Monday, March 27, 2017

Texas Manufacturing … 50% Losses Coming – Musical Chairs … Negative [Stock Market] Expectations … Stock Market Analysis … Trading ETFs and ETF Ranking

“Texas factory activity increased for the ninth consecutive month in March, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose two points to 18.6, suggesting output growth picked up pace this month. Other measures of current manufacturing activity also indicated expansion in March.” - Dallas Federal Reserve. Report available at… 
For trend analysis of this series see Advisor Perspectives at…
“On the first day of March 2017, the combined market capitalization of U.S. nonfinancial and financial stocks reached $34 trillion. Those trillions of dollars in paper wealth filter down to the investment statements of millions of investors, reflected in quotes on computer screens and blotches of ink on paper. Over the completion of the current market cycle, we estimate that roughly half of U.S. equity market capitalization - $17 trillion in paper wealth - will simply vanish.” John Hussman, PhD. Weekly Market Commentary at…
“There have been no confirmed short-term positive signals so far. We still can see medium-term overbought conditions along with negative technical divergences. Therefore, we continue to maintain our speculative short position (opened on February 15 at 2,335.58 - opening price of the S&P 500 index).” – Paul Rejczak.
-Monday the S&P 500 was down about 0.1% to 2342.
-VIX slipped about 4% to 12.50.
-The yield on the 10-year Treasury was down to 2.378%.
The S&P 500 slipped below the 50-dMA in the morning and then bounced up from there. The Index was on the rise most of the day, but was flat in late day trading. 
Over the last 10-days late-day trading has been slightly down, but it was in a steeper downtrend previously. The flattening of the curve may be a bullish sign and it will be if the trend flips upward.
There still hasn’t been a close below the 50-dMA, but Market Internals keep improving slowly (even though they were negative today overall) so the 50-dMA is looking less important. (I had expected that the Index might test its 50-day on a closing basis.) With the recent slow improvement in internals I remain leaning toward a bullish stance now.
I wrote Friday that “This [buy signal for the S&P 500] could be a fake out; in a mini-correction the signals are highly suspect…”  The low volume Friday could have been the result of the trading-crowd waiting on the Obamacare vote and simply sitting out trading in the stock market.  Volume was up today, Monday, but still about 10% below the monthly average so I think volume leans toward bullishness since it suggests selling is drying up. Price action today agreed.
In response to the improvements I moved back in at a 50% in stock position in long-term accounts Friday and pared my short positions slightly. As I have written for a couple of days, I don’t know that the market can breakout significantly above the old highs, but it might try. The up-side is still limited and a correction is overdue (based on past and present signals); but it looks like it may be postponed again.
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) & XLE; currently their 120-dMAs are declining.    
The Financials remain number one, but they are losing momentum and may have topped out. Interest rates are slipping some and that is bad for the Financials. Utilities have been way up over the past week.  The move is related to interest rates; with rates falling the dividends from Utilities are a better deal. Fears of a market pullback may have increased interest in Utilities, too.  
Recommended ETF Portfolio of top 3:
1. Financial Select Sector SPDR (XLF)
2. Technology Select Sector SPDR ETF (XLK)
3. iShares U.S. Aerospace & Defense (ITA) 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 turned Negative 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). 
Monday, Sentiment was negative (Bullishness is at an extreme.); Price was positive; Volume & VIX indicators were neutral.
I reduced stock percentages in my long-term account based on short-term indicators on 1 March. There have been no long-term Buy or Sell signals in a while.  The last signal was a BUY on 23 February and the last actionable signal was a BUY (from a prior sell) on 15 November 2016.
I increased stock allocation to 50% stocks in the S&P 500 Index fund (C-Fund) Friday, 24 March 2017 in my long-term accounts. Remainder is 50% G-Fund (Government securities). This is a conservative retiree allocation based mostly on low volume at the test of the recent bottom.