When the market took its steep nosedive last January it was the fear of a looming recession that triggered this correction. But when later data showed that there was no sign of such a thing, the rally was back on.
While this suggests that the market is back advancing on improving economic fundamentals, it has yet to prove that it was not just another "dead-cat's bounce" within a frantic short-covering rally.
Now it appears that the January correction was actually a good thing because the market was overbought, overvalued, top-heavy and set to keel over.
Now the major indexes are down at a level that makes more sense and gives the market a chance to find real traction to the upside. So the market had a bit of a rally led by the energy and financial sectors which put the market back into a trading range.
That the financial, manufacturing and energy sectors appear to be stabilizing is supporting the upside of this range. But the downside remains vulnerable and "iffy" because there is still no conviction behind these rallies.
Check this S&P 50-day bullish percent index which may be a bullish harbinger of things to come. That the red Moving-Average line finally managed to rise above the green Moving-Average line is a sign that the bulls are getting ready to take control of the market.
That the MACD momentum bars are strongly on top of the demarcation line is an indication that upside momentum is siding with the bulls. The same is the case with the RSI strength indicator which has shot up right to the top of its trading channel. This is why the 50-R index has risen too high too fast and is now vulnerable to a consolidating pullback, and that would be bullish for the market.
But when you check the [SPX] benchmark index you'll note that there is still a wide gap between the red MA line below the green MA line and that makes for a bearish MA lines configuration. But with the 50-R index positive, time is on the side of the bulls.
Check the S&P bullish percent index which is still bearish with the red line below the green, but bearish not by much. Stand by for the red line to cross above the green, and the bulls' stampede will be back on again.
The only cautionary drawback is that this [BPS] index shot up too soon without the full support of a bullish MA lines configuration and could make the market top-heavy and vulnerable to a selling squall. But that would be a good thing for the bulls because the market needs some consolidation before reaching for higher highs.
Note that the RSI strength indicator is a bit overbought and top-heavy and ditto for the MACD momentum bars on top of the demarcation line. So, any correction here would be healthy for the market and also make for good buying opportunities.
The bulls in this game [SPXL] rallied sharply from an earlier strong selloff and are now in a consolidation mode. These bulls are well supported by solid MACD momentum bars on top of the demarcation line and a RSI strength indicator in its bullish territory.
After a sharp runup in January and February, the bears [SPXS] took a steep nosedive and appear to have a tough time recovering, even though the MA lines configuration is still bullish for the bears with this red line above the green.
This market-forecasting junk-bond canary [JNK] finally lifted off the bottom and is now predicting bullish market action ahead.
The RSI strength indicator is back in its bullish territory and so are the MACD momentum bars on top of the demarcation line.
But for as long as the MA lines configuration remains so sharply bearish with this large gap between the red line below the green, so will the market remain pressured to the down side, and there isn't much this canary can do about it.
This confidence index [XIV] reflects investors' lousy attitude toward the market. The MA lines configuration remains bearish with the red line below the green, and the best the RSI strength indicator and MACD momentum bars can do is to stick close to their respective neutral demarcation lines.
These market participants don't look like a happy lot.
These small-cap [SML] and mid-cap [IJH] sectors are like Siamese twins who are joint at the hip. Where one of them goes there goes the other one. Both are vital components of any market move, up down or sideways.
Now both of these indexes have their respective momentum bars and RSI strength indicators inside their bullish territories, and that should get a pretty good rally going. But for as long as the respective MA lines configurations remain bearish with the red lines below the greens, any rally will be short-lived.
After a quick and sharp selling squall in early February, NASDAQ is back in its consolidation mode. At the same time, this index remains well supported by sharply bullish MACD momentum bars on top of the demarcation line and a RSI strength indicator which is back in bullish territory.
But the hold-back to a strong rally on NASDAQ is its extremely bearish MA lines configuration with this large gap between the red line below the green. Only when the red line crosses the green on the upside will NASDAQ be set in a rally mode.
NASDAQ's main component is energy [GJX] which is also in a consolidation mode and well supported by the MACD momentum bars on top of the demarcation line, and the RSI strength indicator hanging in there in its bullish territory.
