Wednesday, November 30, 2016

ADP Employment … Personal Spending/Income … Chicago PMI … FED Beige Book … Crude Inventories

ADP EMPLOYMENT (Reuters)
“U.S. private employers added 216,000 jobs in November, well above economists' expectations, a report by a payrolls processor showed on Wednesday.” Story at…
 
PERSONAL SPENDING / INCOME (Bloomberg)
“Personal spending increased at a more moderate pace in October after the biggest gain in five months, while faster income growth signaled demand will be sustained.
Purchases rose 0.3 percent after a 0.7 percent September advance…” Story at…
 
CHICAGO PMI (Marketwatch)
“A measure of Chicago-area economic activity surged in November to its highest level in almost two years, another sign the manufacturing sector is starting to strengthen. The Chicago PMI jumped to 57.6 in November, its highest level since January 2015…” Story at…
 
FED BEIGE BOOK (WSJ)
“The Fed’s latest roundup of anecdotal information on regional economic conditions, known as the beige book, said seven of the central bank’s 12 districts reported moderate or modest growth from early October through mid-November, and an additional three reported slight growth.” Story at… 
 
CRUDE INVENTORIES (Reuters)
“U.S. crude oil stockpiles fell unexpectedly last week, while distillate inventories rose sharply, the Energy Information Administration's data showed on Wednesday.
Crude inventories fell 884,000 barrels in the week to Nov. 25, compared with analysts' expectations for an increase of 636,000 barrels.” Story at…
My cmt: This is considered somewhat bullish for crude, but not huge.
 
MARKET REPORT / ANALYSIS        
-Wednesday the S&P 500 was down about 0.3% to 2199 at the close.
-VIX rose about 3% to 13.33 at the close.
-The yield on the 10-year Treasury rose to 2.37%.
 
RSI dropped to 69 so it is now neutral. The Advance-Decline ratio cleared its overbought indication and is neutral too.
 
Sentiment.
The 5-dMA of %-bulls in selected Rydex/Guggenheim long/short funds has fallen to 48% as of Tuesday’s close (today’s data is not available until after I post this blog). I had to go back to 12 March 2013 to find a value below 50%-bulls.  “What was happening to the market in March of 2013?” you might ask. The surprising answer is not much.  VIX had fallen to below 12 (a bearish level for some traders), but it would be another month later before there was a modest pullback of maybe 3 or 4%. The current low %-Bulls value suggests we may get the same result as in 2013 – a slow melt-up followed by a small pullback, perhaps after Santa has arrived. There are some bearish signs though.
 
In spite of the Sentiment numbers, Short-term I remain somewhat bearish. My Money Trend indicator and the Sum of 16-Indicators are pointing down. Whether bearish signs will be confirmed by other indicators, or perhaps by the market, remains to be seen. I haven’t seen too much further confirmation on the bearish leaning so no trades at this point. The market is a bit muddled.
 
Long-term I’m fully invested at 50% in stocks (a conservative-retiree allocation) – I remain “hold-my-nose” bullish.  The long-term trend remains up.
 
TRADING PORTFOLIO (Small-% of the total portfolio)*
Long Volatility ETF (VXX): Established 5 Aug. SOLD 15 Sep. Gain: +6.6%.
2x S&P 500 ETF (SSO): Established 22 Sep. SOLD 7 Oct. Loss: -1.5%.
2x Short S&P 500 (SDS): Established 7 Oct. SOLD 10 Oct. Loss: -1.4%.
2x Short Dow 30 (SDOW): Established 17 Oct. SOLD 18 Oct Loss: -0.4%
2x Dow ETF (DDM) Established 18 Oct. SOLD 21 Oct Loss: -0.9
2x S&P 500 ETF (SSO) Established 9 Nov. SOLD 10 Nov Gain: +3.5%
2x S&P 500 ETF (SSO) Established 15 Nov. SOLD 22 Nov. Gain: +2.3%
   NET: +8.2%
*I am not really happy doing this much trading, but I need to rebuild the trading balance after holding my shorts too long after the February correction.  (I really should follow my own indicators. My system is smarter than I am!)
 
