Monday, June 5, 2017

Productivity … Factory Orders … ISM Services … Market Analysis … Trading ETFs and ETF Ranking

The productivity of American workers was flat in the first three months of this year, while labor costs rose at the fastest pace since the second quarter of last year. The Labor Department said Monday that productivity growth was zero in the January-March quarter…” Story at…
“U.S. services sector activity slowed in May as new orders tumbled, but a jump in employment to a near two-year high pointed to sustained labor market strength despite a deceleration in job growth last month… The Institute for Supply Management (ISM) said its non-manufacturing activity index fell six-tenths of a percentage point to a reading of 56.9… factory goods orders dropped 0.2 percent in April..” Story at…
EARNINGS VS. PROFITS (Real Investment Advice)
“With corporate profits still at the same level as they were in 2011, there is little argument the market has gotten a bit ahead of itself. Sure, this time could be different, but it usually isn’t. The detachment of the stock market from underlying profitability suggests the reward for investors is grossly outweighed by the risk… While investor appetites for risk remains robust in the short-term, history suggests that such “willful blindness” has led to particularly bad outcomes.” Lance Roberts. Commentary at…  
-Monday the S&P 500 rose about 0.4% to 2436.
-VIX rose about 3% to 10.02.
-The yield on the 10-year Treasury rose to 2.18%. 
VIX finished a whisker above 10 today, but we still have concern. VIX closed under 10 six-times in the last month. That is a rare event that portends trouble ahead because it suggests extreme complacency.  Trouble may be 6-months to a year ahead…or sooner.  Timing is an unknown since it is a rare warning.
It does not by itself predict a collapse in stock prices, but with VIX this low, it wouldn’t take too much to upset the Apple Cart. See my prior Blog Post on VIX under MARKET REPORT / ANALYSIS at...

My Sum of 17-indicators slipped from +10 to +7, but it is still moving up nicely on a smoothed 10-day basis.
The S&P 500 is not currently exceeding its upper Bollinger Band (2-std deviations) but it is close.  RSI is still neutral so this isn’t a screaming sell.
Utilities are outperforming the S&P 500 over the last 2-months (a bearish sign), but not by much so this is not a strong warning.
The Advance/Decline ratio was a little more positive so it has switched to neutral from “overbought”.  Wall St doesn’t put as much faith in this one as they once did.
Market Internals declined to neutral on the market. 
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) is No 1. I would avoid XLE and XLF; their 120-day moving averages are 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 neutral 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). 
Monday, Price was bullish; 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.