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A High-Wire Balancing Act?

Last week Wall Street edged higher in slow-trade holiday sessions. As some market strategists put it, both the economy and market stats came in a little better than worse {?} and so the market will probably continue to trade mostly sideways as it has for most of this year.

Sure, during the first half of November there were some heavy duty zigs and zags in either direction. So now market participants are hoping that this holiday shopping season will be the key to give the market a boost to the upside, and it might just work.

The consumers are in pretty good shape for the shape they're in, but as retail figures show they are not in a great shopping mood and spend.

Yet, the job market is solid; energy costs are low and ditto the costs of borrowings. So the ingredients for a Santa Klaus rally are in place.

That the small and mid-cap sectors of the market are finally perking up gives this market a chance to rally right through the first half of next year, not in a straight line of course, but up just the same. Small and mid-caps have to lead the parade for the market to advance in a sustained fashion. So check these small and mid-cap charts [SML and IJH.]

Note that both indexes shot up a bit too far too fast, but they are well supported by bullish Moving-Average lines configurations with the red lines above the green lines. The RSI strength indicators are both in their respective bullish territories and most importantly, the MACD momentum bars are on top of the demarcation lines.

This indicates that the small and mid-cap sectors are in gear to the upside and could take the whole equity market along for the ride.

Check this market's forecasting junk-bond canary [JNK] which is in one heck of a bearish mood. Even though this index bounced a bit off the bottom, the MA lines configuration is turning bearish again with the red line below the green. The RSI strength indicator as well as the MACD momentum bars is deep in their respective bearish territories, all of which is projecting a doomsday scenario for the market.

But this little bird has been wrong before and if you're a bull in this game, keep your fingers crossed that it will be wrong again this time. This could well be the case with this bullish double bottom in October and November.

The large-caps of the market [SPX] appear to have hit the ceiling [hello there, small and mid-caps.] It remains to be seen if the large caps can consolidate up there, or have to come down to find new traction.

The main reason that the SPX appears to be stalling [consolidating?] is the wide overbought gap between the red line above the green. This means that while the large caps are exceedingly bullish, they are also extremely top-heavy and poised for a correction to a level from which to again rally on.

Check this weekly DOW chart [INDU] and note that despite this November snapback rally the long-range MA lines configuration remains sharply bearish [red line below the green] and that after being bullish for four years in a row.

This is why even though the long-range RSI strength indicator and MACD momentum bars are solid in their respective bullish territories; the market is vulnerable to a sharp selloff. That would be a good thing because it would set the market down to where it could find some traction again.

Although recent market action suggests that the stars are lining up in favor for the bear, this long-term weekly [SPXS] chart shows that the bear doesn't look all that healthy either.

Ever since May 2011 this bear has been under a steady downside pressure by the negative MA lines configuration [continued gap between the red line below the green.] That appears to be changing now as this gap between these two lines has narrowed considerably. Also, the MACD momentum bars seem to be reaching to the positive side of the demarcation line, and that could give the bear a boost.

But the RSI strength indicator deep in negative territory is keeping a lid on any rally attempt by the bear - for now!

Note that this weekly NASDAQ index had been strongly supported by a bullish MA lines configuration [red line above the green] since May 2011. This appears to be now changing to a bearish configuration as the red line seems to be poised to cross below the green line, and that would flash a bright warning signal for the market.

Sure, the RSI strength indicator and MACD momentum bars are still in their respective bullish territories, but the Moving-Average configuration is still the boss on this, or any other index.

Check this commodity index [CRB] and note that the MACD momentum bars are at dead-neutral along the demarcation line. This means that the commodity market is comatose to the up or downside of this game; maybe consolidating?

But note that the RSI strength indicator is solid in its bearish territory while the MA lines configuration is sharply bearish with this large gap between the red line below the green line. This means that the commodity market is still a basket case as far as the eye can see.

