Tuesday, February 28, 2017

GDP … Chicago PMI … Consumer Confidence … Stock Market Analysis … Trading ETFs and ETF Ranking

GDP – SECOND ESTIMATE (MarketWatch)
“The growth in the U.S. economy in the final quarter of Barack Obama’s presidency was left at 1.9%, held down by a bigger trade deficit even as consumer spending rebounded strongly.” Story at…
 
CHICAGO PMI (Investing.com)
“Manufacturing activity in the Chicago-area increased more than expected in February, bolstering optimism over the U.S. economic outlook, industry data showed on Tuesday. In a report, the Institute for Supply Management (ISM) said its Chicago purchasing managers’ index increased by 7.1 points to a seasonally adjusted 57.4 this month…” Story at…
 
CONSUMER CONFIDENCE (Bloomberg)
“Consumer confidence unexpectedly increased in February to the highest level since July 2001 as Americans grew more upbeat about present and future conditions, according to a report Tuesday from the New York-based Conference Board….Confidence index advanced to 114.8…” Story at…
 
JASON GOEPFERT (Sentiment Trader / from Raymond James)
“The Dow climbed to its 9th straight record. [As of Monday, it made a 12th-straight record high.] Going back to 1897, the index has accomplished such a feat only 5 other times. The momentum persisted in the months ahead every time, with impressive returns. But when it ended, it led to 2 crashes, 1 bear market and 1 stretch of choppiness. The five instances were 1927; 1929; 1955; 1964 and 1987. ... Like many instances of massive momentum, however, when it stopped, it stopped hard.” Commentary at…
 
MARKET REPORT / ANALYSIS        
-Tuesday the S&P 500 was down about 0.3% to 2364.
-VIX rose about 7% to 12.92. (The Options Boys are getting nervous.)
-The yield on the 10-year Treasury rose to 2.394%. (The Bond Ghouls are worried about the FED.)
 
Utilities are the safe haven for the pro investors.  The Utilities ETF (XLU) is outperforming the S&P 500 over the last 5-days and that suggests the Pros are getting defensive.  It was up nearly 1% Tuesday while every other ETF I track was down, except for DVY (another defensive ETF); DVY was flat. Further, cyclical stocks don’t do well in downturns and we note that the Cyclical Industrial ETF (XLI) is underperforming the S&P 500 over the same time-frame.  Just further evidence that investors are making moves to cut risk. Another is late-day price action.  Late-day action is trending down on average over the last month, i.e. late day selling indicates a lack of confidence in the rally.
 
Volume picked up a little and was about 15% over the monthly norm; it will be interesting to see if selling momentum picks up.
 
Indicators are slightly negative, but the Sum of 16-indicators is pointing sharply down and that’s bearish. VIX is up about 20% in the past 2-weeks. The options boys are concerned.  The WSJ pointed out that the 10-year Treasuries have been rising along with the Stock market.  The article was titled, “Markets Flash Warning Signs.”
 
It looks like investors are considering the possibility that stocks might not go up forever.
 
My Long-Term Indicator includes some trend-following indicators so it may not give a timely sell signal. Conservative investors may want to lighten up on stocks now.
 
CURRENT RANKING OF 15 ETFs (Ranked Daily)
The top ranked ETF receives 100%. The rest are then ranked based on their momentum relative to the leading ETF.  While momentum isn’t stock performance per se, momentum is closely related to stock performance. For example, over the 4-months from Oct thru mid-February 2016, Financials (XLF) have outperformed the S&P 500 by nearly 20%.
*For additional background on the ETF ranking system see NTSM Page at…
I would avoid iEAFE and SCHE (emerging markets); currently their 120-dMAs are declining.
Recommended ETF Portfolio of top 3:
1. Financial Select Sector SPDR (XLF)
2. iShares U.S. Aerospace & Defense (ITA)
3. Technology Select Sector SPDR ETF (XLK)
I have not yet established a position based on the ETF Ranking; I am waiting for a better entry point. Neither IWM nor XLI will perform well in a pullback so I’ll wait to move them up in the ranking if they do in fact deserve it later on.
 
Energy (XLE) has slipped all the way to 14th place. If Energy continues to slide the S&P 500 is likely to follow.  
 
SHORT-TERM 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.  
NET:
Now I wish I had tightened trading rules sooner. I am underwater again!
-“In a bull market, you can only be long or neutral.” – D. Gartman
-“The best policy is to avoid shorting unless a major bear market is underway and downside momentum has been thoroughly established. Even then, your timing must sometimes be perfect. In a bull market the trend is truly your friend, and trading against the grain is usually a fool's errand.” – Clif Droke.
 “There are two kinds of forecasters. Those who don’t know, and those who don’t know they don’t know.”- John Kenneth Galbraith.
 
TUESDAY MARKET INTERNALS (NYSE DATA)
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). 
 
LONG TERM INDICATOR
Tuesday, Price was positive; Sentiment Volume & VIX indicators were neutral.
MY INVESTED STOCK POSITION:
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
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.

