Friday, March 24, 2017

Durable Goods Orders … Stock Market Trading Alert … Stock Market Analysis … Trading ETFs and ETF Ranking

Let’s get the February numbers; yesterday I posted January numbers…
“Orders for U.S. durable goods increased more than forecast in February, a sign companies are confident about the outlook for the economy. Bookings for goods meant to last at least three years rose 1.7 percent….” Story at… 
“…the broad stock market retraced some of its Tuesday's decline yesterday, as the S&P 500 index gained 0.2%. Is this just a quick rebound before another leg down or upward reversal? There have been no confirmed short-term positive signals so far. We still can see medium-term overbought conditions along with negative technical divergences. Therefore, we continue to maintain our speculative short position.” Paul Rejczak. Commentary at… 
-Friday the S&P 500 was down about 0.1% to 2344.
-VIX slipped about 1% to 12.96.
-The yield on the 10-year Treasury was down slightly to 2.413%.
Friday we saw the second test of the recent low of 2344 and today’s test was at the close and that’s a better signal. The Index dropped to the 50-dMA and bounced up. Volume fell even further and we note that smaller stocks have been outperforming the S&P 500 recently (and again today). 52.9% of stocks on the NYSE have been up over the last 10-days. All those are bullish indications.  The market is getting better behind the scenes. This could be a fake out; in a mini-correction the signals are highly suspect, but if I saw these numbers after a 20% drop, I’d be all in.
The reason is that this suggests selling is drying up and it looks like the most likely move is up. It’s doing this in the face of very high sentiment. Does it make sense? Not really; one would think the markets need to correct further (and they may), but the numbers hint otherwise.
In response to the improvements I moved back in at a 50% in stock position in long-term accounts and pared my short positions slightly. (I had too much going on to post the move ahead of time.) As I wrote yesterday, I don’t know that the market can breakout significantly above the old highs, but it might try.
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) & XLE; currently their 120-dMAs are declining.    
The Financials remain number one, but they are losing momentum and may have topped out. Interest rates are slipping some and that is bad for the Financials.
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.
Market Internals turned 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). 
Friday, Sentiment was negative (Bullishness is at an extreme.); Price was positive; Volume & VIX indicators were neutral.
I increased stock allocation to 50% stocks in the S&P 500 Index fund (C-Fund) Friday, 24 March 2017 in my long-term accounts. Remainder is 50% G-Fund (Government securities). This is a conservative retiree allocation based mostly on low volume at the test of the recent bottom.