Tuesday, April 4, 2017

Factory Orders … … Stock Market Analysis … Trading ETFs and ETF Ranking

“New orders for U.S.-made goods increased for a third straight month in February on growing demand for machinery and electrical equipment, suggesting the manufacturing sector recovery was gaining steam. Factory goods orders rose 1.0 percent…” Story at…
-Tuesday the S&P 500 was up about 0.1% to 2360.
-VIX fell about 5% to 11.79
-The yield on the 10-year Treasury rose to 2.364%.
Once again the S&P 500 dipped to within about 7 points of the 50-day moving average (50-dMA) in early morning trading and moved up about 10 points higher as the day went on. That puts the Index just below the red down-trend line that I highlighted on a chart last Friday.  Bottom line: If the Index can move higher from here and close higher for 2-consecutive days, the down-trend that started 1 March is likely to be over.  “Over” may be too optimistic; the correction that everyone has been predicting will happen; but it may be postponed again. On the other hand…
If the Index fails to break higher that the down-trend line, it is not very far above the 50-dMA and a half-percent drop would break the 50-day and would be likely to bring on more selling.
Indicator Run-down:
Money Trend had been trending down slowly.  It flattened today and that’s mildly bullish. My Sum of 16-Indicators improved from -4 to 0 today. Longer term it is flat; that’s mildly bullish. The late-day buyers stepped in again today and that’s mildly bullish. New-High/New-Low data remains mildly bullish. RSI was 36 (14-day, SMA).  “30” is “oversold” so even RSI might be interpreted as mildly bullish. Not everything is mildly bullish though.
The Advance-Decline Ratio (a measure of breadth) is “overbought” at today’s close, a bearish signal. VIX dropped – that’s usually bullish, but it’s getting a little too low.  Values below 12 have preceded corrections over the past 3-years. That doesn’t mean a correction is necessarily imminent.  XLI is underperforming the S&P 500 and cyclical stocks usually lead the Index.
All-in-all, the picture remains muddy. I remain cautiously bullish, both short-term and longer term, until we get further information. 
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) & Energy (XLE); currently their 120-dMAs are declining.
Recommended ETF Portfolio of top 3:
1. Technology Select Sector SPDR ETF (XLK)
2. Emerging Markets (SCHE)
3. Consumer Discretionary (XLY)
 (I took positions in XLF and XLK Wednesday, 29 March.)
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.
- Rydex S&P 500 2x Strategy. Established 3/28/2017
- 2x S&P 500 ETF (SSO). Established 3/28/2017
-“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 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). 
Tuesday, the Price indicator is positive; Sentiment, 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 50-dMA.
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.