Tuesday, June 20, 2017

Crude Oil Falling … VIX Suggests Correction … Time for a Top? … Market Analysis … Trading ETFs and ETF Ranking

“U.S. crude-oil prices on Tuesday retreated in to bear-market territory, defined as a drop of at least 20% from a recent peak, as the industry continues to be dogged by oversupply concerns.” Story at… 
“When the normally inverse correlation between the VIX Index and the SP500 gets crazy, if offers us a great message.” Commentary at… 
My cmt: I noted earlier that when VIX drops below 10 (as it did several times in May-June) the negative correlation between VIX and the S&P 500 (VIX and the Index move in opposite directions) can disappear leaving a positive correlation (VIX and Index move in the same direction). This piece by Tom McClellan notes that a positive correlation (or near positive correlation like the one that occurred recently) can signal a correction. McClellan is not predicting a crash; he is suggesting the data indicates a possible correction. My feeling is that we are likely to see a 10% (+/-) correction and recovery to near old highs before a real crash sets in. The timing of a crash is guesswork - this fall? Could be; but right now there doesn’t seem to be an issue that would set it off so I remain cautiously bullish longer term.
"Celine Dion Drops the Price on Her Jupiter Island Estate by $27 million’ - L.A. Times, May 28.
‘Hard Times Hit Billionaire's Row with Luxury Condo Foreclosure’ - New York Post, May 30.
‘Pending Home Sales Crash Most In 3 Years’ - Zero Hedge, May 31…
..‘Rents Are Deflating in the Hottest Cities’ - Business Insider, June 4
…headlines indicate a quickly weakening real estate market. It is worth noting that residential real estate peaked two years before 1929 and one year before the stock market peak in 2007.” Commentary at
-Tuesday the S&P 500 was down 0.7% to 2437.
-VIX was up about 5% to 10.86.
-The yield on the 10-year Treasury rose to 2.169%.
My “Calm-Before-the-Storm” indicator tracks movements in price-volume daily and performs a statistical analysis of the data. When the daily moves get small enough, there’s trouble ahead. Currently this is signaling a pullback. Recently, this indicator has not been a very good one due to the consistently calm market with exceptionally low VIX.  In spite of that, I have to point out that the indicator is going to be right eventually. Perhaps now? We’ll see.  
Money Trend is drifting down. The sum of 17-indicators is down slightly on a smoothed basis. Smart money (late-day-action) was down sharply today – it looked like traders woke up and didn’t like what they saw. Longer term it is down too, so this indicator is now bearish. Advancing volume is falling; only 19% of volume today was up. Bottom line – indicators are getting more bearish, but not drastically so. I wouldn’t bet on a correction, but we might be getting starting.
Long 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…
Aerospace and Defense was the #1 ETF. There are 4-ETFs not far behind the leader. I’ll give it another day before jumping back in. When a correction is underway there are usually no clear winners. It is possible that a correction is getting started.
We noted yesterday that when the dust settles, XLU may not remain #1. That was the case today; XLU slipped to #4.
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). 
Tuesday, Price is positive; Volume, Sentiment & VIX indicators were neutral. (With VIX recently below 10 (May and June), 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.