Friday, July 7, 2017

Payrolls … Average Hourly Earnings … Market Analysis … Trading ETFs and ETF Ranking

“The U.S. job market roared back to life in June, with a better-than-expected 222,000 new positions created in June while the unemployment rate held at 4.4 percent, according to a government report Friday.” Story at…
“The key takeaway from the report is that the weak year-over-year growth in average hourly earnings (2.5%) is apt to give the Fed some cause for pause when considering the timing of its next rate hike.” Story at…
COMMODITIES VS S&P 500 (MarketWatch)
“We saw similar extremes in the early 1970s and leading up to the dot-com bubble. In both of those cases, of course, stocks began to crumble.” Chart and story at…
My cmt: Extremes like this just indicate that there is trouble ahead for stocks; but like sentiment or other measures of market extreme, those extremes can always get worse so the measures aren’t good for timing the market.  
-Friday the S&P 500 was up about 0.6% to 2425.
-VIX dropped about 11% to 11.19.
-The yield on the 10-year Treasury rose to 2.386%.
Yesterday I noted that “Cyclical Industrials (XLI) are out performing the S&P 500 suggesting that investors aren’t worried. Perhaps this is buy-the-dip moment?” On the basis of cyclicals and today’s market action, it would appear that dip buyers did move in. Are they right? Perhaps, but it still seems like there should be a bit more pullback. Market Internals deteriorated on a 10-day basis (but improved on the day.) My daily sum of 17-indicators is in neutral territory and on a smoothed 10-day basis is also neutral.  Money Trend is neutral. The % of advancing stocks is in positive territory, but is declining on a 10-day basis. Late Day Action was mildly bullish today, but over the last month it is slightly bearish. New-highs continue to slip down (on a smoothed basis), but not alarmingly. To me it looks like, the market still hasn’t made up its mind at least in the short-term.
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.
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). 
Friday, 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.