Wednesday, May 10, 2017

Earnings … Crude Inventories … S&P 500: 3000 or 1500? … Eerie Calm in the Markets … Market Analysis … Trading ETFs and ETF Ranking

“For Q1 2017, the blended earnings growth rate for the S&P 500 is 13.5%. If 13.5% is the actual growth rate for the quarter, it will mark the highest (year-over-year) earnings growth for the index since Q3 2011 (16.7%).” - 5 May Earnings Insight. Full report at…
“U.S. crude stockpiles posted their biggest one-week drawdown since December last week as imports dropped sharply, while inventories of refined products also fell, helping boost oil prices that have been weighed down by concerns about oversupply. Crude inventories USOILC=ECI fell 5.2 million barrels in the week to May 5…” Story at…
S&P 500: 3000 or 1500? (Real Investment Advice)
“…in the short-term it may seem like the current advance will never end…However, without a sharp improvement in the underlying fundamental and economic back drop the risk of failure is rising sharply…[The move up]…will likely be a one-way trip higher and it should be realized that such a move would be consistent with the final stages of a market melt-up. Just as a reminder…’gravity is a bitch.’” – Lance Roberts. Commentary at…
My cmt: Good article with a lot of charts, data and commentary.
[We should] “…remind ourselves, that large moves typically do not happen when volatility is high, and investors are anxious and nervous. It happens when things are calm, and investors see TINA (there is no alternative). Geopolitics and the divergence of policy, and asset/liability and duration mismatches have not gone away. It is a reminder that we are often lulled into complacency just before being shocked by how treacherous things really are.” – Marc Chandler, Global Head of Currency Strategy at Brown Brothers Harriman.  Commentary at…
-Wednesday the S&P 500 rose about 0.1% to 2400 (rounded).
-VIX rose about 3% to 10.21 at the close.
-The yield on the 10-year Treasury rose to 2.417%.  
One clue about where the market is headed is to look at the spread (on a percentage basis) of the S&P 500 vs Utilities (XLU). If investors are worried about a pullback XLU will outperform the Index. Subtracting the XLU from the Index would give a negative number since the %-change in XLU would be higher than the S&P 500. If the Spread (shown red) is in negative territory and falling it is bearish for the market. It’s not a great indicator, but combined with others it can be valuable. Here it shows some investor confusion as the spread has recently bounced around the zero black line.
Bear signs:
RSI was 81 yesterday, but slipped to 77 today. 80 is “overbought. It can remain above 80 for a week or so before markets react down, so that leads to a repeat of yesterday’s comment… The last time RSI reached 80+ (for 8-days) the S&P 500 pulled back about 3% - not much.  I said at the time “correction postponed.”  Perhaps it’s back. The percentage-of-stocks-advancing over the past 10-days rose to 49.9% today, but that still means that most stocks on the NYSE have gone down in the last 10-days.
Market Internals remained negative today. Advancing volume (smoothed 10-day value) is falling. My Sum of 17–indicators was little changed on the day, but the 10-day value is still headed sharply down.
Better signs:
One of the few bullish indicators I follow is late-day action. It is headed up on a smoothed 20-day basis. I place a high value on late-day action since it usually indicates what the Pros think.  Apparently, they think this market can go higher.
Repeating: Overall, there are worrisome signs that point down, but these could reverse quickly so at this point we’ll just have to wait.  On a longer term basis, there’s not much negative on the horizon…except the Fed...and a few other unpredictable Black Swans. 
The S&P 500 chart doesn’t look great since the Index hasn’t gotten much above its prior high from 1 March.  All in all, I am neutral short-term and cautiously bullish long term.
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 XLE; its 120-day moving average is falling.
No.1 remains Technology (XLK). I continue to hold the XLK.
SHORT-TERM TRADING PORTFOLIO - 2017 (Small-% of the total portfolio)
No positions. I would take profits on long positions now and watch the market for confirmation, either direction. Long time readers know that my short-term trading has been abysmal over the last 6-months - too negative.
Market Internals remain 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 was positive; Sentiment was negative; 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.