Tuesday, January 17, 2017

Empire Manufacturing … Options Suggest a Stock Selloff … Lance Roberts Commentary … Stock Market Analysis … ETF Ranking

“Factory activity across New York state remained in positive territory, according to a report from the Federal Reserve on Tuesday, and firms remained optimistic about future conditions. The Federal Reserve Bank of New York's general business conditions index came in at 6.5 this month from a reading of 7.6 in December.” Story at… 
“If options traders are correct, stocks are in for a wild ride in February.
Demand for one-month call options tied to the CBOE Volatility Index, a popular gauge of stock-market volatility, has spiked in the past week, a sign that some are bracing for a sharp downturn following the inauguration of President-elect Donald Trump.” Story at…
“….since the beginning of the year, the rush to pile into “Trump Trades” has quickly evaporated as transaction volumes have plunged as “anticipation” has turned into “wait and see.” It is worth noting that previous, when transaction volumes have plunged to such low levels, the markets were generally at an inflection point of a correctionary process. With the markets currently extremely overbought and extended, the reality of a “sell the inauguration” trade is possible.” - Lance Robert. Commentary at…
-Tuesday the S&P 500 was down about 0.3% to 2268.
-VIX rose about 6% to 11.87.
-The yield on the 10-year Treasury dipped to 2.323%.
I am beginning to wonder about my on-going “bear call”. As evidence I present (above) just two of the bearish articles I have seen recently. I have long noted that when everyone is sure something will happen in the stock market, the outcome is usually the opposite.  In short, if everyone thinks the market is going down, it won’t.  Further, and this is a relatively new development, the Wall Street algorithms are designed to bet against the crowd. The market is stretched and it will drop, but perhaps it will take even longer for this pullback to occur. We’ll see…
The following, although updated, is somewhat repetitive; but not much has changed recently.
Bear signals:
-The old standby Advance-Decline Ratio remains “overbought”.
-The 10-day closing Tick is high at 344. Closing tick of 300 is considered a sell point per Tom McClellan
-The S&P 500 Index remains close to its upper Bollinger Band a decidedly bearish indication.
-Late day action is down on a 10-day basis, but it depends how one measures this – on a percentage of price it is down.
-My Top Indicator is still calling for a pullback based on the S&P 500 outperforming the underlying Market Internals. Even though today was down, the indicator turned more bearish.
-The cyclical industrial stocks (XLI-ETF) is underperforming the S&P 500 and that shows investor worry. If one is worried, sell the cyclicals first.
Bullish indicators:
-Money Trend has been moving up.  It estimates dollars into and out of stocks. 
-My sum of 16-indicators is now +6 on the day, down from +8, but it has been improving on a 10-day basis…but I remain unconvinced because my short-term indicators are still pointing down.
The market is stretched and may continue to stretch higher, but overall, I think the upside potential is limited while the downside risk is fairly high, at least for a short-term pullback. I remain a short-term bear.
Long-term, I’m fully invested at 50% in stocks (a conservative-retiree allocation – I don’t do short-term timing with retirement money). 
CURRENT RANKING OF 11 ETFs (Ranked Daily)* - Unchanged -
#1 RANK for the past 49-days: Financial Select Sector SPDR ETF (XLF).
#2 RANK: iShares Russell 2000 – Small Cap (IWM)
#3 RANK: iShares U.S. Aerospace and Defense ETF (ITA)
*For background on the ETF ranking system see NTSM Page at…

TRADING PORTFOLIO - 2017 (Small-% of the total portfolio)
Rydex 2x Short S&P 500 (RYTPX): Established 6 Dec.
2x Short S&P 500 (SDS): Established 16 Dec.
Long Volatility ETN (VXX): Established 6 Jan 2017.  
-10-day moving average of the percentage of stocks advancing (NYSE): 56.9%. (56.9% prior trading-day.) A number above 50% is usually BULLISH for the markets short-term.
-150-day moving average of advancing stocks: 52.8%. (A value above 50% indicates a long-term, up-trend.)
-McClellan Oscillator: Dropped from +51 to +19 (percentage calculation method adjusted to fit McClellan’s values).
-New-highs minus new-lows: +83 (It was +124 prior trading day.)
-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 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). 
Tuesday, the Sentiment, VIX & Volume indicators were neutral. The Price indicator was positive.
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.