Tuesday, January 24, 2017

Home Sales … John Hussman, PhD, Comments … Stock Market Analysis … Rank Performance of ETFs

“Sales of existing homes fell in December amid historically low supplies and rising prices and mortgage rates but still closed out the best year in a decade.
Sales decreased 2.8%...” Story at…
“…despite the recent post-election blowoff, our key measures of market internals remain unfavorable here. Given that environment, my expectation is that the overvalued, overbought, overbullish extremes we presently observe may have harsh consequences, as they have in prior cycles…two of our three ‘crash signatures’ [are] now suggesting the likelihood of a market loss in excess of -25% in the months ahead (the last time these signatures were active was between April-October 2008).” – John Hussman, PhD. Excerpted from weekly Market Commentary from Hussman Funds at…
Not everyone agrees as this next piece shows…
MARKET RISK UPDATE: JAN 2017 (Advisor Perspectives)      
“On balance, all of the metrics are in what has historically been a high-risk zone, so we should be paying attention. But, as I’ve said many a time, there’s a big difference between high risk and immediate risk—and it is one that’s crucial to investing. As it stands, none of the indicators suggests an immediate problem, although several suggest risk may be rising.” Commentary at…
Regarding John Hussman’s comments there are some obvious worrisome indications…
Chart from Yahoo Finance. The above chart shows that the S&P 500 is under-performing the NYSE Composite Index by a shade under 30%. At the top of the year-2000 dot.com bubble the underperformance was only 20%. We can also see that the NYSE Composite hasn’t significantly exceeded its prior high in 2015 while the S&P 500 has powered up. This generally indicates that the S&P 500 is experiencing a narrowing advance that is being led by fewer and fewer stocks. That is borne out by 52-week, new-high data at today’s all-time high.
6.9% of securities on the NYSE made 52-week highs at the all-time high today. That is relatively low at an all-time high. The average value at the 15 major all-time highs (2007, 2000, etc.) going back to 1929 was 6% and 4 of the 15 were higher than 6%. All were less than 11%.
These are bearish indicators that are not great for timing, but they do show that it is time for caution. The key is going to be earnings. Earnings are predicted to be better than last quarter and that, more than Trump (in my opinion), is the reason for the rally that started before the election.
-Tuesday the S&P 500 rose about 0.7% to 2280.
-VIX dropped about 6% to 11.07.   
-The yield on the 10-year Treasury rose to 2.461% as investors sold treasuries.
Today was a statistically significant up-day (based on statistical analysis of market volatility) and that is followed by a down-day about 62% of the time. Further, this is the fifth statistically-significant day in the last 15-trading sessions and that sort of back and forth movement, usually occurs near a top. I haven’t bothered to mention the statistically-significant days recently, because the market has been so quiet that a small %-move has been statistically-significant; but now it’s more meaningful.
Short-term indicators improved on today’s big up-day, but not enough to make me a bull. Overall, the market is stretched; 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 and a long-term bull.
CURRENT RANKING OF 11 ETFs (Ranked Daily)*
#1 RANK for the past 54-days: Financial Select Sector SPDR ETF (XLF).
Here’s today’s complete result of the ETF Ranking.
I would avoid IBB and XLV; currently their 120-dMAs are declining.
*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): 55.3%. (51.5% prior trading-day.) A number above 50% is usually BULLISH for the markets short-term.
-150-day moving average of advancing stocks: 52.7%. (A value above 50% indicates a long-term, up-trend.)
-McClellan Oscillator: Rose from -18 to +48 (percentage calculation method adjusted to fit McClellan’s values).
-New-highs minus new-lows: +197 (It was +69 prior trading day.)
-10-day moving average of the change in spread: +14. In other words, over the last 10-days, on average, the spread has increased by 14 each day.
Market Internals improved 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). 
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.