Wednesday, March 1, 2017

Personal Income / Spending … PCE Prices … Construction Spending … ISM Index … Crude Inventories … Auto Sales … FED Beige Book … Stock Market Analysis … Trading ETFs and ETF Ranking

PERSONAL INCOME (Business Insider)
“Personal spending missed, but personal income beat. For the month of January, personal income rose by 0.4% and personal spending came in at 0.2%.” Story at…
“…the largest monthly increase in inflation in four years eroded households' purchasing power, pointing to moderate economic growth in the first quarter… In January the personal consumption expenditures (PCE) price index increased 0.4 percent - the largest gain since February 2013 - after rising 0.2 percent in December.” Story at…
My cmt: The FED pays attention to this one as one of its primary measures of inflation.
“Construction spending tumbled 1% in January, led by declines in transportation, roads and educational buildings.” Story at…
ISM INDEX (Investor Business Daily)
“The Institute for Supply Management's manufacturing survey index out Wednesday rose to 57.7 in February as factory activity accelerated for the sixth straight month. That's the best reading since August 2014, giving the Federal Reserve more reasons to raise rates this month.” Story at…
“The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Wednesday morning. U.S. commercial crude inventories increased by 1.5 million barrels last week, maintaining a total U.S. commercial crude inventory of 520.2 million barrels, the highest level since the EIA began keeping records in 1982.” Story at…
FED BEIGE BOOK (MarketWatch)
“The spike in business optimism in the wake of the presidential election has cooled a bit, a report released Wednesday showed. The Federal Reserve’s so-called Beige Book, a collection of anecdotes about the economy gathered before the central bank makes interest-rate decisions, said ‘businesses were generally optimistic about the near term but to a somewhat lesser degree than in the prior report.’” Story at…
-Wednesday the S&P 500 was up about 1.4% to 2396.
-VIX dropped about 4% to 12.46 near the close.
-The yield on the 10-year Treasury rose to 2.456%. (The Bond Ghouls were selling.)
Yoouuuuge day up today. Believe me. It was bigly. We’re going to build a wall under this market so it never goes down.
The sum of 16-indicators was zero today. That’s weak for a big day and the longer trend remains down. Money Trend is still pointing down. (That surprises me given the day-after-day climb we’ve seen recently.) Late-day action is trending down on average over the last month, and there was late day selling today.
Volume picked up and was nearly 20% over the monthly norm; it was up so it’s not like there was any confirmation of a downtrend. If anything it’s a sign of too much bullishness.
My earlier post Wednesday noted a couple of other negative signs.  Today had the look of a blow-off top.  Will it be? The way the market has powered thru negatives recently, who knows, but I took some money off the table.
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, Financials (XLF) have outperformed the S&P 500 by nearly 20%.
*For additional background on the ETF ranking system see NTSM Page at…
I would avoid iEAFE and SCHE (emerging markets); currently their 120-dMAs are 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. Neither IWM nor XLI will perform well in a pullback so I’ll wait to move them up in the ranking if they do in fact deserve it later on.
Energy (XLE) has slipped all the way to 14th place. If Energy continues to slide the S&P 500 is likely to follow. 
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). 
Wednesday, Price was negative; Sentiment 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.