CURRENT BEST OF 11 ETFs
#1 RANK: Financial Select Sector SPDR ETF (XLF).
#2 RANK: iShares U.S. Aerospace & Defense ETF (ITA)
I am checking numbers…more to come.
1. iShares Russell 2000-SmallCap (IWM); 
2. iShares Select Dividend (DVY);
3. Industrial Select Sector SPDR ETF (XLI); 
4. Consumer Discret Sel Sect SPDR® ETF (XLY); 
5. Energy Select Sector SPDR ETF (XLE); 
6. Financial Select Sector SPDR ETF (XLF); 
7. iShares Nasdaq Biotechnology ETF (IBB); 
8. Health Care Select Sector SPDR® ETF (XLV); 
9. iShares U.S. Aerospace & Defense ETF (ITA); 
10. Technology Select Sector SPDR ETF (XLK)
11. S&P 500 (SPY)
 
WEDNESDAY MARKET INTERNALS (NYSE DATA)
-10-day moving average of the percentage of stocks advancing (NYSE): 53.5 %. (56.7 % yesterday.) A number above 50% is usually BULLISH for the markets short-term.
-150-day moving average of advancing stocks: remained 52.3%. (A value above 50% indicates a long-term, up-trend.)
-McClellan Oscillator: fell to +39 (percentage calculation method adjusted to fit McClellan’s values).
-New-highs minus new-lows: +152 (It was +107 yesterday.)
-10-day moving average of the change in spread: +4. In other words, over the last 10-days, on average, the spread has increased by 4 each day.
Market Internals remained 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
Wednesday the Sentiment, Volume and VIX indicators were neutral. The Price indicator was positive. Overall the long-term indicator remained Neutral.
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) Friday, 23 Sep 2016 in my long-term accounts. Remainder is 50% G-Fund. This is a conservative retiree allocation.

ETF Ranking

When I added the Utilities ETF (XLU) to the ETF ranking system the results were much worse. This could be explained by a rapid rise at the beginning of the Utilities run followed by a steep fall at the end.  The ranking system wouldn’t react fast enough. Another possibility is that the analysis contains errors. Short story: The ETF Ranking probably isn’t ready for prime time. I’ll do some more work.

Tuesday, November 29, 2016

GDP … Consumer Confidence … Ranking Exchange Traded Funds … Stock market Analysis

GDP-2ND ESTIMATE (WSJ)
“Corporate profits continued to rebound in the third quarter alongside solid growth in the broader U.S. economy. The Commerce Department on Tuesday reported that a key measure of business earnings rose 3.5% from the second quarter, its third straight quarterly increase…Tuesday’s report also showed that gross domestic product, a broad measure of the goods and services produced across the economy, expanded at an inflation- and seasonally adjusted annual rate of 3.2% in the third quarter…” Story at…
 
CONSUMER CONFIDENCE (USA Today)
“Consumer confidence soared to a nine-year high in November despite Donald Trump’s upset victory in the presidential election, which was expected to intensify political uncertainty and roil markets. A closely watched index of Americans’ outlook increased to 107.1 from an upwardly revised 100.8 in October…” Story at…
 
EXCHANGE TRADED FUND (ETF) EXAMINATION AND RANKING
I read a discussion of securities analysis described in a paper titled “Random Walks: Reality or Myth” in the November 1967 issue of Financial Analysis Journal. According to the author, Robert Levy, his technique produced a 20% per year return over the 5-years covered in a simulation. It looked at hundreds of stocks and included complex Buy/Sell rules. I decided to adapt the method to rank 10 ETFs (11 including the S&P 500) and simplified it to select only the top ETF.  Under the modified system, one would hold the highest ranked ETF until another replaced it at the top level. In short, this is a momentum methodology that looks at current price relative to past prices and picks a winner each day.
 
I examined the following ETFs:
1. iShares Russell 2000-SmallCap (IWM); 
2. iShares Select Dividend (DVY);
3. Industrial Select Sector SPDR ETF (XLI); 
4. Consumer Discret Sel Sect SPDR® ETF (XLY); 
5. Energy Select Sector SPDR ETF (XLE); 
6. Financial Select Sector SPDR ETF (XLF); 
7. iShares Nasdaq Biotechnology ETF (IBB); 
8. Health Care Select Sector SPDR® ETF (XLV); 
9. iShares U.S. Aerospace & Defense ETF (ITA); 
10. Technology Select Sector SPDR ETF (XLK)
11. S&P 500 (SPY)
 
I checked returns assuming funds were invested in the top performing ETF for years 2016 (thru 25 Nov), 2015 and 2014.  
 
