Monday, July 3, 2017

ISM Index … Construction Spending … Auto Sales … … Market Analysis … Trading ETFs and ETF Ranking

Enjoy the 4th…
“…We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it…” – July 4, 1776
ISM INDEX (Institute for Supply Management)
“Economic activity in the manufacturing sector expanded in June, and the overall economy grew for the 97th consecutive month, say the nation's supply executives in the latest Manufacturing ISM® Report On Business®…"The June PMI® registered 57.8 percent, an increase of 2.9 percentage points from the May reading of 54.9 percent.” Press release at…
“Construction spending during May 2017 was estimated at a seasonally adjusted annual rate of $1,230.1 billion, nearly the same as the revised April estimate of $1,230.4 billion. The May figure is 4.5 percent above the May 2016 estimate…” Press release at…
"U.S. factory activity rose sharply in June to its highest level in almost three years suggesting economic growth in the second quarter gained some steam, while construction spending held steady in May.” Story at…
"Sputtering car sales are finally backing up the auto industry.
Fueled almost entirely by plunging sales of small cars and sedans, a steady decline in U.S. auto sales in the first half of 2017 promises to end the auto industry's two-year streak of record sales.” Story at…
-Monday the S&P 500 was up about 0.2% to 2429.
-VIX rose about 0.4% to 11.22.
-The yield on the 10-year Treasury rose to 2.35%.
Pre-Holiday action followed the script today: big opening on low volume followed by some profit taking later in the day and a finish with a gain. (My forecasts are always best after-the-fact.)
It’s hard to make much of today’s action given the low-volume so I’ll dispense with too much analysis. Sentiment (%-Bulls in selected Rydex/Guggenheim Funds) is once again reaching levels that were seen during the bubble (based on standard deviation analysis). It’s been this high at times in January thru April of this year so this isn’t an immediate sign of impending doom.  Further, sentiment isn’t good for timing since it can remain elevated for an extended period. It does set the stage for possible trouble should we see deterioration elsewhere in the economy or in the stock market.
My overall position hasn’t changed much: Short-term it still looks like a small pullback is likely, but certainly not guaranteed. 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 Biotechnology (IBB) remained  #1 for the 3rd day in a row and the 6th in the last 7-days; but Healthcare (XLV) almost equaled IBB. Either would be OK at this point. I want to see stronger signals before I commit more money to the markets. I thought this might be a reflex rally due to Congress’ failed healthcare revision – it may be, but perhaps healthcare and biotech are the the next hot sectors.
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 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). 
Monday, Sentiment was negative. Price, Volume, & VIX indicators were neutral. (With VIX recently below 10 for a couple of days (May and June), 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.