Wednesday, May 24, 2017

FOMC Minutes … Home Sales… Crude Inventories … Quaint Funds … Market Analysis … Trading ETFs and ETF Ranking

FOMC MINUTES (Financial Post)
“The latest FOMC minutes signal that most Fed officials see tightening warranted ‘soon’ and back a plan to gradually shrink the Fed’s US$4.5 trillion balance sheet.” Story at…
Americans pulled back their pace of home-buying in April, as the shrinking number of houses for sale and rising prices are putting them in a bind as their options dwindle. The National Association of Realtors said Wednesday that sales of existing homes declined 2.3 percent last month…” Story at…
“U.S. crude oil inventories fell for the seventh straight week as refiners processed a near record amount of crude last week, the Energy Information Administration said on Wednesday, even as gasoline and distillate stockpiles also dipped.
Crude inventories fell 4.4 million barrels in the week ended May 19…” Story at…
“…in recent years trading by regular hedge funds, traditional asset managers and banks has been on the decline. In its place has been the rise of quant funds, using algorithmic processes to make buy and sell decisions. Quant funds now account for over a quarter (27.1%) of U.S. stock trades. This is a larger proportion of shares traded than by any other source, except for individual investors, who account for roughly 29% of trading volume.” Commentary at…
-Wednesday the S&P 500 rose about 0.25% to 2404. (Another new-high.)
-VIX dropped about 7% to 10.02 at the close.
-The yield on the 10-year Treasury slipped to 2.253%.
Wednesday was the 5th day in a row that the S&P 500 has closed higher.  A 6th day is not likely, but always possible. That’s short-term bearish (since tomorrow is more likely to be down), but longer term; it’s bullish since it shows optimism.
-My sum of 17-indicators was -1 today vs. +3 yesterday. Longer term it continues to improve.
-We saw some late-day buying today, and the trend remains up.
Repeating yesterday’s warning:
-Bollinger bands are creeping together while the Index is close to its upper band. That usually brings more volatility and a break up or down.  The catch is that RSI is giving a neutral signal, so it’s hard to say whether the break will be up or down.
-Cyclical stocks are hinting the move may be down. The Cyclical Industrial ETF, XLI, is underperforming the S&P 500 over the last month, but not by much so this isn’t a strong signal.
The S&P 500 made a new high today. As noted yesterday, the breadth of the market (those stocks that are advancing) is narrowing.  Only 4% of stocks on the NYSE made 52-week highs today. This is worse than the recent new high when only 5% of stocks made 52-week-highs on 15 May.  A narrow market can be at risk for sudden moves down if everything doesn’t go right.  Back in March, more than 11% of stocks made 52-week-highs at the S&P 500 new-high, so deterioration is continuing.
The Index broke above 2400. Can it stay there?  It’s wait-and-see again…
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) is No 1. I would avoid XLE; its 120-day moving average is falling.
SHORT-TERM TRADING PORTFOLIO - 2017 (Small-% of the total portfolio)
Now neutral. Bollinger Bands are suggesting a break - my guess is down a bit.
-“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.
Market Internals were 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). 
Tuesday, 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.