Friday, March 17, 2017

Industrial Production … Leading Economic Indicators (LEI) … Michigan Sentiment … Stock Market Analysis … Trading ETFs and ETF Ranking

Happy St Pats Day – Drink some green beer for good luck!
“U.S. industrial production was unchanged in February as mild weather curtailed utility usage but manufacturing output rose for the sixth straight month.” Story at…
“The U.S. economy is set to accelerate, if a gauge that historically correlates with future performance is on target. The Conference Board said its leading economic index rose 0.6% in February — the third straight gain of that magnitude — to reach its highest level in more than a decade.” Story at….
“A measure of consumers' attitudes "remained quite favorable" in early March, the University of Michigan reported on Friday. The University of Michigan's Consumer Sentiment Index hit 97.6 in March, up from 96.3 in the previous month…” Story at….
-Friday the S&P 500 was down about 0.1% to 2378.
-VIX rose about 0.6% to 11.28.
-The yield on the 10-year Treasury slipped to 2.504%. (Investors bought bonds and bought the small-cap stocks.)
Friday there is a Bollinger Band Squeeze on the S&P 500. This is an indication of a lack of volatility.  Moves in both directions have been very small and the upper and lower bands (2-std deviations) are closer than they have been in the last 6-months. The last time this happened was in early September 2016 and it preceded a 5% dip. Will it this time? I admit confusion at this point.
The small-cap stocks were up and advancers outpaced decliners again on the NYSE as it did yesterday. Usually, the small-caps will precede the large and we’d see the S&P 500 catch-up to the smalls in the next session or two.
This time? I don’t know. Sooner or later this market is going to break down.
Volume was extremely high, about 40% above the monthly norm.  Many believe that this is a sign of “distribution” or the smart-money selling to the dumb-money. Today’s volume can be attributed to Option Expiration, Quadruple Witching Day, so it’s not possible to put much of a spin on the high volume. Supposedly, volume is low on options expiration until late in the day.  That wasn’t the case today since there was high volume in the morning too. I don’t know what it means though – distribution?
Still looks like Irving Fisher’s quote is spot on:
“Stock prices have reached what looks like a permanently high plateau.” - Yale economist Irving Fisher, 17 October 1929.
My sum of 16-indicators remained at +3.  Money trend is moving up. But not all was positive: Late day action was decidedly bearish today since there was a late day swoon of around a half-percent. I wrote Wednesday, that the next 2-days will be the key to see if the rally can continue. The S&P 500 was down both days, but internals were positive. Go figure. Based on price action the trend may be slightly bearish, but one could make a good argument for a bullish stand too. Sorry – indicators aren’t very strong.
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 remained 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). 
Friday, 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.