As some market insiders have it, most investors are not bearish or bullish, they are just confused by the market's recent erratic behavior. When you check the charts in this blog you'll note that the market appears to be confused also and doesn't seem to know if it should trend up, down or sideways.
Several rally attempts during last week's trade were cut short when weaker than expected economic data and a probable Fed rate hike this summer nixed any upside move by the market. So it is no wonder that market participants have pulled $ billions from equity funds with the result that less and less bulls are still in this game.
While most major indexes are still close to their previous record highs, they appear to have hit a ceiling and are unable to break through to new record highs.
For many market participants that is a good enough reason to stay in cash and just watch the market unfold for awhile. OK, so the market rebounded from an earlier selloff when manufacturing data showed that industrial production is not in contraction, but continues to move sideways in a slow-growth economy. Still, there is little reason to buy the market at this stage of the game.
Check this weekly DOW chart [INDU] and note that even though the MACD momentum bars and RSI strength indicator are in their respective bullish territories, the Moving-Average lines configuration remains totally neutral with no gap between the red and green lines. This begs the question, what kind of a market is this? A bull, bear or something in between.
The daily large-cap chart [SPX] isn't any more specific and shows the same lousy configuration as the DOW. Still, should the red line manage to cross above the green line, chances are that the rally will continue.
Some ol' market wisdom has it that as the NASDAQ goes [NDX] so goes the market as a whole. If that holds true, then the market is in trouble. Sure, the RSI strength indicator and MACD momentum bars are in their respective bullish territories above the demarcation lines, but for as long as the red MA line trends below the green MA line the market is heading south, just as it was heading north when the red line was above the green.
Note that the 50R index shows a large bearish gap between the red MA line below the green. This suggests that there are simply not enough bulls above the 50-day Moving-Average to drive this market higher.
This is confirmed by the bearish MA lines configuration [red line below green] of the [BPS] index.
Early last March the MA lines configuration for the commodity market [DBC] turned bullish with the red line crossing strongly above the green. In fact, this wide gap is a bit too bullish which implies that commodities are overbought and will have to pull back a bit in order to find renewed traction to the upside.
Note that while the DBC rallied the Baltic-Dry index rallied strongly as well. Keep in mind that the Baltic is the twin of the DBC in that it transports globally the stuff that the DBC produces. Now the gap between the red MA line above the green is narrowing, which implies that the demand for commodities is shrinking.
This means that unless the red MA line stays above the green, the commodity market will again be downward bound.
A bearish demand/supply situation in the general economy is reflected by the [TRAN] index where the MA lines configuration has formed a large bearish gap between the red line below the green.
Unless the red line crosses above the green again, the economy will remain under pressure to the downside.
The small-caps in this game are some of the most reliable harbingers in which direction the market is likely to trend next.
Check this [SML] chart and note this steep nosedive the small-caps led the market into between early December and early February. Then in February an extremely wide and therefore bearish gap formed between the red MA line below the green. This indicated that the market was way oversold and therefore ready for a snapback rally.
Sure enough, the market kicked into a rally by early February and the bulls went on a rampage when in early March the red MA line crossed the green on the upside. But now the gap between the red line above the green grew too wide, indicating that the market became sharply overbought and so went into a steep nosedive, only to snap back into a reflex rally last month. But now what?
Note that while this index hit the ceiling the MA lines configuration turned totally neutral with no gap between the red line and the green. While this could trigger a pullback by the market, that the RSI strength indicator and MACD momentum bars are still in their respective bullish territories implies that any decline will probably be short-lived.
What to watch for now is the forming of a bullish MA lines configuration where the red line is trying to rise above the green. If the red line succeeds, the market will continue to rally. But if the red line slides below the green again, all bullish bets are off.
This drawn-out example of a gap situation is meant to be a reminder that a bullish or bearish configuration lies in the eyes of the beholder. But with some practice these gaps can keep a trader at the right side of the market, most of the time.
Some participants are getting so good at it that they can time the beginning of a snap-back rally or nose-dive by reacting to a gap. But for most it takes a bit of a trend before jumping back in.
Check this bull chart [SPXL] and note that here too the MA lines configuration is totally neutral with both the red and green lines tightly intertwined without the slightest gap between these two lines. So there is no way of knowing who has the upper hand in this game, the bears or the bulls.
Sure, the bulls had a strong rally but since the last week of May it became obvious that this wouldn't last even though both the RSI strength indicator and MACD momentum bars are solid in their respective bullish territories.
