Wednesday, July 26, 2017

FOMC Rate Decision … Home sales … Crude Inventories … N. Korea Threatens US … Stock Market Commentary … ETF Trading

“The Fed’s statement…wasn’t substantially different from its previous remark and recent testimony on Capitol Hill from Janet Yellen, but the central bank did touch on subdued inflation, giving Wall Street participants the impression that the central bank would take extra care in normalizing monetary policy…The main message from the July FOMC statement was that the Committee is very likely to announce the starting date for running down its balance sheet at the September meeting, but it is worried about inflation,” Paul Mortimer-Lee, chief economist for North America at BNP Paribas, said in a note.” Story at…
“New U.S. single-family home sales increased in June as purchases in the West surged to a near 10-year high, but downward revisions to the sales pace for the prior three months pointed to a housing market that is struggling to gain momentum.” Story at…
“The Energy Information Administration once again helped to lift oil market spirits this week by reporting another hefty decline in U.S. commercial crude oil inventories for the week ending July 21.” Story at…
“In response to U.S. official embracing regime change in North Korea, a Pyongyang official vowed Tuesday to "strike a merciless blow at the heart of the U.S. with our powerful nuclear hammer." Story at…
My cmt: Holy smokes! I knew this guy was crazy, but it appears that he is stupid too.
-Wednesday the S&P 500 was up a point to 2478.
-VIX was up about 2% to 9.6.
-The yield on the 10-year Treasury slipped to 2.288%.
As noted previously (and repeating)…
VIX remains at extreme lows. This is signaling extreme complacency and is cautionary for the markets.
Most indicators are headed up including late-day action.  My Money Trend indicator is punching higher after being flat for some time and that’s bullish.  The Advance-Decline ratio is signaling “overbought” and today the Relative Strength Indicator (RSI) switched to overbought too. Bollinger Bands were overbought a week ago.  These clusters of overbought are somewhat suggestive of a pullback, but I think Bollinger bands need to give another signal to confirm it.  
Another negative is that cyclical industrials (XLI) are underperforming the S&P 500 on almost every time frame I track. The underperformance isn’t enough to worry about yet, but it is getting there. Cyclicals underperform when investors are worried so we’ll continue to watch this.
The call is NEUTRAL 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 remains #1. Since the system 1st recommended IBB (1-month ago) IBB has doubled the performance of the S&P 500 4.8% to 2.4%.
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.
I haven’t been doing much in the trading portfolio – too busy to worry about it; but the call is now NEUTRAL as noted above.
-“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). 
Wednesday, Price is positive; Sentiment, 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.