Returns Follow:
2016: +27% (S&P 500: +10%) thru 25 Nov. 11-Trades.
2015: +0.2% (S&P 500: -0.7%)  8-Trades.
2014: +21% (S&P 500: +11%)  4-Trades.
CORRECTED RETURNS:
2016: +20% vs S&P 500: +10% thru 30 Nov. with 18-Trades.
2015: -1.7% vs S&P 500: -0.7% with 19-Trades.
2014: +21% vs S&P 500: +11% with 4-Trades.
It would be nice to examine the technique for 30-years instead of 3, but it is too data intense (and too much work – my IT department is very lazy). I am reasonably convinced on the basis of the 3-year simulation.
 
Financial Select Sector SPDR ETF (XLF) is currently the leading ETF from the above list.  I will take a position in this ETF when market conditions improve a bit. (They look unsettled now.)   I will be sure to remain diversified by limiting my position to no more than 4% of the total portfolio. I will post the top ranked ETF here in the future. The ETF in 2nd place was the iShares U.S. Aerospace & Defense ETF.
 
MARKET REPORT / ANALYSIS        
-Tuesday the S&P 500 was up about 0.1% to 2204 at the close.
-VIX dropped about 2% to 12.9 at the close.
-The yield on the 10-year Treasury slipped to 2.32%.
 
Short-term I remain somewhat bearish. My Money Trend indicator and the Sum of 16-Indicators are pointing down. RSI dropped to 80, but it was 92 last week so it signaled a top then. The Advance-Decline ratio remains overbought and that’s bearish. Whether bearish signs will be confirmed by other indicators, or perhaps by the market, remains to be seen. I haven’t seen further confirmation on the bearish leaning so no trades at this point.
 
Long-term I’m fully invested at 50% in stocks (a conservative-retiree allocation) – I remain “hold-my-nose” bullish.  The long-term trend remains up.
 
TRADING PORTFOLIO (Small-% of the total portfolio)*
Long Volatility ETF (VXX): Established 5 Aug. SOLD 15 Sep. Gain: +6.6%.
2x S&P 500 ETF (SSO): Established 22 Sep. SOLD 7 Oct. Loss: -1.5%.
2x Short S&P 500 (SDS): Established 7 Oct. SOLD 10 Oct. Loss: -1.4%.
2x Short Dow 30 (SDOW): Established 17 Oct. SOLD 18 Oct Loss: -0.4%
2x Dow ETF (DDM) Established 18 Oct. SOLD 21 Oct Loss: -0.9
2x S&P 500 ETF (SSO) Established 9 Nov. SOLD 10 Nov Gain: +3.5%
2x S&P 500 ETF (SSO) Established 15 Nov. SOLD 22 Nov. Gain: +2.3%
   NET: +8.2%
*I am not really happy doing this much trading, but I need to rebuild the trading balance after holding my shorts too long after the February correction.  (I really should follow my own indicators. My system is smarter than I am!)
 
CURRENT BEST OF 11 ETFs
#1 RANK: Financial Select Sector SPDR ETF (XLF).
#2 RANK: iShares U.S. Aerospace & Defense ETF (ITA)
 
TUESDAY MARKET INTERNALS (NYSE DATA)
-10-day moving average of the percentage of stocks advancing (NYSE): 56.7 %. (57.1 % yesterday.) A number above 50% is usually BULLISH for the markets short-term.
-150-day moving average of advancing stocks: dipped to 52.3%. (A value above 50% indicates a long-term, up-trend.)
-McClellan Oscillator: fell to +84 (percentage calculation method adjusted to fit McClellan’s values).
-New-highs minus new-lows: +107 (It was +120 yesterday.)
-10-day moving average of the change in spread: +9. In other words, over the last 10-days, on average, the spread has increased by 9 each day.
Market Internals remained 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
Tuesday the Sentiment, Volume and VIX indicators were neutral. The Price indicator was positive. Overall the long-term indicator remained Neutral.
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) Friday, 23 Sep 2016 in my long-term accounts. Remainder is 50% G-Fund. This is a conservative retiree allocation.

Monday, November 28, 2016

Dallas Federal Reserve Manufacturing … Regional Manufacturing … Why the Polls Got it Wrong … Saut … Hussman

DALLAS FED MANUFACTURING (Business Insider)
“Overall business activity in Texas turned positive in November for the first time since December 2014, according to the Dallas Federal Reserve.
In the first monthly survey since the US election, the headline index that gauges general activity in the sector jumped to 10.2.” Story at… 
 
REGIONAL FED MANUFACTURING (dshort.com)
Charts with commentary at…
No recession in sight with manufacturing on the rise.
 
