Friday, February 24, 2017

Chicago CFNAI … Michigan Sentiment … New Home sales … Stock Market Analysis … Errant Thinking (RIA) … Trading ETFs and ETF Ranking

CHICAGO CFNAI (Chicago Federal Reserve)
“Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) decreased to –0.05 in January from +0.18 in December. Three of the four broad categories of indicators that make up the index decreased from December, and two of the four categories made negative contributions to the index in January.” Press release at…
For more on the subject, see…
“Consumer confidence fell for the first time since November’s election, as party lines divided Americans following a boost in enthusiasm for economic policies under President Donald Trump. The University of Michigan said Friday that its final index of sentiment for February dropped to 96.3 from January’s 98.5…” Story at…
“New U.S. single-family home sales rose less than expected in January, likely hurt by flooding in California, but continued to point to a strengthening housing market despite higher prices and mortgage rates…Sales were up 5.5 percent compared to January 2016.” Story at…
ERRANT THINKING (Real Investment Advice)
“While exuberance in the markets currently reigns as prices continue to reflect economic and fundamental perfection, this time is likely no different than the last. The only difference will be that those with experience will leave the markets with the money from those whom will ultimately gain the experience.”
Commentary and Chart from Real Investment Advice at…
My cmt: Note that prior secular bear-markets have exhibited 3-major downturns and so far this one has had only 2.  While many pundits on CNBC are touting a new secular bull-market, it is worth pointing out that PE’s, measured about any way you wish, are at levels seen closer to tops rather than bottoms.
-Friday the S&P 500 was up 0.15% to 2367, another all-time high.
-VIX dipped about 2% to 11.45.
-The yield on the 10-year Treasury slipped to 2.317%.
What a day! The S&P 500 was weak in the morning and flattened out mid-day only to rally nearly one-half-% in the last hour and a half of trading.  Closing Tick was a whopping 870.  (I suppose traders didn’t want to hold shorts over the weekend.) This was the Daytona 500 of closing rallies given the current context of overbought conditions. Speaking of overbought, the Relative Strength Index (RSI) was over 90 Thursday for the fourth day in a row. RSI has not seen 4-days in a row above 90 since March of 2010. The S&P 500 dropped 16% after that signal in a correction that lasted more than 2-months. That doesn’t mean that we’ll have a repeat now; but it does indicate that we’re very overbought. RSI closed at 89 today, just missing my arbitrary value of 90.  For what it’s worth, my work shows that 80 is a level that usually puts pressure on price.
Without getting into too much detail on indicators (I am tired of repeating the “we’re-near-a-top” mantra) my sum of 16-indicators dropped from +4 to -5.  That’s a fairly big one-day swing; that’s bearish.
Utilities (XLU) were up 2.5% over yesterday and today.  The Pros are getting defensive. Certainly looks like a correction is coming. We’ll see…
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)
iShares Russell 2000 (IWM); Industrial Select Sector SPDR ETF (XLI); and XLK are essentially tied for third, but XLK has been stronger recently.
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.  
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.
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). 
Friday, Price was positive; Sentiment Volume & VIX indicators were neutral.
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.