Monday, February 27, 2017

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

“…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.
“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…
“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…
-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.
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.  
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 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). 
Monday, 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.