Wednesday, February 22, 2017

Home Sales … FOMC Minutes … Jeffrey Saut Commentary (Excerpt) … Recession Indicators … Stock Market Analysis … Trading ETFs and ETF Ranking

HOME SALES (MarketWatch)
“Sales of previously-owned homes hurtled to the highest in a decade in January, a sign of durable demand in the face of higher mortgage rates and leaner supply. Existing-home sales ran…3.8% higher than a year ago.” Story at…
FOMC MINUTES (Bloomberg)
“Federal Reserve officials expressed confidence they can raise interest rates gradually, while a hike “fairly soon” might be appropriate to avoid the risk of an overheated economy, minutes of Federal Open Market Committee’s latest meeting showed. “Many participants expressed the view that it might be appropriate to raise the federal funds rate again fairly soon if incoming information on the labor market and inflation was in line with or stronger than their current expectations…” Story at…
“…the longest dated VIX futures contract (October 2017) traded below 17 recently. This is a fairly rare event and tends to be associated with “trading tops.” Furthermore, this type of recent panic buying is strongly correlated with the kind of buying you see toward the end of a trend and not the beginning of a new upside trend.” - Jeffrey Saut. Full commentary at…
“There is…a general belief that there are four big indicators that the committee [NBER Business Cycle Dating Committee] weighs heavily in their cycle identification process [in identifying recessions]. They are: Nonfarm Employment; Industrial Production; Real Retail Sales; and Real Personal Income….
…The US economy has been slow in recovering from the Great Recession, and the overall picture has been a mixed bag for well over a year and counting. Employment and Income have been relatively strong. Real Retail Sales have been rising but below trend. Industrial Production has essentially been in a recession.”
Additional Charts, analysis and commentary at…
-Wednesday the S&P 500 was down about 0.1% to 2363.
-VIX rose about 1.5% to 11.74.
-The yield on the 10-year Treasury slipped to 2.413%.
The S&P 500 dropped sharply after the release of the FED minutes from their last meeting. It recovered shortly afterward and remained on a bullish up-trend to finish the day. The closing tick was again strong at 684. The 10-day average of Closing Tick remains at an extreme high 569. A number above 300 is a bearish sign.
RSI and the old Advance-Decline Ratio remain oversold.  Bollinger Bands are not oversold, but they are fairly high giving them a bearish leaning.
The Sum of 16-Indicators is somewhat bullish at +5, unchanged from yesterday.  None of the bullish indicators are very strong, so not much has changed.
I keep saying this, but 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 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) slipped into 4th so no need to change the top 3.
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 remained 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). 
Wednesday, Volume & Price were positive; Sentiment & 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.