The reason the commodity market is a basket case is that the demand for commodities especially the metals [BDI] just isn't there. The RSI strength indicator for this index is extremely bearish, but suddenly appears to be perking-up a bit. That the MACD momentum bars managed to rise above the demarcation line are both early signs that maybe, just maybe there is still hope for the commodity market.

The wide gap between the red MA line below the green is a sign that this market is extremely oversold and that could trigger a snap-back rally. It could also signal the beginning of end for the drought in commodities, but don't bet on it just yet.

Along with the small and mid-caps it takes the cyclical sector [FCL] to lead the market to higher highs. This sector had a pretty good rally after its steep nosedive in August and September. These two selloffs formed a bullish double bottom, which got the consequent rally started.

But now with this large gap between the red MA line above the green this sector is overbought, top-heavy and ready to tank. Even though the RSI strength indicator is still strong in its bullish territory, the MACD momentum bars remain at dead-neutral along the demarcation line, and that could swing the cyclicals to either direction.

Investors' confidence [XIV] in this market appears to be mostly neutral. This index is consolidating with a bullish MA lines configuration for support [red line above the green.] The RSI strength indicator and MACD momentum bars are tight along their respective demarcation lines and that makes general confidence in this market a bit iffy

The risk-tolerance [X:X] for this market is still pretty high and continues to be well supported by an exceedingly bullish MA lines configuration [large gap between the red line above the green.]

But with the MACD momentum bars below the demarcation line and the RSI strength indicator neutral at best, risk-appetite for this game appears to be waning.

The position of shares above their 50-day green MA line appears to be quite solid. But with the RSI at dead neutral and the MACD momentum bars south of the demarcation line could indicate that the bulls in this game are fading away.

Everything about [GOLD] is bearish: The index, Moving-Averages, RSI strength and MACD momentum. And, oh yes, ditto for oil.

Put it all together and you'll have a market that's engaged in a high-wire balancing act. Will it make it to the other side or take a steep nosedive?

We'll soon find out. Meanwhile, here are some favored ETFs for any eventuality.

ETF sectors:

Discretionary, Energy, Health-Care, Financials, Materials, Technology;

Leveraged Bull ETFs:

NASDAQ 2x (NYSEARCA:QLD), Materials 2x (NYSEARCA:UYM), DOW 2x (NYSEARCA:DDM), Financials 2x (NYSEARCA:UYG), Technology 2x (NYSEARCA:ROM), DOW 3x (UDOW}, S&P 500, 3x (NYSEARCA:UPRO), Mid-Caps 3x (NYSEARCA:MIDU), S&P 500, 2x (NYSEARCA:SPUU), Semis 3x (NYSEARCA:SOXL);

Non-Leveraged Long ETFs:

Russell (NYSEARCA:IWF), Russell (NYSEARCA:IWD), Russell 2000 (NYSEARCA:IWN), Mid-Caps (NYSEARCA:IWS) S&P 500 (NYSEARCA:IVW), Alerian (AMLP} China Small-Caps (NYSEARCA:ASHS), Internet (NASDAQ:PNQI), Regional Banking (NYSEARCA:KRE), Discretionary (NYSEARCA:XLY), Golden Dragon (NASDAQ:PGJ), Semis (NYSEARCA:XSD), Social Media (NASDAQ:SOCL) Software (BATS:IGV), Technology (MTK), Info-Tech (NASDAQ:PSCT);

Leveraged Bear ETFs:

Oil2x (NYSEARCA:KOLD), S&P 500, 2x (NYSEARCA:SDS), Small-Caps 3x (NYSEARCA:TZA), DOW 2x (NYSE:DXD), Russell 2000, 2x (NYSEARCA:TWM), Financials 3x (NYSEARCA:FAZ), NASDAQ 2x (QID), Financials 2x (NYSEARCA:SKF), Gold-Miners 2x (NYSEARCA:DUST), Mid-Caps 3x (NYSEARCA:MIDZ), Developed Markets 3x (NYSEARCA:DPK), Emerging 3x (NYSEARCA:EDZ);

Non-Leveraged Short ETFs: