Wednesday, December 27, 2017

Consumer Confidence … Texas Manufacturing Outlook … Sentiment … Stock Market Analysis … ETF Trading … Dow 30 Ranking

CONSUMER CONFIDENCE (Bloomberg)
“U.S. consumer confidence declined in December from a 17-year high as Americans became less upbeat about the outlook for the economy and job prospects, according to figures Wednesday from the New York-based Conference Board… Even with the latest cooling off, Americans remain upbeat -- this month was the strongest December since 2000.” Story at…
 
TEXAS MANUFACTURING OUTLOOK (Dallas Fed)
“Texas factory activity expanded strongly in December, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, spiked 18 points to 32.8, reaching its highest level in more than 11 years…Perceptions of broader business conditions were markedly more positive in December. The general business activity index and the company outlook index posted double-digit increases, coming in at 29.7 and 31.5, respectively. Both represent highs last seen in 2006.” Press release at…
 
SENTIMENT. I measure Sentiment as %-Bulls (Bulls/{bulls+bears}) based on the amounts invested in Rydex/Guggenheim mutual funds. Sentiment is now a sell. On a standard deviation basis, current values have matched extremes seen during the dot.com crash. This isn’t by itself a great indicator since sentiment can remain elevated for some time, but it is a level that has preceded pullbacks of varying degrees – from small pullbacks of a couple % to major crashes.  We’d need to see more negative signs to take action, but it is a cautionary indication.
 
MARKET REPORT / ANALYSIS         
-Wednesday the S&P 500 was up about 0.1% to 2683.
-VIX was up about 2% to 10.47.
-The yield on the 10-year Treasury was UP slightly to 2.423%.
 
My sum of 17 Indicators slipped from +5 to +3. On a 10-day basis, values crept up. A “+” number means that most indicators are bullish – perhaps too bullish. There are a couple of topping indicators that are stretched.
 
No point is getting carried away with details.  Volume was about 60% of the norm for the last month on the NYSE. Overall volumes will remain low over the Holiday period so it is hard to put too much faith in the indicators.
 
In the near term I am mildly bullish; longer term I am a bull, but I recommend caution with the Fed raising rates and shrinking its balance sheet. This party could end sometime in 2018.
 
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%. Every Tech stock on the Dow 30 slipped today so it is no wonder that XLK has slipped to #4.
*For additional background on the ETF ranking system see NTSM Page at…
Energy (XLE) was #1. The markets are due for some reversion so perhaps I’ll get a better buying opportunity later.  I’ll wait before adding any positions. (I hold XLK, DVY and SPY. DVY is a dividend play. SPY is a good core holding.)
 
Under my system in 2017, Technology (XLK) was ranked in the top 3 Momentum Plays for 52% of all trading days in the year (if I counted correctly.) XLK is up 35% year to date. Its weighted Average PE is 23.7
 
TODAY’S RANKING OF THE DOW 30 STOCKS (Ranked Daily)
The top ranked stock receives 100%. The rest are then ranked based on their momentum relative to the leading stock. 
 
Caterpillar was #1. (I hold Intel – I’m waiting for a better entry point before adding other positions.)
Avoid GE and Merck. Their 120-day moving averages are falling.
*I rank the Dow 30 similarly to the ETF ranking system. For more details, see NTSM Page at…
 
WEDNESDAY MARKET INTERNALS (NYSE DATA)
Market Internals remained Neutral on the market. (Market Internals are based on a package of internals and all must be positive to create a positive indication. This Neutral reading may be the result of low volume overall since low volume makes up-volume low even if up-volume outpaces down volume. On a percentage basis 56% of the volume has been up-volume over the last 10-days and that’s reasonably bullish. )
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                                                        
Wednesday, Price indicator was positive; Sentiment was negative; Volume & VIX indicators were neutral. Price was too positive; it is so high that it is now a worrisome sign. I would not be surprised to see some selling in January.  With VIX recently below 10 for a couple of days in May, June, July, August, September, October, November and now December, 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. VIX below 10 last occurred about 4-months before the year 2007 crash and also several months before the 2001 crash.
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.