“Despite much hope that the current breakout of the markets
is the beginning of a new secular “bull” market – the economic
and fundamental variables suggest otherwise. Valuations
and sentiment are at very elevated levels which are the opposite of what
has been seen previously. Interest rates, inflation, wages and savings rates
are all at historically low levels which are normally seen at the end of
secular bull market periods, not the beginning of one.” Commentary at…
MARKET REPORT / ANALYSIS
-Tuesday the S&P 500 was up about 0.2% to 2569.
-VIX was up about 1% to 11.16.
-The yield on the 10-year Treasury slipped to 2.418%.
There are a couple of things going on that the Bulls ‘gotta
love.
-Advancing volume is headed up on a 10-day basis and that
is a reversal from recent data – it’s been down for a month.
-New-high/new-low data is also improving. New-highs are
showing a breakout higher as noted in Green below.
-We saw another strong closing Tick (last trades of the
day) indicating a lot of buy at the close orders. There was some late day selling suggesting
the Pros were taking some profits late in the day. Was the dumb-money buying
and smart money selling? It’s too early to tell.
As always there are other bearish signals to worry about.
-The sum of my 17-indicators rose from 0 to +2 and that’s
bullish; but on a longer term smoothed basis the sum of 17-indicators is now
falling.
-RSI has fallen to 71, a neutral reading, but it was well
above 80 recently so we may not have gotten too much of a reprieve. Bollinger
Bands are still indicating a stretched market.
Overall, I think this market can go a bit higher. This
doesn’t make sense; short-term we are overdue for a dip, but I’m guessing not quite
yet. Let’s get worried after the earnings
season gets a bit further along.
Short-term I am now leaning bullish and 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.
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 father was a big investor in the Dow stocks so I thought it would be interesting to apply the ETF
ranking methodology to the Dow 30. Here is a ranking of 15 DOW stocks. If I get energetic I may add the other 15 so we can cover the full Dow 30.
TODAY’S RANKING OF 15 DOW STOCKS (Ranked Daily)
The top ranked ETF receives 100%. The rest are then
ranked based on their momentum relative to the leading ETF. Avoid GE and Disney. Their 120-day moving
averages are falling.
Boeing (BA) is currently number one on a momentum basis.
*I rank it similarly to the ETF ranking system. Or more
details, see NTSM Page at…
SHORT-TERM TRADING PORTFOLIO - 2017 (Small-% of the
total portfolio)
LONG
Repeating again…and again… and 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 trade VXX or short. Perhaps we’ve missed the
opportunity because the signal wasn’t very strong Friday.
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
TUESDAY 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
Tuesday, the Price
indicator was positive; Sentiment, VIX & 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.
