Wednesday, February 15, 2017

Consumer Price Index … Retail Sales … Empire Manufacturing … Industrial Production … Crude Inventories … Stock Market Analysis … Trading ETFs and ETF Ranking

CPI UP (Bloomberg)
“The U.S. cost of living increased in January by the most since February 2013, led by higher costs for gasoline and other goods and services that indicate inflation is gathering momentum.” Story at…
RETAIL SALES (Bloomberg)
“U.S. retail sales rose more than forecast last month in a broad-based advance that indicates the consumer is well-positioned to propel the economy in early 2017. The 0.4 percent advance in January followed a 1 percent gain in the prior month…” Story at….
“The Empire State index of manufacturing conditions in the New York area jumped to its highest level in more than two years in February, the New York Fed said Wednesday. The index rose to 18.7 in February from 6.5 in January.” Story at…
“Reflecting a sharp pullback in utilities output, the Federal Reserve released a report on Wednesday showing a modest drop in U.S. industrial production in the month of January. The Fed said industrial production dipped by 0.3 percent in January…” Story at…
“Oil prices were choppy on Wednesday after a government report showed a large rise in U.S. crude inventories, signaling ample supply even as OPEC achieves record compliance with its output-cut accord.” Story at…
-Wednesday the S&P 500 was up about 0.5% to 2349.
-VIX rose about 12% to 10.97.
-The yield on the 10-year Treasury rose to 2.494%. (Since the yield is an inverse to price, this means investors were selling Treasuries. It is hard to know if this is good for stocks or not.  Recent reports have noted that both China and Japan have been selling US Treasuries.)
I listed a litany of bear signs in Monday’s blog and those negatives remain.
In addition, like Tuesday, today we see that 9 out of the last 10 days were up. That is a very rare event. There have been only 10-instances in the last 7-years that the S&P 500 has reached that 90%-up in 10-day extreme. In about half of those instances there were multiple days in close proximity, like this time. These tend to happen about a month after a correction bottom, or near a Top. Since the S&P 500 last had a mild correction in early November, this signal appears to be calling for a top soon. It’s another indication that the market is overbought – extremely overbought. (Bollinger Bands & the Advance Decline Ratio remain overbought and RSI is so close to overbought that it might as well be. They have all been overbought at the same time only 8 times in the last 7-years.)
Further, Bollinger Bands are issuing an overbought signal (>2-std deviations above the norm) for the 4th day in a row. That too is rare. It has not happened since March of 2012 about 2-weeks before a top that was followed by a 10% drop.
Today we saw the VIX leap up 12% on a day when the S&P 500 was up 0.5% – the Options Boys are suddenly betting against this rally. There has also been late day selling that suggests the Pros know something the rest of us sheep haven’t figured out yet. The odd thing is that in spite of late day selling, there has been a strong closing tick (the sum of all last trades +1/-1 depending if the trades were up or down). It looks like there are a lot of buy-at-the-close orders.  I don’t know why.
As previously noted, the Market is overextended, but NEVER MIND; stocks appear that they will keep going up forever. EVERYONE IS BULLISH.
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 IBB, XLV, XLU and iEAFE; currently their 120-dMAs are declining.
Recommended ETF Portfolio of top 3:
Financial Select Sector SPDR (XLF)
iShares U.S. Aerospace & Defense (ITA)
iShares Russell 2000 (IWM)
Also, the Technology Select Sector SPDR ETF is close enough to the others to be OK.
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.(Hmmmm – perhaps I am #2, at least in my short-term prognostication.)
FURTHER: Readers must think I have truly lost my mind to still be short.  Yes, probably; but at this point a turn-down in the short-term seems even more likely and I am holding shorts to minimize losses.  It seems unlikely that I can get a gain from these positions.  I must say though, short term conditions were actually worse than ever as of Monday and Tuesday so it seems impossible to get away from these bad trades now. Remember, this is a trading portfolio and is only a small portion of the overall portfolio. I remain long with most of my funds.
Market Internals switched to Positive on the market. (This is a trend following indicator.).
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). 
Wednesday, Sentiment, Price, VIX & Volume 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.