Saturday, June 10, 2017

ECRI Weekly Leading Index … Market Analysis … Trading ETFs and ETF Ranking

ECRI WEEKLY LEADING INDEX (Advisor Perspectives)
-Friday the S&P 500 slipped about 0.1% to 2432.
-VIX rose about 5% to 10.70.
-The yield on the 10-year Treasury rose to 2.2%.
Thursday and Friday we saw advancing-stocks outpace declining-stocks; advancing volume exceeded declining-volume; and new highs higher with new-lows lower.  This indicates the small caps are gaining traction and sure enough, the Small Cap 600 was a big gainer on the day (+0.73%), along with the Russell 2000 (+0.43%) and the NSYE Composite up 0.56%. The S&P 500 usually follows the smalls so perhaps the Index can track up from here.  On the other hand there are some negative signs:
Advancing stocks (Breadth) data shows that the Index is getting ahead of itself; RSI is “overbought” for the third day in a row; a week ago both Bollinger Bands (2-std deviations) and Advance-Decline Ratio signaled “overbought”; closing tick (sum of final trades) exceeded 300 Friday and that’s an “overbought” sign per Tom McLellan. Breadth needs to continue its improvement if the Index is to continue higher.
I think we are stuck with the same summary again:
Overall, I think the short-term performance is somewhat limited; markets can go higher, but perhaps not too much higher before we move back at least a couple percent. Longer term, I remain cautiously bullish; 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) remains No 1. I would avoid XLE; its 120-day moving average is falling.  On a shorter term (40-day) basis the S&P 500 is now outperforming Utilities – I see that as a good sign. Technology was the worst performer Friday; Energy was the best. Perhaps we’re seeing a rotation out of Tech.  We’ll need to watch this.  
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 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). 
Friday, Price, 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.