“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:
CORRECTED RETURNS:
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.
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)*
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.
