Friday, February 3, 2017

Payroll Report … Avg. Hourly Earnings … Factory Orders … ISM Services … A Stock Market Crash? … Stock Market Analysis … ETF Ranking

“U.S. employers added the most workers in four months while wage growth slowed more than projected, suggesting some slack remains in the labor market. January’s 227,000 increase in payrolls followed a 157,000 rise in December…” Story at…
Not everyone agreed that this was a good report. From Mike Shedlock:
“Today’s employment report shows a robust increase of 227,000 jobs. The good news stops there. The rest of the report was horrific. The big news is in employment where the three-month trend worsened. In the last three months, employment has only risen by a grand total of 33,000…Employment has stalled.” Commentary at…
“Average hourly earnings in the U.S. fell more-than-expected last month, official data showed on Friday. In a report, U.S. Bureau of Labor Statistics, Department of Labor said that Average hourly earnings in the U.S. fell to a seasonally adjusted 0.1%...” Story at…
“Factory orders rose 1.3% in December, the Commerce Department said Friday.
That was much stronger than the 0.5% increase forecast by economists surveyed by MarketWatch…” Story at…
“Service sector activity in the U.S. fell more than expected in January, but still registered an 84th consecutive month of growth, underlining optimism over the U.S. economy, industry data showed on Friday. In a report, the Institute of Supply Management (ISM) said its non-manufacturing purchasing manager's index (PMI) dropped to 56.5 in January…” Story at…
  • “…a 50% correction from current levels [is required] to reset valuations. Historically speaking that would be no worse than the last two bear markets”. – John Hussman, PhD
  • “The next three years are likely to be the worst we see in our lifetimes. It will be more like the early 1930s when stocks hit a debt bubble and financial asset bubbles crashed, which they only do once in a lifetime such as the early 1930s. Stocks will be down 70, 80, 90% –– that’s to be as expected in this stage of the cycle after such a bubble.” - Harry Dent, Founder of HS Dent Investment Management
    “And you thought I was bearish. How accurate are these views? I would suggest the reality lies somewhere between the two. The problem, as always, remains the timing.” – Lance Roberts, Chief Portfolio Strategist/Economist for Clarity Financial and the host of “The Lance Roberts Show.” Commentary at…
    My cmt: Good commentary. Lance suggests the timing could be soon and some portfolio defense should take place now. This was a good read. RIA seems to provide pragmatic advice; stay invested, but take some $ off the table.  At 50% invested, I am already there.
    -Friday the S&P 500 was up about 0.7% to 2297. (The Index did not make a new high.)
    -VIX dropped about 8% to 10.97
    -The yield on the 10-year Treasury slipped to 2.469%. (Since the yield is an inverse to price, this means investors were buying Treasuries.)
    OMG! The market bullish, but it is actually TOO bullish:
    -The old standby Advance/Decline Ratio (Overbought/Oversold Index) is overbought. 
    -The 10-dMA of TICK (sum of closing trades) stands at an extreme value of 458.  It’s been this high after a bottom in March 2016 and prior to that before the top in Feb 2015. Tom McClellan reports that a number over 300 is a sell point. Since the Index is near/at a Top (Bollinger Bands, RSI, etc) Tick is should be interpreted as giving a sell signal.
    -Today was the 6th “statistically-significant” day (based on statistical analysis of volatility) in the last 3-weeks.  This type of action occurs near a top or bottom.  Since the S&P 500 is pushing the upper Bollinger Band (2-std deviations) we must conclude the market is very near a top.
    -Sentiment is now at extreme bullish levels associated with the Year bubble on a standard deviation basis. That’s a bearish indication.
    -The Calm-Before-the-Storm indicator is still suggesting a big move down in the near future, as is the VIX.  VIX is below 11 and that’s below a point that has frequently been trouble for the market.
    Other indicators turned upward based on the strong-up day. Most notably, the Money Trend indicator reversed and is headed mildly up; the daily sum of 16-indicators stands at +7, a bullish reading; and Smart Money (late-day action) remains mixed. Overall though, indicators improved and the Market Internals remained positive. I am a skeptic; there are enough negative indicators to remain worried.
    Repeating: 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 62-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): 55.9%. (54.5% prior trading-day.) A number above 50% is usually BULLISH for the markets short-term.
    -150-day moving average of advancing stocks: 52.5%. (A value above 50% indicates a long-term, up-trend.)
    -McClellan Oscillator: Improved from -24 to +57 (percentage calculation method adjusted to fit McClellan’s values).
    -New-highs minus new-lows: +170 (It was +90 prior trading day.)
    -10-day moving average of the change in spread: +10. In other words, over the last 10-days, on average, the spread has increased by 310each day.
  • Market Internals remained positive 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). 
    Friday, 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.