There’s a debate brewing on Wall Street right now – it’s a fight over which way the market’s headed after it makes its way out of its current rut.

Tuesday morning on CNBC’s Squawk on the Street, anchors Mark Haines and Erin Burnett featured commentary from Phil Roth, Chief Technical Analyst at Miller Tabak. Roth explained that investors shouldn’t be fooled by the recent rally we’ve seen since the market hit its March 9 low of 666.79 – until stocks test their current levels, we could be seeing a bear market rally that could easily give back some of those gains.

CNBC’s Mark Haines was outraged. “The market’s moved more than 20% higher off the lows… 20% or more is a bull market. The benefit of the doubt has to go to the bull market,” exclaimed a frustrated Haines after Roth discounted the anchor’s opinion.

Who’s right?

Forget about what’s happening on TV – to make an informed opinion, we need to check out a chart…

Above is a look at the S&P 500 from last summer (before the market crumbled beneath us in October) to present. What’s initially clear from the S&P’s price action is the fact that between market bottom on March 9 and May 8 the movement was almost exclusively up.

That’s no surprise given just how oversold the market was in March.

Ever since then, the market has traded flat, bouncing around in a channel, and making investors sitting on gains from the last few months very nervous.

What should make investors more nervous is the potential for a bearish “head and shoulders” pattern forming on the S&P right now…

If the S&P decisively breaks through the shoulder level above, we could easily see a drop to around 852 before it encounters any kind of support. Luckily, the downside risk is relatively shallow right now, but that could change alongside market conditions.

This week, we’ve seen a slew of negative reports that seem to indicate the economy isn’t quite as strong as many investors thought – jobs numbers were dismal on Monday alongside slipping oil prices for starters. As earnings season kicks off, good income numbers could be the only thing that keeps us from tumbling further… more on that in a minute…

Taking on Multiple Timeframes

One of the strongest technical confirmations of where the market’s going can be found by looking at multiple timeframes. While things look nasty on the 12-month chart we looked at above, how are things positioned shorter-term?

Over the course of the last two months, the bulls have clearly been losing ground through two increasingly drastic downward movements. That seems to suggest that our medium-term downtrend is holding in “bear mode”.

While the possibility that we’ll experience a new market bottom is doubtful at present, the possibility that the stock market will continue to fall over the course of the next month or two is quite likely.

Making Money with ETFs

Even though things look unappealing for most companies’ share prices right now, there is a glimmer of hope for investors who want the rally to continue.

It’s earnings season, and strong numbers from a few of Wall Street’s darlings could do a lot to change investors’ fortunes. Right now, the economy’s fundamentals are weak, and earnings expectations are muted. If big names on Wall Street can beat analyst expectations, it’s quite likely that the market can put the brakes to its slide.

That said, there are plays to be made regardless of where the market’s going – and ETFs provide one of the best ways to pull down gains right now.

ETFs – or Exchange Traded Funds – are essentially baskets of securities that trade on major exchanges. Think of them as mutual funds that trade like stocks. But unlike mutual funds, ETFs can get you a part in almost any market imaginable… Even commodities like gold and oil, and emerging market stocks.

I’ll let you in on some interesting ETF strategies in the coming weeks. Until then, I’ll continue to keep you updated on what’s going on in this wild market.

Cheers,

Jonas Elmerraji

Source: Is the Market Bound for Another Bottom?