Thursday, January 19, 2017

Unemployment Claims … Housing … Philadelphia FED … Crude Inventories Valuation … Stock Market Analysis … Ranked ETF Performance

“The number of Americans seeking unemployment benefits dropped last week to the lowest level in more than 43 years, another sign that most American workers enjoy job security…The Labor Department said Thursday that 234,000 Americans sought jobless aid, a drop of 15,000 from the previous week…” Story at…
HOUSING (Reuters)
“U.S. homebuilding rebounded more than expected in December as a strengthening economy boosts demand for rental housing…Housing starts jumped 11.3 percent…” Story at…
PHILLY FED (MarketWatch)
“Manufacturing activity in the Philadelphia region expanded at the fastest pace in more than two years in January, a report released Thursday showed. The Philadelphia Federal Reserve’s index of business conditions rose to 23.6 this month from a revised 19.7 in December…” Story at…
“A third consecutive week of large inventory builds. While clearly smaller than the previous two weeks, the numbers are not constructive for crude oil fundamentals.” Story at…
“Since 2012, the S&P 500 has risen almost 70% while earnings are up a mere 2%...When price increases are not accompanied by earnings increases, it indicates that multiple expansion has occurred…The current P/E multiple is not just above average, it is 70% above the average of over 130 years of observations.”  [My cmt: While the PE’s haven’t reached the extremes of the year-2000 bubble at the high end, the current median value of stock PEs are now higher than year-2000.] Commentary at…
The point of this piece was that making extrapolations based on rise in price alone (and not valuation and earnings) is a fools’ game.
Wonder why those anchor folks looked chilly in DAVOS this week?  The High Wednesday was 25 so there was a reason Becky looked pained.
-Thursday the S&P 500 was down about 0.4% to 2264.
-VIX rose about 2.5% to 12.77.
-The yield on the 10-year Treasury rose to 2.470%.
Bear signals: 
-The Money Trend indicator is 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 266. 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. (If one just counts up days vs down days, it’s up.)
-My Top Indicator is still calling for a pullback based on the S&P 500 outperforming the underlying Market Internals. The indicator turned more bearish today as it has for the last 7-trading days.
-My sum of 16-indicators is now -4 on the day, down from +6 just 2-days ago, and it is bearish on a 10-day basis.
-VIX is rising from very low levels.
-Market Internals that I track are all negative.
-The Calm-Before-the Storm indicator (based on statistical analysis of market movement) is calling for a selloff.
Bullish indicators:
-The cyclical industrial stocks (XLI-ETF) improved today, but this isn’t a great indicator for timing. It can be slow to change. Further, the improvement in XLI may be due to Union Pacific since it had a big day and makes up roughly 5% of the XLI.
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).  The economic data is looking more like year-1999 as Employment, Industrial Production, Retail Sales and Personal Income continue to indicate an economy with potential to overheat. Add in Inflation, now above the FED 2% goal and one wonders whether the FED will take fuel out of the fire anytime soon.
CURRENT RANKING OF 11 ETFs (Ranked Daily)* - #3 Changed -
#1 RANK for the past 51-days: Financial Select Sector SPDR ETF (XLF).
#2 RANK: iShares Russell 2000 – Small Cap (IWM)
#3 RANK: Industrial Select Sector SPDR ETF (XLI)
*For background on the ETF ranking system see NTSM Page at…
Here’s today’s complete result of the ETF Ranking.
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): 48.8%. (56.9% prior trading-day.) A number below 50% is usually BEARISH 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 +18 to -68 (percentage calculation method adjusted to fit McClellan’s values).
-New-highs minus new-lows: +56 (It was +66 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 decreased by 14 each day.
Market Internals remained 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). 
Thursday, 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.