the green while both the RSI strength indicator and the MACD momentum bars are solid in their respective bullish territories.
But keep in mind that these insiders have been consistently wrong lately as demonstrated by the recent bloodletting among the hedge-funds.
But then again, they may get it right this time.
Even though this biotech index [IBB] appears to have hit bottom and is bouncing back again, the other components of this index don't look all that healthy.
The MA lines configuration is set to turn bearish with the red line poised to cross below the green. Meanwhile the MACD momentum bars and RSI strength indicator are stuck in their respective bearish territories. Not a positive development for the biotech.
Although this financial sector [XLF] appears to be in a bullish mode after its bearish swoon in late September, caution is called for.
This index shot up too far too fast which caused the MA lines configuration to become overextended with a large bearish gap between the red line above the green. So a bit of a consolidating pullback here could be bullish.
In fact, any pullback by the major indexes at this stage of the game would be bullish.
All in all, the sidelines are still looking pretty good while observing which side of the game the market will settle on.
Meanwhile, should the market come your way, here are some favored ETFs to consider.
Discretionary, Industrials, Materials. Technology, Financials.
Leveraged Bull ETFs:
Technology 3x (NYSEARCA:TECL), Retail 3x (NYSEARCA:RETL), Financials 2x (NYSEARCA:UYG), S&P 500, 2x (NYSEARCA:SSO), NASDAQ 2x (NYSEARCA:QLD), Semis (NYSEARCA:USD), Mid-Caps 2x (NYSEARCA:MVV), Health-Care 2x (NYSEARCA:RXL), Materials 2x (NYSEARCA:UYM), Biotech 2x (NASDAQ:BIB);
Non-Leveraged Long ETFs:
China (NYSEARCA:CNXT), Discretionary (NYSEARCA:XLY), Technology (MTK), Health-Care (NASDAQ:PTH), Discretionary (NYSEARCA:FDIS), S&P 500, (NYSEARCA:IVW), Russell 1000, (NYSEARCA:IWF), Semis (NYSEARCA:SMH), Pharma (NYSEARCA:XPH), Biotech (NYSEARCA:XBI), NASDAQ (NASDAQ:QQQ), Cyber Security (NYSEARCA:HACK), Regional Banking (NYSEARCA:KRE), Cyclicals (NASDAQ:PEZ), Mid-Caps (NYSEARCA:IWP);
Leveraged Bear ETFs:
Oil&Gas 2x (NYSEARCA:DUG), DOW 2x (NYSE:DXD), Materials 2x (SMN), Mid-Caps 2x (NYSEARCA:MZZ), S&P 500, 2x (NYSEARCA:SDS), Financials 2x (NYSEARCA:FAZ), Small-Caps 2x (NYSEARCA:SDD), Energy 3x (NYSEARCA:ERY), NASDAQ 2x (QID), Semis 3x (SOXS};
Non-Leveraged Short ETFs:
S&P 500 (NYSEARCA:SH), Oil (NYSEARCA:SZO), Base-Metals (NYSEARCA:BOS), Commodities (NYSEARCA:DDP), DOW (NYSE:DOG), Financials (SEF), Mid-Caps (NYSE:MYY), Materials (NYSEARCA:SBM), Small-Caps (NYSEARCA:SBB);