WHY THE POLLS GOT IT WRONG (Financial Sense)
My cmt: I won’t include any of the piece here. It covers polling bias, accidental and intentional. You can read it at Financial Sense. Actually, I think the Polls got it right. By that I mean they accurately gave public opinion at the time of the survey. The problem was that there was a large block of voters who told pollsters they were going to vote for Governor Gary Johnson on the Libertarian ticket (13% in late July) Even on Election Day it appeared that Johnson was going to receive well in excess of 5% of the popular vote based on the polling – that was a critical number to insure Libertarians would have Federal funding for the next election. Those voters bailed on Johnson at the last minute.  No Libertarian leaning voter would vote with the Democrats, so Trump was the recipient of an extreme last minute shift. It had to be a big factor and perhaps THE factor that tripped up the Pollsters.
 
COMMENTARY FROM JEFFREY SAUT (Raymond James)
“Look for a short-term trading peak in this overbought market that sets the stage for the fabled Santa Claus rally.” Commentary at…
 
COMMENTARY FROM JOHN HUSSMAN PhD (Hussman Funds)
“Our assertion is not that stocks will immediately collapse from present extremes. Rather, our assertion is simply that we presently identify a negative expected near-term market return/risk profile based on our classification of observable data, in the context of extreme valuations that also have unfavorable long-term implications… Are we pounding the table about a collapse? No; we’d look for even greater internal deterioration first. Near-term, we’re more inclined to expect an air-pocket than a crash.” – John Hussman, PhD. Weekley Market Commentary at…
 
MARKET REPORT / ANALYSIS        
-Monday the S&P 500 was down about 0.5% to 2201 at the close.
-VIX was up about 7% to 13.15 at the close.
-The yield on the 10-year Treasury slipped to 2.32%.
 
Short-term I am getting more bearish. My Money trend indicator and the SUM of 16-Indicators are pointing down. RSI dropped to 80, but it was 92 last week so RSI is bearish. The Advance-Decline ratio remains overbought and that’s bearish.
 
Long-term I’m fully invested at 50% in stocks (a conservative-retiree allocation) – I remain “hold-my-nose” bullish.  For now I think the long-term trend remains up.
 
TRADING PORTFOLIO (Small-% of the total portfolio)*
Long Volatility ETF (VXX): Established 5 Aug. SOLD 15 Sep. Gain: +6.6%.
2x S&P 500 ETF (SSO): Established 22 Sep. SOLD 7 Oct. Loss: -1.5%.
2x Short S&P 500 (SDS): Established 7 Oct. SOLD 10 Oct. Loss: -1.4%.
2x Short Dow 30 (SDOW): Established 17 Oct. SOLD 18 Oct Loss: -0.4%
2x Dow ETF (DDM) Established 18 Oct. SOLD 21 Oct Loss: -0.9
2x S&P 500 ETF (SSO) Established 9 Nov. SOLD 10 Nov Gain: +3.5%
2x S&P 500 ETF (SSO) Established 15 Nov. SOLD 22 Nov. Gain: +2.3%
   NET: +8.2%
*I am not really happy doing this much trading, but I need to rebuild the trading balance after holding my shorts too long after the February correction.  (I really should follow my own indicators. My system is smarter than I am!)
 
MONDAY MARKET INTERNALS (NYSE DATA)
-10-day moving average of the percentage of stocks advancing (NYSE): 57.1 %. (59.1 % yesterday.) A number above 50% is usually BULLISH for the markets short-term.
-150-day moving average of advancing stocks: dipped to 52.4%. (A value above 50% indicates a long-term, up-trend.)
-McClellan Oscillator: fell to +105 (percentage calculation method adjusted to fit McClellan’s values).
-New-highs minus new-lows: +120 (It was +206 yesterday.)
-10-day moving average of the change in spread: +8. In other words, over the last 10-days, on average, the spread has increased by 8 each day.
Market Internals remained 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
Monday the Sentiment, Volume and VIX indicators were neutral. The Price indicator was positive. Overall the long-term indicator remained Neutral.
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) Friday, 23 Sep 2016 in my long-term accounts. Remainder is 50% G-Fund. This is a conservative retiree allocation.