Monday, February 6, 2017

FACTSET … The Everything Bubble …Commentary - John Hussman, PhD… Stock Market Analysis … ETF Ranking

“For Q4 2016, the blended earnings growth rate for the S&P 500 is 4.6%. 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…Looking at future quarters, analysts currently project earnings growth to continue through 2017. The forward 12-month P/E ratio is now 17.1, which is above the 5-year average and the 10-year average.” – FACTSET Earnings Insight from…
“-The equity risk premium (ERP) is the amount equity investors can expect to earn over the risk free rate (i.e. 10-year Treasury). This is thought of as the excess return received for the risk of holding stocks vs bonds.
-It can be computed by subtracting the yield on the 10-Yr from the earnings yield (E/P).
-Note the crush in ERP from 4.37% in 2010 (high earnings yield) to 1.2% today (low earnings yield and rising 10-Yr yields).
-Also note that at a 10-Yr yield above 3.0%, the ERP goes below 1.0% – said again, the amount investors can expect to earn over the “risk free” 10-Yr Treasury is below 1% when the 10-year goes above 3%...
[in summary]…we have increasing uncertainty around Policy Trumpacho, the same operating margin level as 10 and 50 years ago with a 20% premium paid, PE10 at its third highest level ever, a rising rate environment, ERP indicating there’s just 1% of excess return over Treasuries, and numerous recent examples that fundamentals, in the end have a way of rearing up and bucking bad hombres off when they get too heady.” Commentary at…
My cmt: This is bearish stuff.
“Two weeks ago, we observed a fairly rare set of “crash signatures” that we associate with the risk of market losses in excess of -25%, generally over a period of about 6 months. No single variable drives these signatures. Rather, they capture infrequent combinations of market conditions that may include offensive valuations, dispersion across market internals, credit market weakness, lopsided bullish sentiment, Federal Reserve tightening, or other features which, in combination, have historically preceded steep and compressed plunges in the market. This elevated risk is now coupled with the poorest long-term return prospects in history…
… I…strongly encourage…that investors carefully assess their own investment horizon and risk tolerance, allowing for what we view as a strong potential for market losses similar to those we anticipated in 2000-2002 and 2007-2009...” – John Hussman, PhD., Weekley Market Commentary from Hussman Funds at…
-Monday the S&P 500 was down about 0.2% to 2293.
-VIX rose about 4% to 11.37.
-The yield on the 10-year Treasury slipped to 2.413%. (Since the yield is an inverse to price, this means investors were buying Treasuries.)
New England (an AFL) team won Sunday so the Super Bowl indicator says that the market will fall this year.  This indicator has been true 40 of 50 years. I rank this indicator one step ahead of Astrology, but slightly behind the Sports Illustrated Swimsuit indicator.
My Friday comments remain true except that Tick has gotten more bearish and the Advance Decline ratio is no longer overbought.
Broken Record Report: As I’ve said for a while, 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 am a Bull.
CURRENT RANKING OF 11 ETFs (Ranked Daily)*
#1 RANK for the past 63-days: Financial Select Sector SPDR ETF (XLF).
Here’s today’s complete result of the ETF Ranking.
I would avoid IBB and XLV; currently their 120-dMAs are declining, but they have been improving recently.
*For background on the ETF ranking system see NTSM Page at…
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
(I am beginning to agree with Dennis.)
-10-day moving average of the percentage of stocks advancing (NYSE): 54.4%. (55.9% prior trading-day.) A number above 50% is usually BULLISH for the markets short-term.
-150-day moving average of advancing stocks: 52.3%. (A value above 50% indicates a long-term, up-trend.)
-McClellan Oscillator: Improved from +57 to +5 (percentage calculation method adjusted to fit McClellan’s values).
-New-highs minus new-lows: +130 (It was +170 prior trading day.)
-10-day moving average of the change in spread: +6. In other words, over the last 10-days, on average, the spread has increased by 6 each day.
Market Internals switched to Neutral 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, Sentiment was negative.  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.