Tuesday, August 22, 2017

Improving Industrial Production … Earnings Déjà vu … Stock Market Analysis … ETF Trading

“The expansive industrial growth cycle in 2016 and 2017 is further supported by the new breakout in July by the base metals index (DBB). This industrial metals indication of industrial growth is further supported by the resplendent US shale sector that will soon achieve new record levels of production. Look for continued economic and industrial expansion trends into 2018-2019.” – Kurt Kallaus. Commentary at…
EARNINGS DÉJÀ VU (Charles Schwab)
“Relative to the prior periods when earnings hit $30, valuations are now much higher. For the world's stock market to rise materially and sustainably, it is our view that earnings must push through $30. The most commonly used valuation measure, the price-to-earnings ratio, for the world's stock market is close to a 15 year high. Without a rise in earnings above $30, stock prices may find it difficult to move any higher. Fortunately, that now appears more likely than it has in a decade.” – Jeffrey Kleintop. Commentary at…
-Tuesday the S&P 500 was up about 1% to 2453.
-VIX dropped about 13% to 11.46.
-The yield on the 10-year Treasury rose to 2.218%. (Bonds fell as investor bought stocks.)
We saw buying at the close again so that’s a good sign.
Again, VIX dropped more than 13% on the day and that’s an indication that the options boys are less worried (and betting long) and that’s bullish for stocks.
My sum of 17-indicators improved a bit on the day; on a smoothed basis it has was also up slightly – Bullish signs.
New-High/new-low data switched to with new-highs exceeding new-lows. Finally a bullish sign for which we have been waiting! We got better numbers Tuesday and even the smoothed numbers are starting to turn suggesting we should be able to make new highs again.
The Index could be down tomorrow (Wednesday) since today was a big up-day that exceeded my statistical parameters.  That leads to a down day about 60% of the time, but coming off a bottom, Mr. Market often ignores this “rule”. No guarantees, but it looks like a short-term bottom is in.
Longer-term, I remain cautiously bullish; I will worry more if the numbers deteriorate, but I remain fully invested. There isn’t any news now that signals a bear market and long-term indicators remain neutral.
TODAY’S RANKING OF 15 ETFs (Ranked Daily)
The top ranked ETF receives 100%. The rest are then ranked based on their momentum relative to the leading ETF.  While momentum isn’t stock performance per se, momentum is closely related to stock performance. For example, over the 4-months from Oct thru mid-February 2016, the number 1 ranked Financials (XLF) outperformed the S&P 500 by nearly 20%.
*For additional background on the ETF ranking system see NTSM Page at…
Aerospace and Defense (ITA) and Emerging Markets (SCHE) are essentially tide at #1. Avoid XLE, DVY, XLF and IWM; their 120-day moving averages are falling.
The weakness across several sectors remains a concern so we need to keep a watchful eye on this market. 
SHORT-TERM TRADING PORTFOLIO - 2017 (Small-% of the total portfolio)
I take a portion of my cash and apply it strategically to improve returns in cash. My short-term trading has never been about get-rich-quick. I haven’t been doing much recently; I don’t have time to watch and I think short-term trading takes a watchful eye.
-“In a bull market, you can only be long or neutral.” – D. Gartman
-“The best policy is to avoid shorting unless a major bear market is underway and downside momentum has been thoroughly established. Even then, your timing must sometimes be perfect. In a bull market the trend is truly your friend, and trading against the grain is usually a fool's errand.” – Clif Droke.
-“Commandment #1: “Thou Shall Not Trade Against the Trend.” - James P. Arthur Huprich
Market Internals improved, but remained negative on the market.
Market Internals are a decent trend-following analysis of current market action, but should not be used alone for short term trading. They are usually right, but they are often late.  They are most useful when they diverge from the Index.  In 2014, using these internals alone would have made a 9% return vs. 13% for the S&P 500 (in on Positive, out on Negative – no shorting). 
Tuesday, Price, Sentiment, VIX & Volume indicators were neutral. With VIX recently below 10 for a couple of days (May, June, July and now August), VIX may be prone to incorrect signals. Usually, a rising VIX is a bad market sign; now it may move up, but that might just signal normalization of VIX, i.e., VIX and the Index may both rise. As an indicator, VIX is out of the picture for a while.
I increased stock allocation to 50% stocks in the S&P 500 Index fund (C-Fund) Friday, 24 March 2017 in my long-term accounts, based on short-term indicators. Remainder is 50% G-Fund (Government securities). This is a conservative retiree allocation, but I consider it fully invested for my situation.
The previous signal was a BUY on 2 June and the last actionable signal was a BUY (from a prior sell) on 15 November 2016.