Monday’s impressive rally notwithstanding, recent market action and news out of Europe have been scary to say the least, and one can only wonder if we�re heading back to a wider version of 2008 — a �subprime� crisis on a national and international scale.
Overall fundamentals and technical indicators look terrible. However, the �powers that be� — including the IMF and European Central Bank — continue to stick their fingers in the dike in hopes of containing their ongoing financial crisis.
Furthermore, we now are approaching the beginning of December, and I probably am not the only investor who is wondering if Santa will appear for the seasonal �Santa Rally� or if a new bear market will send him scurrying to the North Pole for safety.
If Santa should suffer a bear bite in this traditionally strong period for stock markets, it could be a bad omen, indeed, and signal a long, hard grind for the stock market as we head for 2012.
As always, investors need to consider ways to cope with the ongoing volatility and market turmoil, and it is my personal view that we�re in a long-term, secular bear market that will take years to resolve — a market that will be punctuated by sharp rallies and sharp declines.
Click to Enlarge But for today, Santa does have some hope this year in the retail sector, as there were 10% more Black Friday shoppers this year than last, and the SPDR S&P Retail Index ETF (NYSE:XRT) could provide investors with enough cash to spend under the tree.
Despite the fact that XRT closed down Friday, Monday was a new day as Black Friday reports streamed in and the retail index jumped 4% in early going. Apparently people are buying big this year, so there�s still hope that the bear will not maul Santa in the retail sector this year.
The retail sector might be Santa�s savior this year. However, taking a look at today�s market, we see current measures of momentum and moving averages indicating we�re very likely still in a down phase in these ongoing cycles.
Click to Enlarge In this chart of the S&P 500 we can see that momentum is declining, with MACD on a downward slope, and the index has broken below both the critical 50- and 200-day moving averages. Also, the �death cross� — wherein the 50-day average is below the 200-day — still is in play. All of this points toward the bear coming out of his cave and Santa retreating to his icy lair despite today�s strong bounce.
In dangerous times like these, conservative investors can flock to an old standard �safe haven,� the U.S. dollar. Although we have plenty of problems at home, the U.S. dollar still is widely viewed as a safe haven because it�s still the world�s reserve currency and the Fed has the power of a seemingly unlimited printing press behind it.
Click to Enlarge In this chart, we can see how the dollar — represented by the PowerShares DB US Dollar Index Bullish Fund (NYSE:UUP) — has taken off on a steady climb this month and is in a bull market as indicated by its positioning above both the 50- and 200-day moving averages.
So, while the days ahead might be scary and fraught with danger, opportunities always exist to fill one�s stocking, and investors with a plan can use ETFs such as UUP and XRT to seek profits in whatever market environment we face.
Disclosure: Wall Street Sector Selector actively trades a wide range of exchange-traded funds, and positions can change at any time.
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