Wednesday, March 15, 2017

FOMC Rate Decision … Consumer Price Index … Retail Sales … Empire Manufacturing … Crude Inventories … Pullback Target … Stock Market Analysis … Trading ETFs and ETF Ranking

“For the second time in three months, the Federal Reserve increased its benchmark interest rate a quarter point amid rising confidence that the economy is poised for more robust growth. The move, widely anticipated by financial markets, takes the overnight funds rate to a target range of 0.75 percent to 1 percent…” Story at…
CPI (Marketwatch)
“American consumers paid slightly more in February for good and services such as groceries and rent, reflecting upward pressure on inflation that’s intensified since last summer. The consumer price index, or cost of living, rose by a seasonally adjusted 0.1% last month…”
“U.S. shoppers spent more cautiously in February despite the mild weather, possibly because of the slower pace of tax refunds. Retail sales increased 0.1%...” Story at…
“Manufacturing business conditions in New York expanded at a slower rate in March, the New York Federal Reserve Bank said on Wednesday. The Empire State index of manufacturing conditions for the New York region fell 2.3 points to 16.4 in March…” Story at…
“U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 0.2 million barrels from the previous week. At 528.2 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year.” Story at… 
My cmt: Wall Street liked the report and the Energy ETF (XLE) was up over 1% mid-day.
PULLBACK TARGET IS 2285 (Financial sense)
“… when we got the big move up after Trump’s speech, I noted that I was selling into that,” he said. “It was close enough to the target that anything that had shorter-term durations on options, people should start considering getting out of.” He’s looking to reload in about a month or so, he added. “The ideal target for this pullback is 2,285 (on the S&P 500),” he said. “I’m not sure if we’re going to attain it, but that really is the ideal target.” Commentary at…
-Wednesday the S&P 500 was up about 0.8% to  2385.
-VIX fell about 5% to 11.63.
-The yield on the 10-year Treasury fell to 2.496%. (Investors bought bonds and stocks.)
Even with the big day today, data remains poor. The %-of stocks advancing now sits at just 45%.  In other words, only 45% of stocks have gone up over the last 10-days – the majority have gone down.  Up-volume shows a similar weakness. Only 44% of volume has been up over the last 10-days.  New-high/new-low data looks bad too, with the daily average change in spread over the last 10-days sitting at -19. Yet, today investors bought like the market had made a bottom. Given that the large move up was statistically significant in my system a down-day would be expected Thursday about 62% of the time. Still, today’s move was bullish on the day and it’s possible that the market will power up from here; but perhaps it isn’t really a cause for celebration – it’s simply too much exuberance to be bullish in the near term.
Some investors picked up on the overdone nature of the rally; prices fell in the last half hour of trading today and closing tic (the sum of last trades) was -1.  Perhaps they were just taking profits, but one can’t ignore that the market remains stretched.
Today, utilities were the best performing ETF (XLU) of the 15 I track. Utilities? The smart money is still getting defensive.
The next 2-days will be the key to see if this rally can continue.
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)
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 improved slightly to 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, Price was positive; Sentiment was negative (Bullishness is at an extreme.); 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.