Tuesday, February 28, 2017

GDP … Chicago PMI … Consumer Confidence … Stock Market Analysis … Trading ETFs and ETF Ranking

“The growth in the U.S. economy in the final quarter of Barack Obama’s presidency was left at 1.9%, held down by a bigger trade deficit even as consumer spending rebounded strongly.” Story at…
CHICAGO PMI (Investing.com)
“Manufacturing activity in the Chicago-area increased more than expected in February, bolstering optimism over the U.S. economic outlook, industry data showed on Tuesday. In a report, the Institute for Supply Management (ISM) said its Chicago purchasing managers’ index increased by 7.1 points to a seasonally adjusted 57.4 this month…” Story at…
“Consumer confidence unexpectedly increased in February to the highest level since July 2001 as Americans grew more upbeat about present and future conditions, according to a report Tuesday from the New York-based Conference Board….Confidence index advanced to 114.8…” Story at…
JASON GOEPFERT (Sentiment Trader / from Raymond James)
“The Dow climbed to its 9th straight record. [As of Monday, it made a 12th-straight record high.] Going back to 1897, the index has accomplished such a feat only 5 other times. The momentum persisted in the months ahead every time, with impressive returns. But when it ended, it led to 2 crashes, 1 bear market and 1 stretch of choppiness. The five instances were 1927; 1929; 1955; 1964 and 1987. ... Like many instances of massive momentum, however, when it stopped, it stopped hard.” Commentary at…
-Tuesday the S&P 500 was down about 0.3% to 2364.
-VIX rose about 7% to 12.92. (The Options Boys are getting nervous.)
-The yield on the 10-year Treasury rose to 2.394%. (The Bond Ghouls are worried about the FED.)
Utilities are the safe haven for the pro investors.  The Utilities ETF (XLU) is outperforming the S&P 500 over the last 5-days and that suggests the Pros are getting defensive.  It was up nearly 1% Tuesday while every other ETF I track was down, except for DVY (another defensive ETF); DVY was flat. Further, cyclical stocks don’t do well in downturns and we note that the Cyclical Industrial ETF (XLI) is underperforming the S&P 500 over the same time-frame.  Just further evidence that investors are making moves to cut risk. Another is late-day price action.  Late-day action is trending down on average over the last month, i.e. late day selling indicates a lack of confidence in the rally.
Volume picked up a little and was about 15% over the monthly norm; it will be interesting to see if selling momentum picks up.
Indicators are slightly negative, but the Sum of 16-indicators is pointing sharply down and that’s bearish. VIX is up about 20% in the past 2-weeks. The options boys are concerned.  The WSJ pointed out that the 10-year Treasuries have been rising along with the Stock market.  The article was titled, “Markets Flash Warning Signs.”
It looks like investors are considering the possibility that stocks might not go up forever.
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 and SCHE (emerging markets); currently their 120-dMAs are 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 so I’ll wait to move them up in the ranking if they do in fact deserve it later on.
Energy (XLE) has slipped all the way to 14th place. If Energy continues to slide the S&P 500 is likely to follow.  
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). 
Tuesday, 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.