Wednesday, April 5, 2017

FOMC Minutes … ADP Employment … ISM Services … Crude Inventories … Earnings Growth … … Stock Market Analysis … Trading ETFs and ETF Ranking

FOMC MINUTES (Business Insider)
“Most members of the Federal Open Markets Committee believe that they should start shrinking the Fed's $4.5 trillion balance sheet later this year, according to minutes from their mid-March meeting…The minutes also showed that some officials viewed stock prices as being "quite high”. Story at…
My cmt: Excerpt from the minutes: “…With respect to the economic outlook and its implications for monetary policy, members continued to expect that, with gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace and labor market conditions would strengthen somewhat further.” Markets peaked around 1:30 and slowly declined after the 2PM release of the minutes.
“Businesses added 263,000 jobs in March, payroll processor ADP said Wednesday, possibly heralding a third straight month of strong hiring in the government’s closely watched employment report later this week.” Story at…
“The U.S. economy's service sector expanded in March but at its slowest pace since October, according to an industry report released on Wednesday. The Institute for Supply Management (ISM) said its index of non-manufacturing activity fell to 55.2…” Story at…
“Oil futures pared gains Wednesday after data showed an unexpected rise in U.S. crude inventories last week. The Energy Information Administration said inventories rose by 1.6 million barrels.” Story at…
“For Q1 2017, the estimated earnings growth rate for the S&P 500 is 9.1%. If 9.1% is the actual growth rate for the quarter, it will mark the highest (year-over-year) earnings growth for the index since Q4 2011 (11.6%).” Earnings Insight at…
-Wednesday the S&P 500 was down about 0.3% to 2353.
-VIX jumped about 9% to 11.79
-The yield on the 10-year Treasury dipped to 2.34%.
I was out in the afternoon and returned to find the S&P 500 tanking late in the day. It had been comfortably higher all morning. Top to bottom the Index dropped nearly 1.5% in about 2-hours after the FOMC minutes were released.  Traders were selling the news. That puts the Index at the lower trend line and about 0.4% above its 50-day Moving Average (50-dMA). The 200-dMA is currently 2219 or 6% below today’s close.  That’s the risk. A break below the 50-day could bring on some steep selling down to the 200-dMA.  That’s not a prediction – I don’t know where this thing is going.  We had some positive signs at the previous low of 2342 so we’ll have to see what happens if the S&P 500 breaks lower.
My Sum of 16-Indicators remained unchanged at 0 today. Longer term it is flat. That’s now neutral based on the unchanged condition. RSI was 35 (14-day, SMA).  The “oversold” value is 30 so RSI is suggesting this downturn may be over soon.
The Advance-Decline Ratio (a measure of breadth) is again “overbought” at today’s close, a bearish signal. XLI is underperforming the S&P 500 and cyclical stocks usually lead the Index and that’s bearish too.
Bottom line: We’ll need to see what happens in the next day or two to have a better idea of the future.
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…
Utilities (XLU) was the only ETF up on the day. I would avoid iEAFE (Europe and Far East) & Energy (XLE); currently their 120-dMAs are declining.
1. Technology Select Sector SPDR ETF (XLK) remains the top ranked ETF.
(I took positions in XLF and XLK Wednesday, 29 March.) My guess is that XLF will rebound after a correction as the interest rates rise.  
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.
I closed short-term long positions Wednesday on a snap decision when I saw how the Index traded down late in the day. It’s probably an overreaction, but the chart looked ugly.
- Rydex S&P 500 2x Strategy. Established 3/28/2017. SOLD 5 Apr 2017
- 2x S&P 500 ETF (SSO). Established 3/28/2017. SOLD 5 Apr 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). 
Wednesday, Price, 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.