Thursday, July 13, 2017

Producer Price Index … Jobless Claims … Market Analysis … Trading ETFs and ETF Ranking

PPI (MarketWatch)
“U.S. wholesale prices increased slightly in June but are no longer rising rapidly, providing further evidence that inflation is well contained. The producer-price index edged up 0.1% last month…” Story at…
“The number of Americans applying for unemployment benefits fell for the first time in a month, bolstering the Federal Reserve's view that the labor market is firming. Initial jobless claims, a measure of workers laid off across the U.S., dropped by 3,000 to a seasonally adjusted 247,000 in the week ended July 8…” Story at…
-Thursday the S&P 500 was up about 0.2% to 2448.
-VIX dropped about 4% to 9.9. (This number is an extreme low. VIX has only been below 10 less than 15-times in its history.)
-The yield on the 10-year Treasury rose to 2.348%.
Advancing volume is stubbornly falling on a smoothed 10-day basis. Other indicators are mostly flat and that’s about the way the market feels – flat. I think the indicators and market internals are lacking direction due to the lack of volatility in the market.  That can be measured in the size of daily moves (calculated by the standard deviation) that have been exceptionally small. My calm-before-the-storm indicator has been red for the last month.  In addition VIX has once again crawled below 10. That is a very rare event that I have written about before here, under CORRECTION COMING and MARKET ANALYSIS…
These conditions reflect a market that is unstable and can be prone to big moves down, but the timing is an unknown since, like bearish high-sentiment, it can last a longer than one would expect. On the subject of sentiment, it was recently at values similar to those seen during the bubble (on a standard deviation measure). These are reasons that I am concerned about late-summer to early-fall when seasonality issues could combine with political realities to kick off a decent correction.
Near-term I have been trying to get more bullish and take some sideline cash and add it to long positions. It’s just hard for me to get too bullish when indicators are flat.  That may be a false worry caused by lack of volatility – but it still bothers me. However; I do remain fully invested in stocks.
-Bull signs…The 5-10-20 Timer system remains buy since the 5-dEMA and the 10-dEMA are now higher than the 20-dEMA; Market Internals have improved, but not by much since they are still neutral.
-On the bearish side…Bollinger Bands are tight with the S&P 500 Index very close to the upper band; smoothed up-volume is falling; late-day-action (Smart Money) suggests the Pros are still in a cautious mode.
-Neutral signs…
New-highs were improving, but now are flat.
At this point, we’re still sitting close to neutral short-term, but I’m guessing new-highs may be in store for the Index.
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) was #1, but US Aerospace and Defense (ITA) was close enough to be tied for 1st.
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). 
Thursday, Sentiment, 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.