Friday, September 22, 2017

The Fed Takes Away the Punch Bowl … Stock Market Final Warning … Stock Market Analysis … ETF Trading

YELLEN TAKES AWAY THE PUNCH BOWL (Real Investment Advice)
“September 20th, 2017 will likely be a day that goes down in market history.
It will either be remembered as one of the greatest achievements in the history of monetary policy experiments, or the beginning of the next bear market or worse.
Given the Fed’s inability to spark either inflation or economic growth, as witnessed by their dismal forecasting record shown below, I would lean towards the latter….” – Lance Roberts.
“…An unwind of the Fed’s balance sheet also increases UST supply to the public. Ultimately, the Treasury needs to borrow from the public to pay back principal to the Fed resulting in an increase in marketable issuance. We estimate the Treasury’s borrowing needs will increase roughly by $1tn over the next five years due to the Fed roll offs. However, not all increases in UST supply are made equal. This will be the first time UST supply is projected to increase when EM reserve growth likely remains benign.
Our analysis suggests this would necessitate a significant rise in yields or a notable correction in equity markets to trigger the two largest remaining sources (pensions or mutual funds) to step up to meet the demand shortfall. Again, this is a slower moving trigger that tightens financial conditions either by necessitating higher yields or lower equities.” – Bank of America. 
Commentary from RIA available at…
 
FINAL WARNING (MarketWatch)
“The boy who cried wolf might finally be right. If liquidity is no longer as ample, it will be much more difficult for already overvalued markets to get more expensive. That could lead to material market declines, and the Nasdaq 100, S&P 500, Dow Jones Industrial Average and Russell 2000 could drop by about 45% without being undervalued based on historical multiples…investors must remove the handcuffs, implement risk controls and stop thinking that someone will simply come along and inject more money into the system to save them if asset declines happen. Those days seem to be numbered.” - Thomas H. Kee Jr., former Morgan Stanley broker and founder of Stock Traders Daily. Commentary at…
 
MARKET REPORT / ANALYSIS         
-Friday the S&P 500 was up about 0.1% to 2502.
-VIX slipped about 1% to 9.59.
-The yield on the 10-year Treasury dropped to 2.254%.
 
VIX fell again, down another 1% on the day.  Another day below 10 for the VIX. No fear here, nor is there an expectation of a correction from the Options Boys. See yesterday’s blog for the discussion of VIX below 10 – it’s a worry, but perhaps not for a while. Utilities continue to sell off when compared to the S&P 500 – that’s a bullish sign.
 
Market Internals switched to positive. After today, advancing volume is headed up over the last 10-days; that’s a reversal from yesterday. My sum of 17 indicators jumped up, so short-term indicators are decidedly bullish.
 
Longer-term, I’m 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) remained #1 today. I am in ITA as of 21 Sept.
Avoid XLE; its 120-day moving average is falling.
 
SHORT-TERM TRADING PORTFOLIO - 2017 (Small-% of the total portfolio)
LONG
-“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
 
FRIDAY MARKET INTERNALS (NYSE DATA)
Market Internals switched to Positive 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). 
 
LONG TERM INDICATOR
Friday, Price, Sentiment, VIX & Volume indicators were neutral. With VIX recently below 10 for a couple of days in May, June, July, August and September, 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.
MY INVESTED STOCK POSITION:
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
I increased stock allocation to 50% stocks in the S&P 500 Index fund (C-Fund) 24 March 2017 in my long-term accounts, based on short-term indicators. The 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.

Thursday, September 21, 2017

Unemployment Claims … Philadelphia Fed … … Stock Market Analysis … ETF Trading

UNEMPLOYMENT CLAIMS (MarketWatch)
“Applications for U.S. unemployment benefits fell sharply in mid-September, reflecting fewer new claims than expected in Florida and Texas following a pair of destructive hurricanes. Initial weekly claims in the period running from Sept. 11 to Sept. 16 fell by 23,000 to 259,000…” Story at…
 
PHILADELPHA FED (AIER)
“Manufacturing firms in the Philadelphia area showed a substantial increase in current business conditions as well as expectations for future conditions six months ahead. The index for general business conditions jumped to 23.8 versus 18.9 in August.” Story at…
 
STUDENTS AGAINST HATE SPEECH (Mishtalk)
“A Brookings Study of college students views on the first amendment right of free speech shows some shocking trends.
-Only 31% of female college students believe in the constitutional right to free speech.
-62% of Democrats think it is OK to shout down speakers.
-30% of male students believe violence is an acceptable response by student groups.”
My cmt: This finding is not a surprise given what’s been happening on campuses recently. The piece could be titled, Students Against Free Speech.
 
MARKET REPORT / ANALYSIS         
-Thursday the S&P 500 was down about 0.3% to 2501.
-VIX slipped about 1% to 9.67.
-The yield on the 10-year Treasury rose to 2.279%.
 
VIX fell again, down 1% on the day.  No fear here, nor is there an expectation of a correction from the Options Boys.  Volume was about 10% below the monthly norm for the S&P 500 so investors don’t seem worried either.  Some traders are probably on the sidelines waiting to see if the FED QT announcement will have an impact on the Markets.  Remember, the markets were “saved” by the Fed program of buying bonds called Quantitative Easing (QE). Now we’re looking at Quantitative Tightening (QT) in which the Fed must sell bonds to lower its balance sheet starting in October. QT may present problems for the markets.
 
Market Internals have slipped to neutral. Over the last 10-days, advancing volume is now headed down. My sum of 17 indicators dropped a little on the day, but longer term they remain up.
 
Overall the short-term indicators are Neutral.
 
Longer-term, I’m 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) remained #1 today. I am in ITA as of today.
Avoid XLE; its 120-day moving average is falling.
 
SHORT-TERM TRADING PORTFOLIO - 2017 (Small-% of the total portfolio)
LONG
-“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
 
THURSDAY MARKET INTERNALS (NYSE DATA)
Market Internals slipped to Neutral 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). 
 
LONG TERM INDICATOR
Thursday, Price was positive. Sentiment, VIX & Volume indicators were neutral. With VIX recently below 10 for a couple of days (May, June, July, August and September), 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.
MY INVESTED STOCK POSITION:
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
I increased stock allocation to 50% stocks in the S&P 500 Index fund (C-Fund) 24 March 2017 in my long-term accounts, based on short-term indicators. The 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.