RAYMOND JAMES COMMENTARY (Raymond James)
Inside Jeffrey Saut’s weekly commentary we find the
following: “…the main and bigger move
for equities remains higher given an economy that in general continues to improve
and a Fed that remains net accommodative. But in the short term there are some
divergences when we look at credit markets, breadth, and perhaps evidence of
early rotation out of more cyclical groups into more defensive groups which
suggests risk appetite may be waning a bit. The longer this divergence lasts as
equities move higher the bigger the correction within the context of our
current cyclical and secular bull market. Proceed cautiously for now.” - Mick
St. Amour, Investment Analyst at Merrill Lynch.
STOCK PRICE TO MONETARY POLICY (Jesse Felder Blog)
“…look at stock prices is in relation to monetary
velocity…we see something totally unprecedented.” – Jesse Felder.
Chart and commentary at…
My cmt: Back in the old days, M2 Money Supply was thought
to be a primary driver of inflation. If
there’s too much money chasing too few goods, voila, inflation. Much of this M2 money must still be locked up
in the banks. The FED dumped tons of
money on the banks to allow them to remain safely capitalized during the
Housing/Financial crash. Felder’s Blog covers 3-charts that indicate massive
over-valuation of stocks.
MARKET REPORT / ANALYSIS
-Monday the S&P 500 was essentially unchanged at
2373.
-VIX fell about 3% to 11.35.
-The yield on the 10-year Treasury rose to 2.618% as
Bonds remain under pressure in advance of an expected rate by the Fed.
Investors remains cautious and volume was low today,
roughly 15% below the monthly average. The markets are likely to remain in a
holding pattern until after the FED meeting ends on Wednesday. A 25-basis point rate hike is almost certain
and markets expect it. Anything else will be unsettling. I am not sure that the market will like a
small hike, but we’ll know in a few days.
Indicators are unsettled too. Money Trend remains
pointing down and the SUM of 16-indicators was down to -7 Monday down from -1
Friday. There were some improvements in market internals, though, and advancing
stocks outpaced decliners while up-volume was higher than down-volume Monday.
The Cyclical Industrial stocks (ETF, XLI) are
underperforming the S&P 500 on almost every time frame. That shows a high level of concern by
investors. Utilities continue to
outperform the Index too. This is another
measure of dispersion within the market. I wouldn’t call this bearish yet, but
it is a point of concern.
ETF RANKING SYSTEM RESULTS AS OF LAST FRIDAY
I began recommending ETFs based on their momentum on 29
November. Results below are from 29 Nov thru 10 March.
-Returns assuming 100% invested in the S&P 500 Index:
7.6%
-Results assuming 100% invested in the XLF, Top Ranked
ETF: 11.6%
-Results assuming equally invested in all 3-top ranked
ETFs: 4.7%
The top ranked ETF has outperformed the S&P 500 while
other ETFs have not performed as well.
As noted in my discussions, momentum is not the same as return. A fund
may have very good momentum, but then fail to keep up with the S&P 500 if
its momentum falters. That was the case with Energy (XLE) and it sustained a
nearly 4% loss since the end of November. XLE was the biggest loser in the
Momentum System, but there were a few other small losses in shortly held
trades.
If we look at a shorter time frame, the last 2-months,
and consider only the 3-ETFs that are currently ranked in the top 3, the
results follow:
S&P 500: 4.2%
XLF: 5.2%
ITA: 5.4%
XLK: 6.8%
The 3-funds ranked highest for momentum were also the
3-highest ranked ETFs for returns when compared to all 15-ETFs under
consideration over the last 40-trading days.
My takeaway is that there is merit in the system, but it
can be tripped up if one of the 3-top ranked ETFs loses momentum rapidly. Further,
these results are not compounded so they are only approximates.
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.
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)
XLI was slightly ahead of the XLK, but not enough to
change the recommendation. Further, if
there is a correction, XLI is likely to be among the worst performers.
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.
NET:
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
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).
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.
