Thursday, March 16, 2017

Housing … Unemployment Claims … Philadelphia Fed … Job Openings (JOLTS) … Bond Market Worries … Stock Market Analysis … Trading ETFs and ETF Ranking

HOUSING (Reuters)
“U.S. homebuilding jumped in February as unseasonably warm weather boosted the construction of single-family houses to near a 9-1/2-year high, suggesting the economy remained on solid ground despite an apparent slowdown in the first quarter.” Story at…
“Fewer Americans applied for unemployment benefits last week, a further indication of the health of the labor market. The numbers: Applications for jobless benefits slipped by 2,000 to 241,000…” Story at…
“The Federal Reserve Bank of Philadelphia’s monthly index on regional manufacturers fell to 32.8 in March from 43.3 in February, which was the highest reading in 33 years, according to data released Thursday.” Story at…
“Monthly jobs openings — a gauge of the U.S. economy that's closely watched by Fed chair Janet Yellen — were little changed in January, the Bureau of Labor Statistics said on Thursday. Monthly job openings were at 5.6 million on the last business day in January…” Story at…
…monetary policy in both Europe and Japan is causing international investors to buy U.S. Treasurys, he [Bill Gross, Bond Guru] explained…"Once [ECB President Mario] Draghi begins to taper, that probably won't happen for a few months, but once he begins to taper and reduce that $80 billion a month, once that zero to 10 basis point cap is eliminated in Japan, then hell could break loose in terms of the bond market on a global basis," he told "Power Lunch." Story at…
-Thursday the S&P 500 was down about 0.2% to  2381.
-VIX fell about 4% to 11.21.
-The yield on the 10-year Treasury rose to 2.539%. (Investors sold bonds and bought the small stocks.)
Curious day…Market internals improved, but the S&P 500 dropped.  On the NYSE, advancers outpaced decliners as did advancing volume.  New highs were way ahead of new-lows – what pullback? It didn’t look like one today.  Another odd sign is the unusually large unchanged volume.  This seems to show some confusion by investors and some believe that it is indicative of a top. (I was never able to confirm that view though.) Even if it does, we have certainly seen enough false top-signals recently.
When the S&P 500 made an all-time high on 1 March it was 9.7% higher than its 200-dMA.  That’s youuuuge and is a point that often indicates declines are in order. Wednesday, it made another extreme in a mathematical equation I wrote that relates Sentiment (%-Bulls) and the %-above the 200-dMA. Basically, it too hit an extreme high usually associated with pullbacks. Are we going to have a pullback?
We’re overdue, but that has been true for months.  If internals keep improving, forgetaboutit. We may have entered a new paradigm where stocks keep going up forever.  At this point I agree with Irving Fisher:
“Stock prices have reached what looks like a permanently high plateau.” - Yale economist Irving Fisher, 17 October 1929.
My sum of 16-indicators improved from -5 to +3.  Money trend is moving up. Late day action leans toward buying.  New-High/New-Low data has reversed upward - Looks like we might retest the highs. I wrote Wednesday, that the next 2-days will be the key to see if the rally can continue. One down; one to go.
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 to 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). 
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.