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Chart & commentary at…
MARKET REPORT / ANALYSIS
-Monday the S&P 500 was down about 0.1% to 2257 at
the close.
-VIX rose about 8% to 12.64 at the close. (Those Options
Boys are worried again.)
-The yield on the 10-year Treasury was up again to 2.48%.
“Investor psychology is ill-conditioned to price
individual securities at their fair values. It tends to be caught up in the
news of the moment and seems to be self-propelling as well, so that prices
frequently move far beyond any reasonable estimate of intrinsic value.” –
Norman Fosback
Mr. Fosback is not the first to notice this
characteristic of markets and he won’t be the last. We are now in a buying mania that is
affecting the market as a whole. The problem for me is that I have a series of
indicators that have been successful in the past. The question is, “Will they
be successful now?” The
indicators verify a short position as of 7 December; but one wonders
whether the indicators remain valid with a buying panic underway – we’ll see.
Bollinger Bands are a statistically based indicator
looking at price action. It signals
trouble when the Index is stretched 2 standard deviations above the mean on a
20-day analysis period. Friday the value exceeded signals in all but a dozen or
so cases going back to 2009 and many of those instances occurred after the
major 2009 bottom when extreme bullishness was justified.
It’s been more than 2-years since RSI reached the
overbought level we had 2-weeks ago and it signaled sell again Friday.
We saw an important crack in the Bull-run appear Friday:
declining stocks outnumbered advancing stocks for the day. Monday advancing
stocks again were outpaced by declining stocks with only about 35% of stocks
advancing. Another crack is the XLI ETF, consisting of Cyclical Industrial
stocks. It has been underperforming the S&P 500 over the last 2-weeks. This isn’t enough to worry about yet, but it is hinting at a reversal for the S&P 500.
Still looks like a top to me, but the late-day action and
a positive closing tick indicates that bullishness remains. I'll add to shorts if I see more negatives.
Long-term I’m fully invested at 50% in stocks (a conservative-retiree
allocation). The long-term trend remains
up.
TRADING PORTFOLIO (Small-% of the total portfolio)*
Financial Select Sector SPDR ETF (XLF) Est. 1 Dec.
2x Short S&P 500 (SDS): Established 6 Dec.
NET: +7.0%
*I am not really happy doing this much trading, but I
need to rebuild the trading balance after holding my shorts too long after the February
correction. (I really should follow my
own indicators. My system is smarter than I am!)
CURRENT RANKING OF 11 ETFs (Ranked Daily)*
#1 RANK for the past 25-days: Financial Select Sector
SPDR ETF (XLF).
#2 RANK: iShares Russell 2000 – Small Cap (IWM)
#3 RANK: iShares
U.S. Aerospace & Defense ETF (ITA)
*For background on the ETF ranking system see NTSM Page
at…
MONDAY MARKET INTERNALS (NYSE DATA)
-10-day moving average of the percentage of stocks
advancing (NYSE): 54.7%. (54.5% yesterday.) A number above 50% is usually
BULLISH for the markets short-term.
-150-day moving average of advancing stocks: 52.7%. (A
value above 50% indicates a long-term, up-trend.)
-McClellan Oscillator: Slipped from 155 to 85 (percentage
calculation method adjusted to fit McClellan’s values).
-New-highs minus new-lows: +184 (It was +317 yesterday.)
-10-day moving average of the change in spread: +6. In
other words, over the last 10-days, on average, the spread has increased by 6
each day.
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 Sentiment, VIX and Volume indicators were
neutral. The Price indicator was positive. Overall the long-term indicator switched
to NEUTRAL.
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) Friday, 23 Sep 2016 in my long-term
accounts.
Remainder is 50% G-Fund. This is a conservative retiree allocation.
