“Billionaire investor Paul Singer has a bleak outlook for
Wall Street, and he has built a $5 billion rainy-day fund in preparation for
what he describes as “all hell” to break out. …[The] Volatility Index (VIX) otherwise
known as Wall Street’s “fear gauge,” finished in single-digit territory for
only the 13th time in its history, booking its fifth lowest close ever. That is
way below the VIX’s long-term average of 20 and comes after the index—used to
bet on market swings a month in the future—closed at 15.59 on May 17, the same
day appetite for risk went on hiatus.” Story at…
My cmt:
PROBLEM FOR THE RALLY (CNBC)
"Dow theory" is a name given to the simple idea
that the Dow Jones Transportation Average ought to "confirm" the
strength seen in the Dow Jones Industrial Average. If the Dow components rise
to a new high while the Dow transports stagnate, a market dip could be ahead,
the theory goes….Currently , [May 12] the transports index is trading well
below its March 1st high, while
the industrials are close to record levels.” Story at…
My cmt: The article goes on to suggest a 20% correction
may be in the cards based on Dow Theory. Admittedly, I am not a Dow Theory
follower to any great degree. One reason
is that the “Transports” now include airlines and that’s quite different than
Charles Dow’s original concept. But even
if I was a huge proponent, I’d be leery of this analysis. As seen in the chart, the Transports are not
underperforming the Dow. They got out ahead of it after the election (Trump
trade and all that), but now (to me) they are not sending any signal. For what it’s worth…
MARKET REPORT / ANALYSIS
-Tuesday the S&P 500 dropped about 0.1% to 2413.
-VIX rose about 6% to 10.38.
-The yield on the 10-year Treasury slipped to 2.211%.
As noted above in the “Correction Coming” piece, VIX has
only closed under 10, 13-times in its history.
It is important to consider that this extreme level of complacency
represents a risk. The last time VIX closed below 10 was January of 2007. 6-months
later, in July of 2007 the S&P 500 peaked around 1550; it peaked again at
about 1560 in Oct 2007. Following those highs, the Index lost more than half
its value in the crash that followed.
Before we jump to the conclusion that a crash is coming
in 6-months, we should examine other closes below 10. From the crash in 2001 going
forward until the crash of 2007, there were only four instances when the VIX
closed below 10: twice in November 2006, once in December 2006 and once in
January 2007. My take is that the 4-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 4 closes below 10 in May 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…
Technology (XLK) is No 1. I would avoid XLE; its 120-day
moving average is falling.
SHORT-TERM TRADING PORTFOLIO - 2017 (Small-% of the
total portfolio)
Neutral with no positions recommended. - 5/24/2017
thru present.
-“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, Price, Sentiment, Volume & VIX indicators
were neutral. (With VIX recently below
10, VIX may be prone to incorrect signals. Usually, a rising VIX is a bad
market sign; now it may 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) 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.
