Wednesday, March 8, 2017

ADP Employment … Productivity … Wholesale Inventories … Crude Inventories … Stock Market Analysis … Trading ETFs and ETF Ranking

“Some economists are revising up their forecasts for this week’s February employment report after payroll processor ADP announced Wednesday that businesses added a booming 298,000 jobs.” Story at…
“The productivity of American workers grew at a slower pace in fourth quarter and last year recorded the smallest annual gain in five years. The Labor Department said Wednesday that productivity grew at a 1.3 percent annual pace from October through December...” Story at…. 
“U.S. wholesale inventories fell slightly more than previously estimated in January, but inventory investment still was likely to contribute to economic growth in the first quarter. The Commerce Department said on Wednesday wholesale inventories decreased 0.2 percent, the biggest drop since February 2016…”Story at…
CRUDE INVENTORIES (The Globe and Mail)
“Oil prices fell more than 1 per cent on Wednesday after the U.S. Department of Energy reported a much larger increase than expected in domestic crude inventories, feeding concerns the supply glut could persist even as OPEC seeks to prop up prices with output curbs. U.S. crude inventories rose by 8.2 million barrels in the last week…” Story at…
-Wednesday the S&P 500 was down about 0.2% to 2363.
-VIX rose about 3% to 11.82.
-The yield on the 10-year Treasury rose to 2.558%. (The expected rate hikes are taking a toll on bonds.  As prices fall, rates rise.)
SENTIMENT. In addition to bearish issues noted in recent blog posts, Sentiment has once again reached extreme levels. I measure Sentiment as %-Bulls (Bulls/{bulls+bears}) based on the amounts invested in Rydex/Guggenheim mutual funds. Sentiment reached 83%-Bulls for Tuesday at the close.  On a standard deviation basis, that value matches extremes seen during the crash. It also reached similar extreme levels back in May-June 2015 after the Top that preceded a 12% correction. This isn’t by itself a great indicator since sentiment can remain elevated for some time, but this is obviously a bearish sign. It is also one of my long-term indicators since extreme bullish-sentiment can occur before a routine correction or a major crash. (Sometimes it is simply a warning with no follow-thru as happened during the FED’s QE Program.) This time I think it is warning of a correction whose severity is yet unknown. It is not likely a >20%-crash. My guess is in the 5-6% range, but one can make a good case for either lower or higher.
The Pros are still selling based on Late-day action that has been trending down on average over the last month. Once again, we saw that trend continue today as the S&P 500 shed nearly 6-pts in late-day trading.
The sum of my 16-indicators remained at -6 Tuesday, but the longer term trend is falling rapidly. Money Trend is pointing down more sharply today too.
Overall there has been a bearish bent to the data recently and it has been getting more bearish each day. 
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, the number 1 ranked Financials (XLF) outperformed the S&P 500 by nearly 20%.
*For additional background on the ETF ranking system see NTSM Page at…
I would avoid iEAFE (Europe and Far East); 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. Technology Select Sector SPDR ETF (XLK)
XLI was slightly ahead of the XLK, but not enough to change the recommendation.  Further, if there is a correction, XLI is likely to be among the worst performers.
I have not yet established a position based on the ETF Ranking; I am waiting for a better entry point.
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 and are deteriorating.
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, Price was positive; Sentiment was negative; Volume & VIX indicators were neutral.
I reduced stock allocation to 25% stocks in the S&P 500 Index fund (C-Fund) Wednesday, 1 March 2017 in my long-term accounts. Remainder is 75% G-Fund (Government securities). This is a conservative retiree allocation based mostly on short-term signals.