Tuesday, March 28, 2017

Trade Deficit … Wholesale Inventories … Consumer Confidence … Time to Turn Bullish … Stock Market Analysis … Trading ETFs and ETF Ranking

“The U.S. goods trade deficit narrowed sharply in February, and inventories increased, which could prompt economists to raise their estimates for first-quarter gross domestic product.” Story at…
“Consumer confidence jumped in March to the highest level in more than 16 years, as Americans grew increasingly upbeat about both present and future conditions, according to a report Tuesday from the New York-based Conference Board…[The] Confidence index rose to 125.6…” Story at…
“After striking our longer-term target for this segment of the bull-run that we were expecting in early November 2016, we have been preparing for a pullback. For the past few weeks, we have been looking for the S&P 500 to drop to the 2,335 region. The market obliged last week, and now we may be setting up for a reversal.” – Avi Gilburt. Story at...
My cmt: Avi Gilburt is calling for a high of 2500 before a major correction takes hold.

-Tuesday the S&P 500 was up about 0.7% to 2342 2359.
-VIX slipped about 8% to 11.53.
-The yield on the 10-year Treasury rose to 2.417%. (Traders sold bonds and bought stocks.)
The S&P 500 visited its 21 March low of 2344 3-times while volume was drastically reduced from the low. This suggested that selling was drying up.  I am not a fan of using these techniques on a drop of only 2.3% from the top.  They just aren’t reliable for small downturns; but the multiple tests, lower volume, improving internals and price action (that has included lower opens followed by afternoon recoveries) has been encouraging.  
Further, the Index has bounced from around its 50-dMA a couple of times on an intra-day basis and closed higher each day; that is another sign that the pullback has been postponed…again. Surprisingly (because no-one believes it, including me) the market seems to want to go higher. How much higher? I’m not even going to guess – but I’ll take what the market gives.
Friday, I moved back in at a fully invested 50% in stocks position in long-term accounts and pared my short positions. Today, I closed all shorts.  
A quick run-down of indicators:
-Money Trend reversed up with a strong move. - Bullish
-My “SUM of 16-Indicators” made a very bullish moved from -9 yesterday to +4 today.
-Smart Money (late day action) is flat (neutral), but it had been trending down so this indicator has improved too.
-Breadth is strong with 55.9% of stocks on the NYSE advancing over the past 10-days. It’s actually a bit too strong as the Advance-Decline Ratio is now “overbought”.
-Market Internals are now bullish.
-The cyclical industrials have been underperforming the S&P 500 on every time frame for nearly 2-weeks, but today they improved enough to be outperforming on a 10-day basis. That’s bullish. Cyclicals suffer when investors are worried.
All in all – up we go.
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; today they were up 1.3% so they liked that Bond-yields reversed upward today (another positive sign for stocks).
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)
I closed all remaining short positions on 3/28/2017.  My losses were big enough that I am too embarrassed to list them here.
-“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 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). 
Tuesday, Sentiment was negative (Bullishness is at an extreme.); Price was positive; Volume & VIX indicators were neutral.
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, based on short-term indicators. 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.
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.