Monday, July 24, 2017

Aruoba-Diebold-Scotti business conditions index (ADS) … CASS Freight Index … Debt is the Cause, Not the Cure … Stock Market Commentary … ETF Trading

“Note: We construct the ADS Index using the latest data available as of July 20, 2017. The bold vertical lines provide information as to which indicators are available for which dates. For dates to the left of the left line, the ADS index is based on observed data for all six underlying indicators. For dates between the left and right lines, the ADS index is based on at least two monthly indicators (typically employment and industrial production) and initial jobless claims. For dates to the right of the right line, the ADS index is based on initial jobless claims and possibly one monthly indicator. The limits used on the y axis reflect the minimum and maximum values of the index over its entire history.” Available at the Philly FED at…
Chart from…
My cmt: No recession in the works here.
DEBT IS THE CAUSE NOT THE CURE (Real Investment Advice)
“Debt, if used for productive investments, can be a solution to stimulating economic growth in the short-term. However, in the U.S., debt has been squandered on increases in social welfare programs and debt service which has an effective negative return on investment. Therefore, the larger the balance of debt becomes, the more economically destructive it is by diverting an ever growing amount of dollars away from productive investments to service payments… If the economy is doing as well as Central Banks suggest, then why, after 9-years, are the ’emergency measures’ being applied to global economies still in place?’” – Lance Roberts. Commentary, charts and analysis at…
-Monday the S&P 500 was down about 0.1% to 2470. (Sorry for the typo yesterday.)
-VIX rose about 1% to 9.43 (Still historically low).
-The yield on the 10-year Treasury rose to 2.257%.
As noted previously (and repeating)…
VIX remains at extreme lows and has now reached the one of the lowest VIX readings on record. One would need to go all the way back to about 6-months before the Financial Crisis in 2007 to find the last period when VIX was below 10. This is signaling extreme complacency and is cautionary for the markets.
Most indicators are turning up including late-day action.  Things are looking good, but perhaps too good if this continues. The Advance-Decline ratio is still signaling “overbought,” but this signal tends to be early. Overbought can remain in place for some time. RSI was better today (down to 71 from 74); and Bollinger Bands are improving somewhat (i.e. less bearish).  For now, it looks like the markets may continue to make new highs for a while longer.
The call is LONG on a short-term basis. Longer-term, I’m cautiously bullish; I will worry more in late-summer and into early fall, but I remain fully invested.
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…
Today, Biotech (IBB) ETF remained #1.
I would avoid XLE; its 120-day moving average is still falling. 
SHORT-TERM TRADING PORTFOLIO - 2017 (Small-% of the total portfolio)
I take a portion of my cash and apply it strategically to improve returns in cash. My short-term trading has never been about get-rich-quick.
Neutral, with no positions recommended. - 5/24/2017 thru present.
I haven’t been doing much in the trading portfolio – too busy to worry about it.
-“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 on the market; the 10-day advancing volume is now falling.
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, Sentiment, Price, Volume, & VIX indicators were neutral. (With VIX recently below 10 for a couple of days (May and June, and now July), VIX may be prone to incorrect signals. Usually, a rising VIX is a bad market sign; now it may move up, but that might 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.