After a nice short term run in the leveraged ETFs that were mentioned in my last article it seems the stock market ran into a brick wall. I dumped the Leveraged Financial ETF as well as the Leveraged Biotech ETF because as I said in the last article those are the two most dangerous trades. The financials are dangerous because they remain trapped in a grueling bear market that doesn’t seem to have a bottom. The Biotechs were dangerous for the opposite reason, they had run up significantly over the past year. While both will most likely be huge winners at some point, I’m not going to wait it out. It’s difficult to stay in losing trades with leveraged ETFs because they can really beat you up and even when the trend turns it’s hard to make up those losses.

I stuck with the Leveraged Oil ETF – ERX as I quickly was up nearly 30%. In hind sight I wish I would’ve taken profit there are well as I could easily give the whole profit back but as a long term energy bull i hate getting out. I also stuck with my Leveraged Silver ETF (AGQ) and the Junior Mining ETF (GDXJ) as metals remain in a constructive pattern (especially gold). I won’t initiate any new stock market positions until the S&P 500 either regains the 200 day moving average or completes a successful test of the 20 month moving average. You can see by the chart below that the 20 month moving average is just above 1200.

As you can see the 20 month sma was tested last summer just before the huge QE2 Rally began. I’m not sure what the catalyst will be for this year’s rebound but it definitely looks like there will be a test of that level. If that level fails you will want to be completely out of stocks as it would probably signal that the U.S. was headed into another nasty recession. The odds of this outcome are very low at this time. The fed seems like they would rather continue to provide excess liquidity instead of letting the economy tank once again.