But just like NASDAQ, the MA lines configuration is still bearish with the red line below the green. But for energy the gap between these lines is much smaller and so could trigger a pretty good rally and drive the whole market higher.
Something positive is happening way down at the bottom of the commodity market [GTX.] The MACD momentum bars remain bullish on top of the demarcation line as they have been since late January, while the RSI strength indicator keeps consolidating along its neutral line, and that's bullish too.
The only "bugaboo" for the commodity market is the bearish MA lines configuration with the red line below the green. But that gap isn't all that large and so it should be easy for the red line to cross above the green, and at long last get a commodity rally going.
Even though the [GOLD] index has shot up too far too fast and is now top-heavy and ready to keel over, the yellow metal is still a bull. This index is now consolidating while being well supported by an extremely bullish MA lines configuration with this large gap between the red line above the green.
While the RSI strength indicator is also consolidating inside its bullish territory, the MACD momentum bars are flashing a bearish warning signal from below the demarcation line. This indicates that the upside momentum for gold is turning negative and we all can sense what that means.
Oil [WTIC] shows the same bullish configuration as most of the major indexes do. But here too, the trouble is that while this index is consolidating way down at the bottom which is bullish, its MA lines configuration remains strongly bearish with this large gap between the red line below the green.
That means where oil is going to from here, is anyone's guess.
So, all in all this is still mainly a waiting game interspersed with steep nosedives only to be followed by sharp spurts to the upside which has the market going nowhere fast.
But just in case the market is going somewhere your way, here are some favored ETFs that may pay along the way.
Industrials, Discretionary, Technology, Financials, Health-Care, Materials;
Leveraged Bull ETFs:
Financials 3x (NYSEARCA:FLGE), Financials 2x (NYSEARCA:UYG), Industrials 2x (NYSEARCA:UXI), DOW 2x (NYSEARCA:DDM), Large-Caps 2x , S&P 500, 3x (NYSEARCA:SPXL), Retail 2x (NYSEARCA:RETL), Mid-Caps 2x (NYSEARCA:MDLL), Mid-Caps 3x (NYSEARCA:MIDU), Small-Caps 2x (NYSEARCA:SMLL), Technology 3x (NYSEARCA:TECL), Gold-Miners 2x (NYSEARCA:NUGT), Jr. Gold-Miners 3x (NYSEARCA:JNUG);
Non-Leveraged Long ETFs:
Russell 1000 (NYSEARCA:IWF), Russell 1000 (NYSEARCA:IWD), Russell 2000 (NYSEARCA:IWO), Mid-Caps (NYSEARCA:IWS), S&P 500 (NYSEARCA:IVW), NASDAQ (QID), Insiders (NYSEARCA:KNOW), Small-Caps (NYSE:RZV), Small-Caps (NYSEARCA:IJS), Gold-Miners (NYSEARCA:GDX), Bond-ETF (NYSEARCA:FLTB);
Leveraged Bear ETF:
S&P 500, 2x (NYSEARCA:SDS), Financials 3x (NYSEARCA:FAZ), NASDAQ 2x , Small-Caps 3x (NYSEARCA:TZA), DOW 2x (NYSE:DXD), Russell 2000, 2x (NYSEARCA:TWM), Base-Metals 2x (NYSEARCA:BOM), Commodity 2x (NYSEARCA:DEE), Oil 2x (NYSEARCA:DTO), Gold 2x (NYSEARCA:DZZ), Industrials 2x , Mid-Caps 2x (NYSEARCA:MVV), Emerging Markets 2x (EED), Semis 2x (NYSEARCA:USD), Gold-Miners 2x (NYSEARCA:DUST);
Non-Leveraged Bear ETFs:
Active Bear (NYSEARCA:HDGE), Russell 2000 (NYSEARCA:RWM), Emerging-Markets (NYSEARCA:EUM), Financials (SEF), Mid-Caps (NYSE:MYY), CHINA (NYSEARCA:CHAD), S&P 500 (NYSEARCA:SH), DOW (NYSE:DOG), NASDAQ (NYSEARCA:PSQ), Gold (NYSEARCA:DGZ), OIL&Gas (NYSEARCA:DDG), Small-Caps (NYSEARCA:SBB);
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