Friday, March 10, 2017

Payroll report … Avg Hourly Earnings / Workweek … Stock Market Analysis … Trading ETFs and ETF Ranking

“U.S. employers added 235,000 workers in February, more than expected, following a 238,000 gain in January that was larger than previously estimated…”
Story at…
“…average hourly earnings grew by 2.8% from the prior year, well above the disappointing 2.5% rate in January and coming in line with economists' expectations.” Story at…
My cmt: In other reports the Avg. workweek was unchanged.
At least that is what the pundits were saying this week on CNBC. I’d like to point out that that wasn’t quite true in March of 2001. The market collapsed on its own in a valuation/FED led downturn.  Much later the NBER came back and decided the recession started shortly after the S&P 500 peak. We are now in a position where conditions are very much the same as 2001. Valuations are at extremes and the FED is entering a tightening cycle. GDP growth was over 4% in the go-go 90’s, but with GDP now at only 1.8% (GDP-Now, Atlanta FED) there isn’t much slack in the system to absorb these rate hikes. Will history repeat? As the new saying goes, probably not, but it may rhyme.  
-Friday the S&P 500 was up about 0.3% to 2373.
-VIX fell about 5% to 11.66.
-The yield on the 10-year Treasury slipped to 2.578%. (The Bond Ghouls were buying bonds – do they know something the stock guys are missing?)
There are more bullish signs today.
-The mini-rally that started Thursday around 2PM carried thru into Friday.  That continued thru the afternoon and we again saw late-day buying on Friday. One always wonders whether a bottom has been made.  We saw volume drop slightly Thursday and a slight improvement in the percentage of advancing stocks.  Falling volume in a downtrend usually means that selling is drying up. It’s hard to judge when there has been very little selling as is the case now. Thursday wasn’t even a lower low so these signs aren’t really reliable, but we do need to consider the possibility that the short-term trend will shift upward again.
-In a reversal, New-highs exceeded new-lows today.
-The old stand-by Advance-Decline ratio is oversold; that’s bullish.
-The sum of my 16-indicators rose from -6 Thursday to -1 Friday, but the longer term trend continues falling so this signal is mixed.
-The 50-day moving average of the S&P 500 is 2310 and the Index never got close to that value. That suggests to me that this is just a reflexive bounce and it may even be computer driven by the Wall Streeters.
Bearish signs remain.
-Sentiment remained screaming high at 83%-Bulls [(Bulls/{bulls+bears}) in selected Rydex/Guggenheim mutual funds] for Thursday at the close (This is always a day late since I get this data late.)  On a standard deviation basis, that value matches extremes seen during the crash.
-Closing Tick remains above 300 and that’s bearish.
-Money Trend remains pointing down sharply.
I think we’ll still see a pullback of some kind. 5-6% seems reasonable, but bullishness remains strong, so 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.
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 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). 
Friday, Price was positive; Sentiment was negative; 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.