Friday, August 11, 2017

CPI … Stock Market Analysis … ETF Trading

CPI (MarketWatch)
“U.S. consumer prices remained soft for the fifth straight month in July, raising more questions about whether inflation will eventually rise to hit the Federal Reserve’s 2% annual rate target. The consumer price index rose a seasonally adjusted 0.1% in July…” Story at…
-Friday the S&P 500 was down about 0.1% to 2441.
-VIX was down about 3% to 15.51.
-The yield on the 10-year Treasury slipped to 2.191%.
Internals are improving relative to the S&P 500. Or stated another way, the Internals are improving on a percentage basis faster than the Index. That’s a bullish sign, but it could still turn down quickly so we’re not out of the woods yet.  Looking at a few indicators…
Bearish signs:
-The S&P 500 remains below its 50d-MA.
-The sum of my 17-Indicators is still falling sharply on a smoothed long-term basis and has dropped into negative territory so the indicators I track are still getting more bearish each day.
-The 10-day measure of advancing stocks was 43.4% indicating that less than 50% of stocks on the NYSE have been advancing over the last 10-days. 
-Advancing volume is falling too and on a 10-day basis only 42% of the volume has been advancing. That number did not change today.
-Money Trend is falling and below zero, suggesting money is coming out of stocks. 
The signs are not all bearish though:
-Bollinger Bands were “oversold” yesterday and remained oversold today. In the past few years this has always led to at least a respite from selling and has usually signaled a bottom. RSI slipped below 29 (oversold) Thursday and was 33 Friday. This too has signaled bottoms although the final bottom has sometimes been 1 or 2% lower than the first RSI oversold. 
-My suspicion remains that the S&P 500 is within 1 or 2% of a short term bottom.  That 10% correction (that many have been predicting) still may be a bit further off – but what do I know.  Short-term predictions are mostly educated guesswork…with the emphasis on guesswork. If indicators continue to deteriorate, I’ll make some portfolio adjustments i.e., hold less stocks. But really, the bottom may not be far off (or perhaps it was Thursday). Only time will tell.
Longer-term, I’m cautiously bullish; I will worry more if the numbers continue to deteriorate, but I remain fully invested. There isn’t any news now that signals a bear market and long-term indicators remain neutral. The 150-dMA of Breadth (%-advancing stocks) is still solidly above 50% so longer term the Index is still in decent shape. 
Be aware though: We have seen closes below 10 on the VIX for the past 4 months. The last time VIX dropped below 10 (other than the past 4-months) was in January 2007 and the markets crashed 6-months later.  My take is that the closes below 10 in November 2006 thru January of 2007 foretold of massive complacency that set the stage for the crash that followed.
We have now seen a number of VIX closes below 10 in May thru August 2017. From here, we should be very wary and pay close attention to the markets.
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, Aerospace and Defense (ITA) remained #1. Kim Jong very Ill has pumped up the Defense stocks. Avoid XLE and IWM; their 120-day moving averages are 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 recently; I don’t have time to watch and I think short-term trading takes a watchful eye.
-“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 negative 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, Price; Sentiment, & Volume indicators were neutral. VIX was indicating sell, but with VIX recently below 10 for a couple of days (May, June, July and now August), 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.