Friday, June 16, 2017

Building Permits … Michigan Sentiment … Market Analysis … Trading ETFs and ETF Ranking

“U.S. homebuilding fell for a third straight month in May to the lowest level in eight months as construction activity declined broadly, suggesting that housing could be a drag on economic growth in the second quarter.” Story at…
“The biggest drop in U.S. consumer sentiment since October represents a break from the greater optimism seen after the presidential election, University of Michigan survey data showed Friday.” Story at…
-Friday the S&P 500 was unchanged at 2433.
-VIX fell about 5% to 10.38.
-The yield on the 10-year Treasury slipped to 2.152%.
The ETF trading system issued a sell on XLK (Technology ETF) yesterday. The XLK buy signal was 21 March 2017.  The gain on XLK was 5.6% vs. 3.8% gain for the S&P 500 during the same period. While a couple of % outperformance may not seem like much, it would mean nearly 50% more money in your pocket vs. holding the S&P 500 over the same period. Needless to say, over the long run (if this performance can be duplicated) the difference would be huge.
Today, late-day action looked good as the Index climbed all afternoon; but late-day action is flat on a smoothed basis; it looks like traders aren’t sure of the direction of this market. My Sum of 17-indicators remains in positive territory- that’s bullish. Market Internals have been deteriorating-that’s bearish. Traders seem confused – me too.
I remain unimpressed on a short-term basis. It’s going to take time to see which way the wind blows.
Longer term, I’m cautiously bullish; I will worry more in 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…
XLU (Utilities) is again #1. If it stays #1 Monday, I plan to buy XLU. XLU was the leader for about 3-1/2 months early in the year.  Perhaps it will be again.
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.
I am still not bullish enough to take a long position in the trading portfolio.
-“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 remain 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; Volume, 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.)
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 2 June and the last actionable signal was a BUY (from a prior sell) on 15 November 2016.