Monday, February 27, 2017

Earnings from Factset … Durable Goods Orders … Dallas FED Manufacturing … Stock Market Analysis … Trading ETFs and ETF Ranking

EARNINGS (FACTSET)
“…As of today [Friday, 24 Feb 2017] (with 92% of the companies in the S&P 500 reporting actual results for Q4 2016)…For Q4 2016, the blended earnings growth rate for the S&P 500 is 4.9%. The fourth quarter will mark the first time the index has seen year-over-year growth in earnings for two consecutive quarters since Q4 2014 and Q1 2015…The forward 12-month P/E ratio for the S&P 500 is 17.7. This P/E ratio is based on Thursday’s closing price (2363.81) and forward 12-month EPS estimate ($133.73).”
Earnings Insight available from FACTSET at…
The uptick in earnings, more than Trump, is the most likely explanation for much of the big run-up in the stock market since last fall. What should be apparent from the above chart is that Price is closely related to earnings. It looks like price is way ahead of earnings.
 
DURABE GOODS ORDERS (Bloomberg)
“Orders for U.S. durable goods rebounded in January, a sign companies remained upbeat at the start of the year. Bookings for goods meant to last at least three years rose 1.8 percent after a 0.8 percent decrease in December…” Story at…
 
DALLAS FED MANUFACTUIRNG (Business Insider)
“The Dallas Fed manufacturing index unexpectedly jumped as enthusiasm surrounding US President Donald Trump's election appeared to carry over into the start of 2017. The latest reading for the index rose to 24.5 for February…” Story at…
 
MARKET REPORT / ANALYSIS        
-Monday the S&P 500 was up 0.1% to 2370, another all-time high.
-VIX rose about 5% to 12.09. (The Options Boys may be getting nervous.)
-The yield on the 10-year Treasury rose to 2.367%.
 
Relative Strength, RSI, (SMA-14)
Relative Strength measures the size of up-moves vs. all-moves on a 14-day moving average basis and presents the result as a percentile. For example if the RSI is 85, it means that the size of up-moves are in the 85th percentile when compared to all moves over the 14-day period.  If ALL moves had been up, RSI would be 100 – a definite short term sell indicator. For my purposes, 30 is oversold (suggesting a turn-around to the upside) and 80 is overbought. If the up-moves and down-moves are equal in size over the 14-day period, RSI would be 50. I use the “Cutler RSI” that is based in a simple moving average since it seems to give a better signal than those based on an exponential moving average.
 
Monday RSI (SMA-14) was 95 at the close.  It’s been that high only once since February of 2009. There is no guarantee the market will fall from here, but it is another indicator that shows that this market is about as overbought as it gets.
 
We also note that the S&P 500 has only been down 5-days in the past month of trading. That is rare, too and one needs to go back 2-1/2 years to find another instance when this occurred. That was shortly before the index dropped about 5%.
 
The preponderance of Short-term indicators remains pointing down too.
 
Utilities (XLU) were down 0.6% at the close, but moved up 0.6% after-hours. I said Friday that it looked like the Pros are getting defensive because Utilities were up Thursday and Friday. That’s hard to confirm based on today’s nowhere action. We’ll see…
 
My Long-Term Indicator includes some trend-following indicators so it may not give a timely sell signal. Conservative investors may want to lighten up on stocks now.
 
CURRENT RANKING OF 15 ETFs (Ranked Daily)
The top ranked ETF receives 100%. The rest are then ranked based on their momentum relative to the leading ETF.  While momentum isn’t stock performance per se, momentum is closely related to stock performance. For example, over the 4-months from Oct thru mid-February 2016, Financials (XLF) have outperformed the S&P 500 by nearly 20%.
*For additional background on the ETF ranking system see NTSM Page at…
I would avoid iEAFE; currently its 120-dMA is declining.
Recommended ETF Portfolio of top 3:
1. Financial Select Sector SPDR (XLF)
2. iShares U.S. Aerospace & Defense (ITA)
3. Technology Select Sector SPDR ETF (XLK)
I have not yet established a position based on the ETF Ranking; I am waiting for a better entry point. Neither IWM nor XLI will perform well in a pullback.
 
SHORT-TERM 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.  
NET:
Now I wish I had tightened trading rules sooner. I am underwater again!
-“In a bull market, you can only be long or neutral.” – D. Gartman
-“The best policy is to avoid shorting unless a major bear market is underway and downside momentum has been thoroughly established. Even then, your timing must sometimes be perfect. In a bull market the trend is truly your friend, and trading against the grain is usually a fool's errand.” – Clif Droke.
 “There are two kinds of forecasters. Those who don’t know, and those who don’t know they don’t know.”- John Kenneth Galbraith.
 
MONDAY MARKET INTERNALS (NYSE DATA)
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). 
 
LONG TERM INDICATOR
Monday, Price was positive; Sentiment Volume & VIX indicators were neutral.
 
MY INVESTED STOCK POSITION:
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
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.