Thursday, June 1, 2017

ADP Employment … Jobless Claims … Construction Spending … ISM Index … Crude Inventories … High Yield Bonds Can’t Confirm Rally … Market Analysis … Trading ETFs and ETF Ranking

“…payroll processor ADP on Thursday estimated that businesses added a blockbuster 253,000 jobs in May, well above economists’ median estimate of 180,000.” Story at…
“The number of Americans who sought unemployment benefits in late May rose to a five-week high, likely reflecting the normal ebb and flow that occurs around a holiday. Initial jobless claims jumped by 13,000 to 248,000 in the seven days stretching from May 21 to May 27….” Story at…
“U.S. construction fell in April by the largest amount in a year, reflecting weakness in homebuilding, non-residential construction and government projects.
The Commerce Department reported Thursday that construction spending fell 1.4 percent in April…” Story at…
ISM INDEX (MarketWatch)
“U.S. manufacturing continued to churn higher in May, according to a survey of purchasing managers released Thursday.
The Institute for Supply Management said its manufacturing index edged up a 10th of a point to 54.9%.” Story at…
"Eight straight weeks of declining crude and the market is barely up," said Gene McGillian, manager of market research at Tradition Energy in Stamford, Connecticut. “The market is telling us that unless we have significant inventory draws, the idea that we’re going to have stronger prices doesn’t look to be realistic.” Weekly data from the U.S. Energy Information Administration (EIA) showed crude inventories dropped 6.4 million barrels, exceeding the 4.4 million-barrel drop forecast.” Story at…
“The S&P 500 has rebounded from the May 17 one-day panic to push to a higher high.  But high-yield bond ETFs like HIO are not confirming that higher high, and that’s a problem.” Chart and commentary at…
-Thursday the S&P 500 rose about 0.8% to 2430.
-VIX dropped about 5% to 9.89. (Below 10 remains a worry since it shows extreme complacency.)
-The yield on the 10-year Treasury rose to 2.211%.
Volume was again above normal, but only about 7% today.  Late day action was strong into the close.  That suggests the Pros are positive on the market, so that’s a good sign. Longer term, the smoothed view of late day action remains flat - neither positive nor negative. 
The Index is still pushing the upper Bollinger Band and that suggests some down time ahead, but this is not being confirmed by RSI so let’s discount this indicator. The Sum of 17 indicators jumped from -2 to +11. On a 10-day basis the Indicators were up too.
Market Internals switched to positive on the market.  There were a few negatives: (1) the size of the move up today was “statistically significant” (big move up) and that suggests a down day tomorrow. (2) The Advance/Decline ratio is “overbought” based on the advance decline data. (3) Utilities are outperforming the S&P 500 over the last 2-months. The cyclical Industrial Index (XLI – ETF) is not outperforming the S&P 500 so the fact that Utilities are is not a strong warning.
Overall, I guessing "up" in the short-term and I remain cautiously bullish for the long-term; but I may worry late-summer and into early fall.
TODAY’S RANKING OF 15 ETFs (Ranked Daily)
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)
Neutral with no positions recommended. - 5/24/2017 thru present.
-“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.
-“Commandment #1: “Thou Shall Not Trade Against the Trend.” - James P. Arthur Huprich
Market Internals switched to positive 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). 
Thursday, Price, and Volume were bullish; Sentiment & 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.)
A buy now means very little and the NTMS is prone to give Buy signals near tops.  The last important BUY-signal was 15 November 2016.

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 for my situation.
The previous signal was a BUY on 23 February and the last actionable signal was a BUY (from a prior sell) on 15 November 2016.