“We have
a Bull Market in Complacency.” – Doug Kass
Chart from Real Investment Advice available at…
I added the Red & Purple lines on the above chart to
show that the Greed/Fear Gauge reached peaks that were seen about 10-months
before the 2007 major top about 7-months ago.
The simple math suggests a crash beginning in 3-months. That, of course,
would not be a reasonable interpretation. What we can also see is that the
Gauge was that high in 2012 and 2013 without a crash – so what’s the worry? The
2012 & 2013 period was during the QE 3 Fed bond buying spree that drove
investors to the heights of optimism. Since
the markets continued up, we can say (in hindsight) investors were right. Are they
right this time? I don’t know, but it is a concern as we look ahead. I plan to be quick to sell if we see market
conditions deteriorate and my indicators switch to negative. On a more positive
note, my sentiment indicator (built on amounts invested in Rydex/Guggenheim
long/short funds) was only 68%-Bulls Friday (on a 5-day basis) and that
suggests markets can go higher.
MARKET REPORT / ANALYSIS
-Monday the S&P 500 was down about 0.2% to 2545.
-VIX rose about 7% to 10.33.
-The yield on the 10-year Treasury rose to 2.359%. (The
Bond Ghouls don’t seem concerned about a stock drop – they were selling bonds
My Calm-Before-the Storm indicator is lowest I’ve seen
and that goes all the way back to 2008. It means that the daily moves in
price-volume on the S&P 500 have been very uniform with little
variation. It also is a sign of
complacency from investors who have no worries. That’s a bearish sign that is
concerning. VIX is echoing complacency as is the Greed/Fear Indicator above.
Surprisingly, my Sentiment reading is not at an extreme value so, as I noted
above, I think the markets can go higher.
My sum of 17-Indicators remains bullish on a smoothed
long-term. Today it slipped from +7 to +4. See yesterday for a run-down of
individual indicators – there’s not much change.
I still think that before we see any meaningful pullback,
we need to put in a top. At this point
another big move up, say around 1%, could mark another short-term top. From
there a retreat of some kind, probably in the 3-5% range, is probable. There’s
no guarantee that there will be a big move that signals a short-term top, but
it is fairly common.
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 (FRIDAY’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.
Avoid XLE; its 120-day moving average is still falling.
My trade in ITA is up more than 8% in the month I’ve owned it.
SHORT-TERM TRADING PORTFOLIO - 2017 (Small-% of the
total portfolio)
LONG
As I been saying for a while, 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
& VIX indicators were positive; Sentiment & Volume indicators were
neutral. With VIX recently below 10 for a couple of days in May, June,
July, August and September, 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.
The previous signal was a BUY on 2 June and the last
actionable signal was a BUY (from a prior sell) on 15 November 2016.
