Friday, May 19, 2017

End of Trumpflation … Market Analysis … Trading ETFs and ETF Ranking

THE END OF TRUMPFLATION? (Real Investment Advice)
“…the markets broke below the 50-dma on Wednesday and triggered a short-term “sell signal” as shown in the lower part of the chart. Importantly, these signals when previously triggered have denoted periods of increased volatility and corrective actions until they are complete. Despite the rally on Thursday, I suspect the “shot across the bow” on Wednesday was just that, a warning shot to investors which suggest reflexive rallies should be used to rebalance and de-risk portfolios for now.  We need to see what happens over the next week to see if the markets can regain their footing. However, for now, holding a little dry powder continues to make some sense.” Commentary at…
-Friday the S&P 500 rose about 0.7% to 2382.
-VIX dropped about 18% to 12.04 at the close. (So much for fear – the market is not worried.)
-The yield on the 10-year Treasury rose slightly to 2.237%.
There was a big bullish day today with fully 85% of the volume moving up and 75% of all stocks on the NYSE higher in price. What’s not to like?
My sum of 17-indicators continued down on a smoothed basis, but was unchanged at -4 on the day. “-4” means that most indicators are now negative.
There was late-day selling today that again indicates that the Pros aren’t buying this rally.  Over a 20-day smoothed basis the “Smart Money” (late-day-action) is flat – a neutral signal.
On a 10-day basis breadth did pick up a bit today and 50.3% of stocks have been up over the last 10-days.
Overall, it still seems like the bears may be in control, but we should have a better idea in a couple of days. I’m trying to get more bullish, but I hate to add to stock-investments when the late-day-action has been down recently.
An important point: On a long-term basis, the trend is still UP.
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…
Technology (XLK) moved up to No 1 again & the Schwab Emerging Market ETF (SCHE) slipped back to 3rd place. 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.
In general, odd things can happen to the ETFs during a correction; all turn equally bad as the markets decline.
 “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 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). 
Friday, Price is positive; 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.