Tuesday, May 16, 2017

Housing … Industrial Production … Raymond James Call for the Week … Stock Market Top … Market Analysis … Trading ETFs and ETF Ranking

HOUSING (Builder)
“Housing starts and permits slipped in April, the Commerce Department reported Tuesday, falling well below the expectations of economists. Privately-owned housing starts in April were at a seasonally adjusted annual rate of 1,172,000, 2.6% below the revised March estimate of 1,203,000 but still 0.7% above the April 2016 rate of 1,164,000.” Story at…
“U.S. industrial output rose sharply in April, a sign of underlying strength in the economy. Industrial production -- a measure of output at factories, mines and utilities -- jumped 1.0% from a month earlier…” Story at…
CALL FOR THE WEEK (Raymond James)
“Our models suggest the drop in equity prices ended on April 19th with another breakout to new all-time highs slated to begin late this week. Early this week has the potential for some further stock price weakness, but by late week that potential weakness should abate.” Jeff Saut.
“As long as we hold below 2425, this pattern points back down towards the 2330SPX region, but with an ideal target in the 2285SPX region. Moreover, this decline can be fast and furious to re-set sentiment to prepare us for the rally to 2500SPX. How the decline takes shape will provide us much more accurate clues as to the target for the decline.
I know I say this all the time, but despite my expectation for another drop in the market, there is nothing that is suggesting that the market has seen its highs just yet. Rather, I still expect that the market will exceed the 2500SPX region, and it may even exceed the 2600SPX region, depending upon how the next larger consolidation takes shape this summer/fall. In fact, I don't foresee a 15-20% correction even beginning to take hold until next year.” Commentary at…
-Tuesday the S&P 500 slipped about 0.1% to 2401.
-VIX creeped up about 2% to 10.65 at the close.
-The yield on the 10-year Treasury slipped to 2.327%.
I am generally neutral in the short-run.  The market can’t seem to make up its mind.
The Smart Money (based on late day action) is still moving up nicely on a 20-day basis and today was no exception as the S&P 500 climbed a couple of points after it bottomed around 2:30. There was also a strong closing tick (sum of last trades of the day) of 399; closing tick was 390 yesterday.  The 10-day closing tick is 236 and that’s OK. I’d get worried if it was higher than 300 since Tom McLellan has pointed out a high closing tick (>300) indicates too much bullishness and is, therefore, bearish.
Bear signs:
-New-high/new-low data is mildly bearish.
-My Sum of 17–indicators remained +3, but the 10-day value is still headed sharply down.
-The Index is close to its upper Bollinger Band.
-Industrial Cyclical stocks (XLI ETF) is underperforming the S&P 500 but not by much. Cyclicals tend to be the canary in the coal mine when investors get nervous.
Neutral signs:
-Market Internals remained neutral today.
Bull signs:
-Money Trend remains slightly bullish.
-The percentage-of-stocks-advancing over the past 10-days slipped to 50.5% today, but it is still above 50%. That means that most stocks on the NYSE have gone up in the last 10-days, but it’s not a very strong sign.
-The 5-10-20 Timer System remains “buy”. (The 5-dEMA & 10-dEMA are both above the 20-dEMA.)
-Late-day action was up today and 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.
Overall, indicators are neutral to bullish.  Let’s see if we can see some acceleration – one way or the other.
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. Emerging Markets ETF (SCHE) continues to gain ground on Technology (XLK). IEFA (Europe and Far East has done well recently, but that has only been true over the last month or so.
“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). 
Tuesday, Price was 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.