Monday, March 20, 2017
Chicago Fed National Activity Index … Recession Indicators … Just Buy Everything … Ron Paul on Obamacare … Stock Market Analysis … Trading ETFs and ETF Ranking
CHICAGO FED NATIONAL ACTIVITY INDEX (Chicago Fed)
“Led by improvements in employment-related indicators, the Chicago Fed National Activity Index (CFNAI) increased to +0.34 in February from –0.02 in January. All four broad categories of indicators that make up the index increased from January, and only one of the four categories made a negative contribution to the index in February.” Press release at…
THE BIG FOUR INDICATORS - RECESSION? NAH.
“…there are four big indicators that the [NBER] committee weighs heavily in their cycle identification process [regarding recession]. They are: Nonfarm Employment; Industrial Production; Real Retail Sales; Real Personal Income (excluding Transfer Receipts). – Jill Mislinski, Advisor Perspectives.
Commentary and Charts at…
My cmt: The curve is nearly flat in the 1st quarter of 2017; no recession in here.
JUST BUY EVERYTHING (Real Investment Advice)
“With the hopes of accelerated earnings recovery being muted by falling oil prices, higher borrowing costs, and a strong dollar, investors seem willing to forgo the basic fundamentals of investing to chase an already extended and aging bull market cycle. This was noted yesterday in a note from Goldman’s Jan Hatzius, the chief economist warns that the market is over-interpreting the Fed’s statement, and Yellen’s presser, and cautions that it was not meant to be the “dovish surprise” the market took it to be.” Commentary at…
RON PAUL ON OBAMACARE (SafeHaven)
“This Thursday, the House of Representatives will vote on a Republican bill that supposedly repeals Obamacare. However, the bill retains Obamacare's most destructive features….The underlying problem with the Republican proposal is philosophical. The plan put forth by the alleged pro-free-market Republicans implicitly accepts the premise that healthcare is a right that must be provided by government. But rights are inalienable aspects of our humanity, not gifts from government. If government can give us rights, then it can also limit or even take away those rights. Giving government power to enforce a fictitious right to healthcare justifies government theft and coercion. Thievery and violence do not suddenly become moral when carried out by governments.” Commentary at…
MARKET REPORT / ANALYSIS
-Monday the S&P 500 was down about 0.2% to 2373.
-VIX rose about 0.5% to 11.34.
-The yield on the 10-year Treasury slipped to 2.462%. (Investors bought bonds.)
As John Hussman frequently reminds us, just because event X has been followed by event Y in the past, when it comes to the stock market, making a prediction that event X will be followed by event Y in short order is an iffy proposition.
Sometimes the investing mood changes and blows out the old indicators, i.e. events that in the past have resulted in pullbacks, become false profits when rampant bullishness takes over. With that in mind, let’s review topping indicators so far:
(1) The Overbought/Oversold Ratio turned overbought on 16 November and has signaled overbought 25-trading days (more than a month) since then.
(2) Relative Strength Index (RSI, 14-day SMA) turned overbought on 22 November and has signaled overbought 12-trading days since then.
(3) Bollinger Bands signaled overbought on 7 December and have signaled overbought 10-trading days since then based on the Index exceeding the upper band limit. In addition, as of 17 March there is a Bollinger Band squeeze under way – another Bearish topping indicator.
(4) Sentiment (%-Bulls based on funds invested in Rydex-Guggenheim, Bull/Bear funds) reached extreme bullishness (a bearish signal) as high as those seen during the dot.com bubble on 3 November and has remained there for 26-trading days since then.
(5) A measure of Breadth (Advance-Decline line) compared to the S&P 500 indicated that the S&P 500 was way too far ahead of its underlying internals initially on 7 September and then from 5 December thru 31 January; the Index remains stretched compared to its supporting internals.
(6) On 14 February the S&P 500 had closed positive for 9 out of 10-treading days. That extreme event happened 3-times over the ensuing 7-trading days. By 1-March, there had been only 4-down days over an entire month of trading; and that’s another related bearish signal.
(7) New-High/New-Low data began calling for a decline on 6 March.
(8) The 10-dMA of late-day action has signaled selling at various times from 5 January thru 10 March.
All of these signs have been for naught so far. So we might go back and see if we can find an indicator that was accurate in the bullish run-up to the 2008 Financial Crisis. It turns out there was one and it was fairly straight forward. When the S&P 500 exceeded its 200-day moving average by more than 9.5%, there was a good correlation for a pullback. While this was a regular occurrence before the Financial Crisis, the indicator lost usefulness after the crisis as investors correctly recognized that the market had bottomed and the proper stance was extreme bullishness. Is extreme bullishness the correct stance now? – I don’t think so. PE’s are too high. Sentiment is extreme. This looks like 2007. So I think the fact that the Index was 9.7% above its 200-dMA at the beginning of the month is a signal indicating a short-term top. I think this indicator, now, is reliable and should be believed.
I’m not suggesting that the market is going to crash; but a pullback is probably underway, and if it isn’t, the upside remains limited.
My sum of 16-indicators improved +4. Money trend is moving up, but overall I think the slow decline we have seen since 1 March will continue. So far the Index has dropped about 1% since its high on 1 March. If the drop continues at this slow pace, the odds are that it won’t drop as much as 5%.
CURRENT RANKING OF 15 ETFs (Ranked Daily)
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, but its slope is flatter over the past couple of days.
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.
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.
MONDAY MARKET INTERNALS (NYSE DATA)
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).
LONG TERM INDICATOR
Monday, Price was positive; Sentiment was negative (Bullishness is at an extreme.); Volume & VIX indicators were neutral.
MY INVESTED STOCK POSITION:
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
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.