Monday, January 30, 2017

Personal Income/Spending … PCE Prices … Dallas FED Manufacturing Outlook … John Hussman, PhD, Excerpt … Stock Market Analysis … ETF Ranking

"Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway." ~ Warren Buffett
“Personal income in the U.S. increased by slightly less than expected in the month of December, according to a report released by the Commerce Department on Monday. The report said personal income rose by 0.3 percent in December…personal spending climbed by 0.5 percent…” Story at…
“In the 12 months through December the PCE price index advanced 1.6 percent, the biggest increase since September 2014. That followed a 1.4 percent increase in November. Excluding food and energy, the so-called core PCE price index ticked up 0.1 percent…”  Story at…
My cmt: PCE is below the FED’s inflation target.
“Texas factory activity increased for the seventh consecutive month in January, according to business executives responding to the Texas Manufacturing Outlook Survey.” – Dallas FED. Commentary on the report at…
JOHN HUSSMAN, PHD (Hussman Funds)
John Hussman notes that the reducing Corporate Taxes may not be the panacea that many bulls on Wall Street are expecting…
“Presently, U.S. corporate taxes represent just over 4% of corporate revenues. Historically, the lowest level outside of recession (and the recent recovery) has been about 3%. From here, even moving to the lowest effective U.S. corporate tax rates in history would boost corporate profit margins by scarcely 1%...” - John Hussman, PhD.  See Weekly Market Commentary at…
-Monday the S&P 500 slipped about 0.6% to 2281.
-VIX rose about 12% to 11.88
-The yield on the 10-year Treasury rose to 2.489%.
Monday was a statistically significant day and that means that volatility exceeded my statistical parameters and, in about 60% of the time, that leads to an up-day the next day (Tuesday).  This same indicator can also suggest panic and more selling ahead when it occurs near a channel top as we have now. It’s probably overstating conditions to call today a panic; but further downside is likely in the near term.
SENTIMENT remains a negative.
“…a potential “red flag’ comes from last week’s AAII bullish sentiment figures, which showed that bullish sentiment fell by roughly five points (37.01% to 31.58%) for the second five-point decline in the last two weeks (chart 3 on page 4). That has not happened since May 2016 right before the S&P 500 (SPX/2294.69) fell 6.0%.” - Jeffrey Saut, Chief Investment Strategist, Raymond James. Commentary at…
Similarly, over the last 3-days my sentiment indicator has fallen from 75%-bulls to 68%-bulls and that’s a huge move for the 5-day moving average.
The sum of my 16-indicators dropped from +8 to 0 on the day as the negative day pulled them down. The 10-day value slipped too.  There has been a back and forth with indicators recently. Most significantly, late day action is leaning bullish and it suggests the Pros are buying the dip. On the other side, low market-volatility still indicates trouble ahead. We’ll see which side wins out soon.
My opinion hasn’t changed; the upside potential is limited while the downside risk remains 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 58-days: Financial Select Sector SPDR ETF (XLF).
Here’s Friday’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.  
Now I wish I had tightened trading rules sooner. I am underwater again!
-10-day moving average of the percentage of stocks advancing (NYSE): 50.2%. (53.5% 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: Dropped from +10 to -62 (percentage calculation method adjusted to fit McClellan’s values).
-New-highs minus new-lows: +17 (It was +109 prior trading day.)
-10-day moving average of the change in spread: -11. In other words, over the last 10-days, on average, the spread has decreased by 11 each day.
Market Internals switched to Negative 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). 
Monday, 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.