Monday, April 10, 2017

Hussman Commentary … Stock Market Analysis … Trading ETFs and ETF Ranking

Expect posts to be later than normal for the next several days.
“In recent months, the consensus of survey-based economic measures has turned higher, including a variety of surveys of purchasing managers, as well as indices compiled by regional Federal Reserve banks. At the same time, economic measures based on actual activity such real GDP, real sales, consumption, and employment haven’t been nearly as robust, and in some cases have turned lower. This disparity between “hard” activity-based and “soft” survey-based measures has been particularly wide relative to historical norms… Given the deterioration in correlations between “soft” survey-based economic measures and subsequent economic and financial outcomes, investors should be placing a premium on measures that are reliably informative. On that front, hard economic data, labor force constraints, factors influencing productivity (particularly gross domestic investment and the position of the current account balance in the economic cycle), reliable valuation measures, and market internals should be high on that list.” John Hussman, Phd.
-Monday the S&P 500 rose about 0.1% to 2357.
-VIX rose about 9% to 14.05 at the close.
-The yield on the 10-year Treasury slipped to 2.367%.
We had oddly bullish stats Monday: Up-volume was nearly twice down-volume; Advancers outpaced decliners by more than 2 to 1; and New-highs outpaced new-lows 94 to 10. Usually, stats like those would bring an up-day of much more than 2pts. Indeed, small and mid-cap stocks did well Monday. Still, many seem to be wary of this market.
If I had to put a brand on today’s market I’d call it: “The Pros Don’t Believe It.” There’s plenty of evidence:
(1) Late day selling. The S&P 500 sold off hard again suggesting Pros are selling.
(2) Rising VIX. The Options Boys think all is not well with the market.
(3) Low volume overall. Volume was nearly 20% below the monthly average Monday – that’s very low and one must wonder whether this is a case of buyers sitting out. If Buying dries up, there’s trouble ahead.
(4) Bonds rose forcing yields down. The Bond Ghouls seem concerned.
There was an indicator popularized by Don Hayes that looked at the difference in morning trading (dumb-money) vs. last hour trading (smart money).  The problem is that it has a long lead time and that can be a bit too loose for the average trader.  I bring this up just to point out that late day trading can be a good tell on the market, because that’s where the Smart Money trades. It is not unusual to see 40 to 50% of the total volume traded in the final hour. Late-day trading is reversing down so we must be concerned.

The Index is 0.4% above its 200-dMA.  There is a break coming. The old Advance Decline Ratio is overbought. RSI is 60 (high but not a sell signal yet). The likely direction of a break would seem to be down, but it’s not a slam dunk.  My Sum of 16-Indicators is pretty close to neutral at +2; this indicates more of the same. Repeating: The market tug-of-war continues with mixed indicators and a chart that hasn’t yet resolved itself – are we going up or down? It looks like we will have a longer wait.”
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…
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)
No positions.  Until the market makes a decision (up or down) there is no point in guessing.  Indicators remain mixed.
Market Internals switched to 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). 
Monday, 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.