From the last week of April up to the last week of May the market was struggling to halt a persistent slide to the downside. Some comments by Fed officials that higher rates were in the cards even while U.S. economic numbers are coming in weaker than expected, kept the market on a slide to lower lows.
Some market strategists had been cautious [still are] questioning the strength of any rally amid a gloomy earnings season and weak economic data.
But then, out of the blue the DOW rallied 400 points last week, led by the cyclical sectors of the market. This suggests that investors have suddenly become more confident in the U.S. economy and view the prospect of rising rates as early as this summer as a good thing. They see it as a vote of confidence by the Fed that things in the economy are getting better than first anticipated.
But then again, what most likely happened was that despite strong bearish headwinds the market did not fall apart. That caught a growing crowd of short sellers in this game with their shorts down so that they had to buy the market in order to cover their bare assets, and the rally was on.
Now the question is, was that a signal to the end of last week's snap-back rally, or the beginning of a new trend to highehighs? Lets see what the charts have to say about that.
It appears that Wall Street's gains will probably remain capped as they had been in recent months. For whatever reason the upside momentum [volume] just isn't there to drive the market to new record highs. This is why more of the recent choppy sideways action by the major indexes is the best that can be expected.
Check the DOW chart [INDU] and note that besides the surging index both the RSI strength indicator and MACD momentum bars are back in their respective bullish territories again which, of course, is bullish for the market.
But for as long as the Moving-Average lines configurations of the DOW and other major indexes stay bearish with the red lines below the green lines, the upside of this market remains "iffy."
It appears that the bulls in this market [SPXL] are on the move again. Both the RSI strength indicator and MACD momentum bars are back in their respective bullish territories while this index shot to the upside.
But the MA lines configuration remains totally neutral with hardly a gap between the red and green lines. This suggests that the bulls don't know if to stamped further, retreat or just lay down and take a rest. That is also the attitude of the market as a whole, until next week when there could be some action again, one way or the other.
The bears appear to have given up on this market. This index [SPXS] keeps digging itself into a deep hole at the bottom of a deep pit. The RSI strength indicator is back deep in its bearish territory and ditto for the MACD momentum bars. But the MA lines configuration is still stuck in neutral with just a tiny gap between the red line below the green.
The steep nosedive by the bear since last March implies that if the market keeps going south it won't be because the bear is so strong, but that the bull is so weak.
This 50R index has soared sharply with the support of the RSI strength indicator and the MACD momentum bars both of which are back in their respective bullish territories again.
But for as long as the MA lines configuration remains so extremely bearish [wide gap between the red line below the green] the bias of the market remains geared to the downside.
The NASDAQ index [NDX] sure managed a bullish rush to the upside last week and so did the RSI strength indicator and the MACD momentum bars. But the MA lines configuration stayed decidedly bearish with this large gap between the red line below the green, and that spells caution for the market as a whole.
Energy [GJX] remains fairly bullish with the RSI strength indicator up in its bullish territory. But the MA lines configuration show energy to be sharply overbought [wide gap between the red line above the green] which suggests that this index is poised for a pullback and some consolidation.
This is especially the case while the MACD momentum bars are sitting at dead neutral on the demarcation line.
Technology [XLK] and its twin the semiconductors [SOXX] show the same chart configurations. Soaring indexes with the RSI strength indicators and MACD momentum bars in their respective bullish territories.
But note that the MA lines configurations of both indexes remain extremely bearish with these wide gaps between the red lines below the green lines. These are signals that show the market to be unsure which direction to take. That can make for short-lived trends, either way.
Last week's rallies were driven mainly by the cyclical sectors of the market [PEZ] even though this index had difficulties lifting off the bottom. The RSI strength indicator only made it to the neutral line while the MACD momentum bars barely made it into bullish territory.
Also note the wide bearish gap between the red line below the green. This implies that last week's rally by the cyclicals was also nothing more but a heavy dose of short coverings.
