Tuesday, May 23, 2017

Home Sales … ADS Business Index … Recession in 2019 … This Time is Different? … Market Analysis … Trading ETFs and ETF Ranking

HOME SALES (Marketwatch)
"Sales of newly constructed homes stumbled in April, as builders retreated after a March surge that marked the strongest selling pace in a decade….April’s figures were 11.4% lower for the month, but 0.5% higher than in the same period a year ago.” Story at…
"Note: We [the FED] construct the ADS Index using the latest data available as of May 18, 2017. The bold vertical lines provide information as to which indicators are available for which dates. For dates to the left of the left line, the ADS index is based on observed data for all six underlying indicators. For dates between the left and right lines, the ADS index is based on at least two monthly indicators (typically employment and industrial production) and initial jobless claims. For dates to the right of the right line, the ADS index is based on initial jobless claims and possibly one monthly indicator. The limits used on the y axis reflect the minimum and maximum values of the index over its entire history."
My cmt: The ADS Index jumped up recently.  FED data shows the economy is expanding.
RECESSION IN 2019 (Financial Sense)
“March 2019 is the current target date for the next US recession, says a machine-learning "forecasting engine" developed by San Diego-based Intensity Corporation. Intensity boasts a number of very large tech firms as clients—Apple, IBM, Microsoft, and others—and is itself comprised by a team of data scientists, statisticians, and econometrically-minded PhDs.” Story at…
“The median stock in the S&P 500 has never been valued higher than it is today. Corporate profit margins over the past decade have soared and sustained at heights rarely if ever seen before. In the past, margin debt was a valuable way to assess risk in the stock market. This relationship has broken down in recent years. The Buffett Yardstick was also not just a good way to assess forward 10-year returns for stocks but also 3-year risk in the stock market, as well. During this cycle this relationship has also failed. Finally, the relationship between demographics and equity valuations has also broken down in recent years... considering where all of the measures mentioned above currently stand investors better hope that we have, indeed, reached a “permanently high plateau” for asset prices because a reversion to historical norms from this point could be just as painful as the last time these four words became so popular.” Commentary at…
For historical perspective: “Stock prices have reached what looks like a permanently high plateau.” – Irving Fisher, Economist, 3 September 1929
-Tuesday the S&P 500 rose about 0.2% to 2398.
-VIX dropped about 2% to 10.72 at the close.
-The yield on the 10-year Treasury rose to 2.285%.
Volume was off again today, about 15% below the monthly average.  I think it shows some investor/trader confusion.  My sum of 17-indicators was little changed on the day. Longer term it continues to improve. On a 10-day basis breadth continues to improve. We saw some late-day selling today, but longer term the trend remains up.
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, 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 on May 15.  Only 5% of stocks made 52-week-highs that day.  That is a weak number at a new-high and it indicates a narrow market that 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 there has been some deterioration.
The Index is once again struggling in the 2400 region and it is once again slightly below 2400 as it was nearly 3-weeks ago.  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)
Long is the favored trade going forward – 5/22/2017.
-“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 switched to 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.