Friday, January 20, 2017

Inauguration Speech … CASS Freight Index … 2017 or 1937 … Topping or Consolidation … Stock Market Analysis … Ranking Performance of ETFs

CNBC described it as “…a dark, populist message that surprised investors and left conservatives unsure exactly what they would get from the new White House.” Article and speech at…
My cmt: Trump’s inauguration speech was widely seen as a negative diatribe of issues facing the country - one would have thought the U.S. was in disarray.  Further, it was little more than a collection of political platitudes where he said he was going to fix everything. The markets were up, but declined during the speech and didn’t fully recover. So it looks like the markets will have to wait and see; or stated another way, it’s more of the same for the stock market.
CASS FREIGHT INDEX (CASS Information Systems)
Shipments were up 3.5% year-over-year, but expenditures were down 3% (year-over-year). The report stated,  “Expenditures (or the total amount spent on freight) were still down (-3.0% on a YoY basis), but as was true in October and November, this was less than the rates of contraction in May, June, July and August; down 10.1%, 8.8%, 5.1% and 6.3% respectively…Data is beginning to suggest that the consumer is finally starting to spend a little and that with the recent surge in the price of crude, the industrial economy’s rate of deceleration has eased.” - December CASS Freight Index. Available at…
2017 – or 1937? (Financial Sense)
“As a result of some Fed actions taken in 1936 and 1937, the US economy, after experiencing a robust economic recovery starting in early 1934, slipped back into a recession midyear 1937, which lasted through midyear 1938….The Fed’s actions of 1936-37 caused a sharp slowdown in the growth of thin-air credit, which resulted in the recession of 1937-38. It is too early for me to forecast a recession in 2017 because of the Fed’s disregard for the recent growth slowdown in thin-air credit. But I do believe investor expectations of US economic growth will be disappointed in the first half of 2017…this economic growth disappointment has positive implications for US investment grade bonds and negative implications for risk assets such as US equities.” – Paul Kasriel. Commentary at…
TOPPING OR CONSOLIDATION – 19 Jan 2017 (Safehaven)
“Briefly: In our opinion, speculative short positions are favored (with stop-loss at 2,330, and profit target at 2,150, S&P 500 index). Our intraday outlook remains bearish, and our short-term outlook is bearish. Our medium-term outlook remains neutral, following S&P 500 index breakout above last year's all-time high…” – Paul Rejczak
-Friday the S&P 500 was up about 0.3% to 2271.
-VIX rose about 2.5% to 12.77.
-The yield on the 10-year Treasury slipped slightly to 2.468%.
Once again the S&P 500 is very near its all-time high.  On a short-term basis I think the market is ripe for a pullback.  My guess would be about a 5% drop from here, but it could drop further. 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.
Neutral Signals
-Late day action is down on a 10-day percentage basis (bearish), but it depends how one measures this – If one just counts up days vs down days, it’s up. Overall I’ll give this indicator a neutral rating.
-The cyclical industrial stocks (XLI-ETF) slipped a little into neutral.
Bear signals: 
-The Money Trend indicator remains sharply down and bearish. Money Trend makes a rough estimate of dollars in and out of stocks. 
-The 10-day closing Tick is high at 245. Closing tick of 300 is considered a sell point per Tom McClellan and it was over 300 Tuesday and Wednesday of this week.
-The S&P 500 Index remains close to its upper Bollinger Band a decidedly bearish indication. Bollinger Bands are close together also, another Bearish indication.
-My Top Indicator is still at a level that is calling for a pullback based on the S&P 500 outperforming the underlying Market Internals.
-My sum of 16-indicators is now -2 on the day, up from -4 yesterday, but it is bearish on a 10-day basis that smoothes the daily fluctuations.
-The Calm-Before-the Storm indicator (based on statistical analysis of market movement) is calling for a selloff. (This indicator is similar to Bollinger Bands.)
Bullish indicators:
None of the indicators I track for short-term trading are bullish.
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)* - #2 & #3 Changed -
#1 RANK for the past 51-days: Financial Select Sector SPDR ETF (XLF).
#2 RANK: Industrial Select Sector SPDR ETF (XLI)
#3 RANK: iShares U.S. Aerospace & Defense ETF (ITA)
*For background on the ETF ranking system see NTSM Page at…
Here’s today’s complete result of the ETF Ranking.
Note: The variance of the data series used for ranking is not very high now so there may be frequent changes in the rankings of the 2nd and 3rd positions. XLF remains way out in front of the other sectors analyzed.  Variance is low when there is confusion in the market and it may be another topping indicator, since investors can’t seem to decide on the leaders.
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): 50.7%. (48.8% 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: Rose from -68 to -25 (percentage calculation method adjusted to fit McClellan’s values).
-New-highs minus new-lows: +72 (It was +56 prior trading day.)
-10-day moving average of the change in spread: -5. In other words, over the last 10-days, on average, the spread has decreased by 5 each day.
Market Internals improved 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). 
Friday, 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.