The global market [ACIM] also had a pretty good rally off its consolidation level. Even though the RSI strength indicator and MACD momentum bars made it into their respective bullish territories, the MA lines configuration is sitting at dead neutral with no gap between the red and green lines.
So it remains to be seen if it's the bulls or the bears who will push the market into a sustainable trend.
The commodity market [DBC] shows a sharply bullish but also overbought MA lines configuration with a wide gap between the red line above the green. This implies that commodities have come too far too fast and now are vulnerable to a correction.
While the RSI strength indicator remains solid in its bullish territory, the MACD momentum bars are sitting at dead neutral on the demarcation line. All of this indicates that momentum is set to swing in either direction for commodities.
The yellow metal [GOLD] has suddenly lost traction in response to the U.S. dollar [USD] which is rallying in anticipation of a Fed rate hike sometime soon.
Although the MA lines configuration for gold is still bullish with the red line above the green, the negative impact of both the RSI strength indicator and MACD momentum bars deep in their respective bearish territories is difficult for gold to overcome.
But for as long as the MA lines configuration remains bullish, gold has a good chance to regain the upside.
The oil index [WTIC] shows strongly bullish configurations in most of its components. The exceptions are the MACD momentum bars which are sitting at dead neutral on top of the demarcation line. So there is no momentum for either the upside or the downside.
Therefore chances are that oil will probably consolidate around the $ 50.- level and stay there fore a while [quite a while?]
All in all, these charts show a market that is in a holding pattern, but with a downside bias. So the sidelines still seem to be the best place to be at this stage of the game.
But just in case the market comes your way, here are some favored ETFs to keep on tap.
Energy, Financials, Materials, Technology, Health Care, Biotech;
Leveraged Bull ETFs:
Financials 3x (NYSEARCA:FINU), Financials 2x (NYSEARCA:UYG), Industrials 2x (UXL), DOW 2x (NYSEARCA:DDM), Large Caps 2x (NYSEARCA:FLGE), S&P 500, 3x (NYSEARCA:SPXL), Mid-Caps 3x (NYSEARCA:MIDU), Small-Caps 2x (NYSEARCA:SMLL), Semis 3x (NYSEARCA:SOXL), Materials 2x (NYSEARCA:UYM), Technology3x (NYSEARCA:TECL);
Non-Leveraged Long ETFs:
Russell 1000 (NYSEARCA:IWF), Russell 2000 (NYSEARCA:IWO), Mid-Caps (NYSEARCA:IWS), S&P 500 (NYSEARCA:IVW), NASDAQ (NYSEARCA:QLD), High-Dividend (NYSEARCA:HDV), Staples (NASDAQ:PSCC), Mid-Caps (NYSEARCA:REGL), Energy (NYSE:RYE), Materials (NASDAQ:PYZ), Semis (NYSEARCA:SMH), Info-Tech (NASDAQ:PSCT), Regional Banks (NYSEARCA:IAT);
Leveraged Bear ETFs:
S&P 500, 2x (NYSEARCA:SDS), NASDAQ 2x (QID), Financials 2x (NYSEARCA:SKF), Small-Caps 3x (NYSEARCA:TZA), DOW 2x (NYSE:DXD), Russell 2000, 2x (NYSEARCA:TWM), Gold Miners 2x (NYSEARCA:DUST), Mid-Caps 3x (NYSEARCA:MIDZ), S&P 500, 3x (NYSEARCA:SPXS), Technology 3x (NYSEARCA:TECS), Semis 3x (NYSEARCA:SOXS);
Non-Leveraged Short ETFs:
S&P 500 (NYSEARCA:SH), Base-Metals (NYSEARCA:BOS), Gold (NYSEARCA:DGZ), Financials (SEF), DOW (NYSE:DOG), Materials (NYSEARCA:SBM), Mid-Caps (NYSE:MYY), Emerging Markets (NYSEARCA:EUM), NSDAQ (NYSEARCA:PSQ), Russell 2000 (NYSEARCA:RWM), Small-Caps (NYSEARCA:SBB);
Check my Home-Page for more ETF and market info; and