Tuesday, February 21, 2017

FED Plans to Hike 3-Times … John Hussman, PhD Commentary Excerpt … Stock Market Analysis … Trading ETFs and ETF Ranking

“The U.S. economy is back to normal, the labor market is healthy again and inflation is headed higher, a hawkish Federal Reserve official said on Tuesday in repeating that he expects the Fed to raise interest rates three times this year. "Given the state of the economy, more or less back to normal, I continue to see three modest rate hikes of 25 basis points each as appropriate for 2017, assuming things stay on track," Philadelphia Fed President Patrick Harker said in a speech that largely repeated recent comments on the economy and policy.” Story at…
My cmt: Many Fed-watchers consider 3-hikes in succession to be a bad sign for the markets.
“There can be little argument that the American economy as it stands at the beginning of a new century has never exhibited so remarkable a prosperity for at least the majority of Americans.” - Alan Greenspan, January 30, 2000...
“…The relationship between the economy and the stock market is a study in contradiction. It’s precisely when economic optimism is strongest, when caution is seen as misguided, and when bullish enthusiasm is most exuberant, that the stock market reaches its speculative apex and becomes most vulnerable to collapse. It’s precisely when economic pessimism is most dismal, when hope is set aside, and when bearish consensus is most dire, that market plumbs its deepest lows and carries the greatest potential for future returns...Presently, interest-sensitive sectors exhibit the clearest divergences, but we also observe divergences across numerous measures of breadth, leadership, and participation that remain more consistent with a speculative blowoff than a period of robust sponsorship or risk-seeking among investors.” - John Hussman PhD. Full commentary at...  
My cmt: Greenspan timed the top pretty well.  The crash that followed resulted in a 78% loss in the NASDAQ and around 55% for the S&P 500. It’s impossible to say if the bubble is about to burst this time. It doesn’t seem so, since the Fed has really not hiked much.  I will get concerned if the VIX blows up; even then, it is most likely that we’ll only see a correction, but a crash is always possible.
-Tuesday the S&P 500 was up about 0.6% to 2365 (another new high).
-VIX rose about 0.7% to 11.57.
-The yield on the 10-year Treasury rose to 2.432%.
- Today was another strong up-day with a strong move up in the afternoon – too strong actually. Closing Tick remains at an extreme high 550. A number above 300 is a bearish sign.
-Tuesday was another statistically significant up-day (based on statistical analysis of market volatility) and that is followed by a down-day about 62% of the time.
- Bollinger Banns, RSI and the old Advance-Decline Ratio are all oversold.  It doesn’t get much more bearish than this, at least from an oversold standpoint. They have all been overbought at the same time only 8 times in the last 7-years.
- Tuesday, we see that once again, 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 had 9-up-days in 10-days. 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
None of my indicators are particularly bullish, but there are some neutral signs.
-Money Trend indicator is now flat.
-The 10-day sum of 16-indicators is in positive territory, but the curve is still exhibiting lower highs.
-Late day action has flattened suggesting the Pros are neutral.
-Market Internals are neutral.
I keep saying this, but the Market is overextended, but NEVER MIND; stocks appear that they will keep going up forever. EVERYONE IS BULLISH. CAUTION: When everyone is bullish, there is no one left to buy; there is no demand; and prices must fall. 
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. iShares Russell 2000 (IWM)
Industrial Select Sector SPDR ETF (XLI) has actually moved slightly ahead of IWM into 3rd.  Let’s see if it holds before changing the recommendation.
Also, the Technology Select Sector SPDR ETF (XLK) is close to the others.
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 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). 
Tuesday, Volume was positive; Sentiment, VIX & Price 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.