Thursday, April 13, 2017

Jobless Claims … Producer Price Index … Michigan Sentiment … Stock Market Analysis … Trading ETFs and ETF Ranking

Markets are closed tomorrow for Good Friday; Easter is Sunday.
“Initial jobless claims were essentially unchanged at 234,000 in early April, holding near extremely low levels that show the U.S. labor market is going strong despite a slowdown in hiring last month.” Story at…
“A report released by the Labor Department on Thursday showed a modest decrease in U.S. producer prices in the month of March. The Labor Department said its producer price index for final demand edged down by 0.1 percent in March….” Story at…
“Consumer sentiment advanced to a three-month high in April as Americans’ optimism about their current financial situation and the economy reached the strongest point since 2000, University of Michigan survey data showed Thursday.” Story at…
-Wednesday the S&P 500 dropped about 0.7% to 2329.
-VIX rose about 1% to 15.96 at the close.
-The yield on the 10-year Treasury slipped to 2.236%.
Our watch points have been the 50-dMA and the prior recent low of 2142.  The S&P 500 broke below the 50-dMA Thursday.  At that point, it was sitting on the lower-trend line (by my estimation) and might have recovered.  Unfortunately, the test of 2142 was a failure.  Thursday was weak, but turned downright UGLY in the late afternoon.  (Only 14% of volume on the NYSE was up.) We had plenty of hints before, but it’s clear now – the Pros do not like this market.  That (among other indicators) leads to a conclusion that stocks are likely to move lower next week. Many who didn’t sell may be concerned over the weekend and I think they will be in the mood to lighten up on stocks Monday or Tuesday.  (I may join them depending on Market action Monday.)
It’s always possible that selling will not pick up and the buyers might come back. If so, there could be a “turnaround Tuesday”.  I’ll be watching the numbers and we’ll try to find an all-clear point…sooner or later.
The 200-dMA is a likely stopping point for the S&P 500 if the pullback continues.  The 200-dMA is 2228 or about 4.5% below Friday’s close.  While there have been a lot of down days recently, the Index is only 2.8% below its high. VIX is slightly below 16 so complacency remains the word for the day. My “calm-before-the-storm” indicator again flashed sell. It is based on statistical analysis and identifies calm markets that often lead to significant down moves. (This indicator caused me a lot of grief earlier this year when it gave a false signal in early January that persisted thru all of February.) Even so, it is usually correct.
The average correction (+10%) over the past several years has lasted about 3-months top to bottom (60-days). Smaller corrections 7-10% have typically lasted from the 1-2 months. It has been 31-trading days, or about 6-weeks, since the last Top so this one could be over or not.
There are some Bullish indicators: Bollinger Bands are now oversold; there have only been 7 up-days in that last month and that’s oversold; today was another statistically significant (big) down-day and that is usually followed by an up-day the next day. Further, bottoms occur at big down-days or a few days after a big down-day.
My guess is that the market will be down next week, but it is by no means a slam dunk.
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 iEFA; its 120-dMA is now trending down.
The market has experienced some turmoil now; almost every ETF was down today. In my back testing it was apparent that during corrections flight to safety meant that XLU tended to outperform.  Rather than try to play the correction by chasing the hottest ETF, I suggest exiting all positions, or just remaining with the recent recommendations (XLK) for long-term investors.
The fact that XLU is outperforming everything is an indication that the Pros are positioning for a correction.
1. Utilities Select Sector SPDR ETF (XLU) is now the top ranked ETF.
(I sold XLF today. It has underperformed and as long as interest rates are falling, it won’t do well.  I am still holding XLK.)
SHORT-TERM TRADING PORTFOLIO - 2017 (Small-% of the total portfolio)
Rydex Inverse 2x Nasdaq 100. Established 4/13/2017.
VXX. Established 4/13/2017.
This pullback could be over already so these positions will not be held long if the market moves higher.
Market Internals remained 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). 
Wednesday, the VIX indicator was negative; Sentiment, Price & Volume 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.