Tuesday, July 18, 2017

High Sentiment Suggests Trouble for Stocks … Stock Market Commentary … ETF Trading

Short post today…still too busy.
“… some of the same patterns of optimism are appearing [as were present in 2015 before a double digit correction], which could pose a headwind for the stock market in the months ahead…“Overall, they’ve [Rydex Funds have] got about $14 invested in bullish index funds for every $1 they’ve got in inverse funds that would profit on a market decline. Just in the past few days, that moved to an all-time record.” - Jason Goepfert at SentimentTrader. Posted at Financial Sense at…
My cmt: I’ve remarked on this several times recently since I too track Rydex long/short funds.  My calculation is {Bulls/(Bulls+Bears)} and on a std deviation basis has been rivaling the dot.com bubble for bullishness.
-Tuesday the S&P 500 was up a point – essentially unchanged.
-VIX rose about 1% to 9.89, but remains historically near extreme lows. (This is signaling extreme complacency.)
-The yield on the 10-year Treasury dropped to 2.260%. (The Bond Ghouls are not happy. The falling rate suggests trouble for stocks if it continues.)
My sum of 17-indicators slipped +2 on the day, down from +7 last trading-day.  Since there is a lot of volatility in this indicator, I use a smoothed10-day average. That number is was up from yesterday and it remains generally bullish.
Late-day action was up and that’s a bullish sign if it continues. As of today, the longer term version of this indicator shows reason to be concerned and remains slightly bearish.
It looks like the call is long on a short-term basis based on the chart. 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…
Today several ETFs are essentially tied.
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 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 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). 
Tuesday, Sentiment, Price, Volume, & VIX indicators were neutral. (VIX would be signaling BUY now, but 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 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.