“The New York Fed reported that its Empire State
manufacturing index climbed to a three-year high of 30.2 in October from 24.4
in September, topping the Econoday-compiled consensus of 20.” Story at…
THE NEXT BEAR MARKET (MarketWatch)
“Recently, some professional traders have warned that the
market is extremely overbought, that stocks are obscenely overvalued, and that
a number of respected indicators are flashing warning signs…Complacency is
the perfect description of this mindless
market and how many investors feel about stocks.” Commentary
at…
MY SENTIMENT CALCULATION
I measure Sentiment as %-Bulls (Bulls/{bulls+bears})
based on the amounts invested in Rydex/Guggenheim mutual funds. Sentiment
reached 81%-Bulls Friday. On a standard
deviation basis, that value is getting close to extremes seen during the
dot.com crash, now 85%. This isn’t by itself a great indicator since sentiment
can remain elevated for some time, but it’s another reminder that caution is
warranted. If it reaches 85%, a pullback
of some kind is likely; other indicators might hint how much. For now, there’s not much need to worry. We’re
not there yet and other indicators are not all that bearish.
MARKET REPORT / ANALYSIS
-Monday the S&P 500 was up about 0.2% to 2558.
-VIX rose about 3% to 9.91.
-The yield on the 10-year Treasury rose to 2.303%.
Pop-top? Or Boring melt-down? Neither?
I’ve been suggesting that a 1% bump up in the S&P 500
would be a good signal for a short-term top.
We haven’t seen it yet and one wonders, will we see a pop-top or boring
melt-down? (or neither) We don’t know, but it does seem like the markets are
beginning to hint they may drift down. Here’s the evidence:
-Advancing volume continues to fall.
-Money Trend is rolling over to the downside.
-Market Internals are deteriorating.
-Smart Money is rolling over and trending down even
though today’s late-day action was bullish.
-Breadth (the 10-dMA of the % of stocks advancing) is
trending down.
-New-high new-low data is deteriorating and is neutral at
best.
-The short-term chart looks like the S&P 500 is close
to its upper trend line which suggests that there may be little room for
advancement in the short-term.
-RSI is bearish; Bollinger Bands are still neutral
although the Bollinger Bands gave a negative signal a week and a half ago.
There’s at least one bullish indication:
-Today’s closing tick (sum of final trades of the day) was
+430 and that may suggest another bullish day Tuesday.
-My sum of 17-Indicators remains bullish, but it appears
that it may be rolling over to the downside.
Short-term we appear to be due for about a 3-5% dip, but
all of the indicators are not strongly calling for it now. I remain bullish longer-term.
One wonders when this party will end so I will worry if the numbers deteriorate,
but for now I remain fully invested.
If the report looks similar to recent ones, it’s because
there has been little change in indicators recently.
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…
Aerospace and Defense (ITA) remained #1 today. I am in
ITA as of 21 Sept.
My trade in ITA is up 3%
in the 3-weeks I’ve owned it. (Had a typo here. That’s embarrassing.)
SHORT-TERM TRADING PORTFOLIO - 2017 (Small-% of the
total portfolio)
LONG
Repeating again:
It is tempting to make a VXX trade if and when we get a
big move up signaling a short-term top.
VIX is at extreme lows. VXX would be a bet against the market and higher
VIX – essentially a short. This is a
risky trade since as VIX options expire, they must be replaced with more
expensive options (referred to as contango).
For this reason, VXX will lose value even if VIX stays the same. I need
a really good set-up before I’ll short. I am not there yet.
My shorting rule is as follows:
-“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
MONDAY MARKET INTERNALS (NYSE DATA)
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).
LONG TERM INDICATOR
Monday, the Price
and VIX indicators were positive; Sentiment & Volume indicators were
neutral. With VIX recently below 10 for a couple of days in May, June,
July, August, September and now October, 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.
MY INVESTED STOCK POSITION:
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
I increased
stock allocation to 50% stocks in the S&P 500 Index fund (C-Fund) 24 March
2017 in my long-term accounts, based on short-term indicators. The remainder
is 50% G-Fund (Government securities). This is a conservative retiree
allocation, but I consider it fully invested for my situation.