One could think that the current market action would give the bears an advantage, but no so. The MA lines configuration continues to be bearish for the bears in that the red line appears to be stuck below the green line.
The bears' MACD momentum bars are in negative territory south of the demarcation line, and ditto for the RSI strength indicator, all of which is keeping the bear from rallying any time soon.
Even though [GOLD] had itself a nice rally last week, its bias appears to be geared to the downside. The red MA line is poised to cross below the green which would be bearish for gold. The MACD momentum bars seem to be bearish, south of the demarcation line and the best that the RSI strength indicator can come up with is to be sitting on its neutral line. Now, gold has been consolidating and has moved mostly sideways since early March.
This implies that something is happening in the market that is keeping gold up there. But what could it be?
Oil [WTIC] continues to be mainly bullish. The MA lines configuration is a bit overbought with this wide gap between the red line above the green. So some pullback here would be positive for the price of oil.
While the RSI strength indicator is solid in its bullish territory, the MACD momentum bars are trending in the opposite direction south of the demarcation line. So it is a mixed bag for the price of oil.
The global markets [ACIM] are just as confused as Wall Street is. Check the ACIM chart and note that the MA lines configuration is totally undecided without a gap between the red and green lines. This means that neither bulls nor bears will be able to make any headway.
Yet, the RSI strength indicator along with the MACD momentum bars are both in their respective bullish territories. This kind of mix should make for an interesting guessing game which way the markets will pan out in the months ahead.
Just in case the market comes panning your way, here are some favored ETFs to keep on tap.
Financials, Technology, Cyclical, Health Care, Materials;
Leveraged Bull ETFs :
Semis 3x (NYSEARCA:SOXL), DOW 3x (NYSEARCA:UDOW), Technology 3x (NYSEARCA:TECL), S&P 500, 3x (NYSEARCA:UPRO), Financials 3x (NYSEARCA:FAS), Mid-Caps 2x (NYSEARCA:MVV), Energy 3x (NYSEARCA:ERY), Financials 2x (NYSEARCA:UYG), NASDAQ 2x (NYSEARCA:QLD), Small Caps 3x (NYSEARCA:TNA), Russell 2000, 3x (NYSEARCA:URTY), Healthcare 3x (NYSEARCA:CURE), Biotech 2x (NASDAQ:BIB), S&P Bull 3x (NYSEARCA:SPXL);
Non-Leveraged Long ETFs:
Junk-Bond (NYSEARCA:JNK), Agriculture (NYSEARCA:JJA), Food (NYSEARCA:FUD), Grains (NYSEARCA:JJG), Confidence IDX. (NASDAQ:XIV), India (NASDAQ:INDY), Nat-Gas (NYSEARCA:MLPG), Health Care (NYSEARCA:XLV), Dividend (NYSEARCA:SDY), HIGH Yield (NYSEARCA:DHS), Software (NYSE:IGV), Semis (NYSEARCA:SMH), Info-Tech (NASDAQ:PSCT), Cloud-Computing (NASDAQ:SKYY), Commodity (NYSEARCA:DBC), Commodity (NYSEARCA:DJP);
Leveraged Bear ETFs:
Oil 2x (NYSEARCA:DTO), Biotech 2x , Emerging Markets 2x (NYSEARCA:EEV), Gold 2x (NYSEARCA:GLL), Russell 2000, 2x (NYSEARCA:TWM), NASDAQ 2x (NYSEARCA:QID), DOW 2x (NYSEARCA:DXD), S&P 500, 2x (NYSEARCA:SDS), Financials 2x (NYSEARCA:SKF), Small-Caps 3x (NYSEARCA:TZA), Technology 3x (NYSEARCA:TECS), Energy 3x , Semis 3x (NYSEARCA:SOXS), S&P Bear 3x (NYSEARCA:SPXS), Commodity 2x (NYSEARCA:DEE);
Non-Leveraged Short ETFs:
EAFE (NYSEARCA:EFZ), Emerging Markets (NYSEARCA:EUM), Oil (DNO, Gold (NYSEARCA:DGZ), Russell 2000 (NYSEARCA:RWM), NASDAQ (NYSEARCA:PSQ), DOW (NYSEARCA:DOG), S&P 500 (NYSEARCA:SH), Active Bear (NYSEARCA:HDGE), Total Market (NYSEARCA:TOTS), Agriculture (ADZ), Base Metals (NYSEARCA:BOS), Commodity (NYSEARCA:DDP);
Check my Home-Page for more ETF and market info; and