Monday, June 19, 2017

Raymond James Commentary (Excerpt) … John Hussman, PhD Comments (Excerpt) … Market Analysis … Trading ETFs and ETF Ranking

“We have just come off of the strongest earnings season we have seen in years, with the S&P 500 earnings improving nearly 14%. More importantly, the “bears” that have been telling us earnings may be okay, but revenue growth is nonexistent, just got proven wrong with revenue up almost 8%. This is the kind of action you typically see as the equity markets transition from an interest rate to an earnings driven secular bull market. Obviously, there will be a time when our indicators, models, and the stock market’s own price action start to suggest more caution, but now is not that time.” – Jeffery Saut
“As of last week, our assessment of the overall market return/risk profile remains dominated by three factors, the first being wickedly extreme valuations (which we associate with near-zero expected S&P 500 nominal total returns over the coming 12-year period, with the likelihood of interim losses on the order of 50-60%), the second being the most extreme syndromes of overvalued, overbought, overbullish conditions we define, and the third - and the most important in terms of near-term market risk - being divergent and deteriorating market internals on the measures we use to assess investor risk-preferences.” – John Hussman, PhD. Commentary at…
My cmt: This commentary covers aspects of the Fed wind down of its $4-trillion balance sheet. John Hussman noted, “One of the risks the Fed is courting here is that if it buys, say, a 7-year Treasury bond, and its average policy rate over the next 7 years exceeds the yield-to-maturity when the Fed bought the bond, it will effectively be engaging in fiscal policy because it will have to pay more interest to banks than the interest it actually receives on the bond, and it would not recover that difference at maturity. This would effectively be unconstitutional, since only Congress can authorize such expenditures through an explicit budget process.”
-Friday the S&P 500 was up 0.8% to 2453 for another new-high.
-VIX was little changed at 10.37.
-The yield on the 10-year Treasury rose to 2.191%.
Pay no attention to the Fed behind the curtain…These are not the Fed Hikes you are looking for…Move along...Markets shrugged off hawkish comments by the Fed today, because this time is different.  Well…probably not, but to date, the hikes have been slow, so unless the Fed goes into high gear with hikes in consecutive meetings the Market may not care.
The size of the move up today was “statistically significant” (big move up) and that suggests a down day tomorrow. Money Trend is drifting down, but it remains above zero so it remains positive. My estimate of money trend is that the trend is slowing its advance. The sum of 17-indicators is down slightly on a smoothed basis. Smart money (late-day-action) was up today and longer term - this is bullish. Advancing volume is falling. Bottom line – indicators remain somewhat mixed.
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) remains #1, but it was a loser today down 0.3%. (The biggest loser was Energy (XLE) down 0.6%) Tech (XLK) was up 1.5% on the day. Given that this is a reversal from what I expected, I will wait a bit before getting into the #1 ETF.  When the dust settles, XLU may not remain #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.
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.