Wednesday, May 17, 2017

Crude Inventories … Real Reason for the Decline … Market Analysis … Trading ETFs and ETF Ranking

“Oil prices rose on Wednesday after U.S. government data showed a decline in domestic crude inventories and strong refining activity in the world's largest oil consumer, ahead of next week's meeting of major oil producers.” Story at…
“The DOW fell over 372 points, the VIX volatility index jumped 46%, gold was up $23, the dollar fell, and treasury yields sank across the board. The media attributed this to Trump. Speculations regarding possible impeachment hearings soared. Realistically speaking, however, impeachment odds are near zero. So what spooked the market?” Commentary at…
-Wednesday the S&P 500 dropped about 1.8% to 2357.
-VIX jumped up about 46% to 15.59 at the close.
-The yield on the 10-year Treasury dropped to 2.227%.
I have been saying for a while that the Market can’t seem to make up its mind. Well, it made up its mind today! The Bears were growling.
Today’s close was the poster child for poor Late Day Action as the Index dropped all afternoon. The Smart Money bailed today and the closing tick was a huge –633 …Ugly, ugly day, especially the close.
Today’s action blew up all the indicators and Bearish signs abound:
-My Sum of 17–indicators dropped from +3 to -5.  That’s a big daily swing and, as we have noted for some time, the 10-day value is still headed sharply down.
-Money Trend switched to bearish again.
-Market Internals switched to negative (from neutral) today.
-New-lows outpaced new-highs giving us a Negative Spread – that’s definitely bearish.  
-Industrial Cyclical stocks (XLI-ETF) are underperforming the S&P 500, but not drastically. Cyclicals tend to be the canary in the coal mine when investors get nervous.
There were some bull signs:
-The Index dropped all the way down to its lower Bollinger Band and it wouldn’t take too many further declines to give us an “oversold” reading.
-RSI was 34.  30 is “oversold” so we could see some buying pressure soon if the Index continues down.
-The 5-10-20 Timer System remains “buy”, but just barely. (The 5-dEMA & 10-dEMA are both above the 20-dEMA.)
Today was a statistically significant (big) down-day and that is usually followed by an up-day the next day. With the move as big as it was today, some follow-thru down is possible - seems like there was some panic today - surprise-surprise…markets can go down too.
The Index closed 0.5% below its 50-dMA. I’d expect a test of the 13 April low of 2329. The 200-dMA is 2255 and that’s a possible stop too if the 13 April low doesn’t hold.
Overall, the bears seem to be in control, but that doesn’t mean that there couldn’t be a quick turn-around and move up.  It’s not the most likely scenario, but it could happen. We’ll have a better idea in a couple of days.
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…
Today, Utilities (XLU) ETF was the only winner of the 15-ETFs I track. That’s typical – the Pros use XLU for safety in times of trouble.  XLK (Technology) and IWM (Small Caps) were the big losers – looks like profit taking to me.  The S&P 500 is still outperforming Utilities (over the last 2-months) and that suggests (at this point) that there may not be much of a down-turn.
Technology (XLK) remains No 1 & I continue to hold the XLK. (In a downturn XLK and IWM would probably be among the poorer performers.)
I would avoid XLE; its 120-day moving average is falling.
 “At each major market peak throughout history, there has always been something that became “the” subject of speculative investment. Rather it was railroads, real estate, emerging markets, technology stocks or tulip bulbs, the end result was always the same as the rush to get into those markets also led to the rush to get out. Today, the rush to buy “ETF’s” has clearly taken that mantle…” – Lance Roberts. Commentary at…
SHORT-TERM TRADING PORTFOLIO - 2017 (Small-% of the total portfolio)
No positions. Let’s watch the market for confirmation, up or down.
-“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.
I haven’t done well in my short positions over the past 6-months; conversely, I have a good record in long positions.
Market Internals switched to 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, Price; Sentiment, Volume & VIX indicators were neutral. (With VIX recently below 10, VIX may be prone to incorrect signals. Usually, a rising VIX is a bad market sign; now it may just signal normalization of VIX, i.e., VIX and the Index may both rise. As an indicator, VIX is out of the picture for a while.)
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, but I consider it fully invested.
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.