Wednesday, August 2, 2017

ADP employment … Crude Inventories … Retirement Planning … Hussman Commentary … Stock Market Analysis … ETF Trading

“U.S. private employers added 178,000 jobs in July, below economists' expectations, a report by a payrolls processor showed on Wednesday.” Story at…
“After a week-long rally that eventually saw Brent and WTI both jump the US$50 barrier for the first time in a month, this week produced a string of bad news that squashed prices yet again… To add insult to injury, the American Petroleum Institute surprisingly reported an inventory build, and not a small one.” Story at…
RETIREMENT PLANNING (Real Investment Advice)
“The single biggest mistake made in financial planning is NOT to include variable rates of return in your planning process. Furthermore, choosing rates of return for planning purposes that are outside historical norms is a critical mistake. Stocks tend to grow roughly at the rate of GDP plus dividends. Into today’s world GDP is expected to grow at roughly 2% in the future with dividends around 2% currently. The difference between 8% returns [that some use for planning purposes.] and 4% is quite substantial…Plan for realistic returns in the future as well as adjust and account for market swings that will impact the ending value of your money.” Commentary at….
My cmt: This article was a good commentary on retirement planning.
“At last week’s highs, the median of the most reliable market valuation measures we follow reached an extreme that placed them 170% above their historical norms, implying a prospective market loss on the order of -63% in what I fully expect to be the collapse of the third speculative bubble since 2000. Notably, there is only a single week in history where the median valuation on our most reliable measures exceeded the level we just observed. That was the week of March 24, 2000, which set the peak of the tech bubble.” – John Hussman, PhD. Weekly Market commentary at…
My cmt: Question: Valuations are extreme, but what do we hear day-after-day on CNBC? Answer: “Stocks are reasonably priced.”
-Wednesday the S&P 500 was up about 0.2% to 2478.
-VIX was down about 2% to 10.28.
-The yield on the 10-year Treasury slipped to 2.266%.
Several Bearish signs are cropping up:
-The sum of 17-Indicators is falling sharply on a smoothed long-term basis.
-Market Internals deteriorated on a 10-day basis and will give a negative signal if the %- of Advancing stocks falls further. Over the last 10-days 50.7% of stocks have advanced on the NYSE.  A drop below 50% would suggest a short-term downtrend is in the works.
-Cyclical Industrial stocks are underperforming the S&P 500 on every time frame; that usually doesn’t happen if investors are optimistic.
Still, there are some bullish signs so the call remains NEUTRAL on a short-term basis
Longer-term, I’m cautiously bullish; I will worry more in late-summer (we’re almost there) and into early fall, but I remain fully invested. There isn’t any news now that signals a bear market.
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, Emerging Markets (SCHE) ETF was #1. IBB is essentially tied for third with ITA. Looks like the luster may be fading for Biotech (IBB).  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.
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.