Wednesday, March 22, 2017

Home Sales … Crude Inventories … Short-term Sell Signal … Big Money Eyeing the Exits … Stock Market Analysis … Trading ETFs and ETF Ranking

“After starting the year at the fastest pace in almost a decade, existing-home sales slid in February but remained above year ago levels both nationally and in all major regions, according to the National Association of Realtors.  Total existing-home sales1…retreated 3.7 percent..." Story at...
Oil prices slipped on Wednesday to their lowest since late November, with Brent testing the $50 per barrel support, after data showed record high U.S. crude inventories rising faster than expected, raising doubts over the viability of OPEC-led output cuts. The Energy Information Administration (EIA) said U.S. inventories climbed almost 5 million barrels to 533.1 million last week…” Story at…
FUHGETTABOUTIT (Real Investment Advice)
“…the market is very close to a short-term ‘sell signal,’…from a very high level. Sell signals instigated from high levels tend to lead to more substantive corrective actions over the short-term. …“Are you ready for a 2,000 point drop in the Dow? That’s what a ‘normal’ correction would look like now. Normal corrections look kind of scary when markets are at these highs.” – Lance Roberts. Commentary at…
“I don’t want to alarm anyone, but the people managing the world’s investments are getting extremely worried about the stock market. Institutional investors with a collective half-trillion dollars under management now say that global stocks are the most overvalued since 2000.” Story at…
-Wednesday the S&P 500 was up about 0.2% to 2348.
-VIX rose about 3% to 12.81.
-The yield on the 10-year Treasury slipped to 2.404%.
Sentiment: Rather than buying the dip at the close Tuesday, Rydex/Guggenheim investors shifted slightly more bearish. The 5-dMA of %-Bulls slipped from 83% to 82%. The sentiment was highest (84%) 1-week after the S&P 500 high on 1 March.  At the S&P high, the sentiment was a benign 63%. It’s clear that the dip buyers did move in after the high; now they may be shifting to the bear side. Sometimes the Rydex boys are right so their bear shift is worth following, especially if it continues.
There was late-day buying today, but there was a catch. Volume dropped late in the day so we’re left with suspicion that the buyers were late-to-the party, dip-buyers. At best we can’t have too much confidence in the late day action.  For the day, volume was about 5% below the monthly average.
Money Trend has turned down. My sum of 16-indicators went from 0 yesterday to -6 today. The 10-day sum is flat though, so the trend is not clear. Late-day action remains down.  New-lows outpaced new highs today. The Cyclical Industrial stocks (XLI) are underperforming the S&P 500.  All of these signals are generally bearish.
The 10-dMA of %-stocks advancing climbed to 50.9%, but the 20-day value was only 47.3% so there isn’t an all-clear signal. Further, we’d expect to see internals improve on an up-day as they did today.
Bottom line: I don’t think we’ve made a bottom yet, but it’s possible that a bottom may be near.  The Index is still roughly 1% above its 50-dMA and that’s a good support point.  It could easily go lower of course – we’ll see.
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.
Utilities did well again today. Only Energy and Financials were down. The Financials remain number one, but they are losing momentum while ITA and XLK are gaining. Interest rates are slipping some and that is bad for the Financials. If this correction really gets going XLF will not do well while XLU will be the big winner, at least until the bottom of the correction. XLF should recover after a pullback.
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 remained 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, Sentiment was negative (Bullishness is at an extreme.); Price, 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.