“U.S. consumer spending slowed in October as the
hurricane-related boost to motor vehicle purchases faded, while a sustained
increase in underlying price pressures suggested that a recent disinflationary
trend had probably run its course… The reports strengthened expectations that
the Federal Reserve will raise interest rates next month.” Story at…
PCE PRICES (Advisor Perspectives)
“The latest Core PCE index (less Food and Energy) came in
at 0.21% MoM and 1.45% YoY. Core PCE remains below the Fed's 2% target rate.”
Story at…
JOBLESS CLAIMS (Reuters)
“The number of Americans filing for unemployment benefits
fell last week, dropping for a second straight week as labor market conditions
tightened further. Initial claims for state unemployment benefits slipped 2,000
to a seasonally adjusted 238,000 for the week ended Nov. 25…” Story at…
CHICAGO PMI (DigitalLook)
“The MNI Chicago Business Barometer fell to 63.9 from
October's six-and-half year high of 66.2, hitting its highest level in three
months but slightly above economists' expectations for a reading of 63.0.”
Story at…
FORECASTING THE NEXT RECESSION (Guggenheim Funds)
“The business cycle is one of the most important drivers
of investment performance, as recessions lead to outsized moves across asset
markets. It is therefore critical for investors to have a well-informed view on
the timing of the next recession so portfolio allocations can be adjusted
accordingly. Predicting recessions well in advance is notoriously difficult,
but we believe our Recession Dashboard and Recession Probability Model make it
possible to get an early read on when the next recession will begin by
analyzing the late-cycle behavior of several key economic and market
indicators. These analytical tools point to a high probability of a
recession starting in late 2019 to mid-2020.” Commentary at…
MARKET REPORT / ANALYSIS
-Thursday the S&P 500 was up about 0.8% to 2648.
-VIX was up about 5% to 11.28.
-The yield on the 10-year Treasury rose to 2.411%.
I got a rare “BUY” signal from my XLI-S&P 500 spread
indicator today. Basically, this indicator looks at the spread between the XLI
and S&P 500 (on a %-basis) and signals buy or sell. The theory is that cyclical stocks outperform
when investors are bullish and under-perform if investors are worried since
cyclicals would fare worse in a recession. The last time it gave a signal of
any kind was November 2016, 4 days after the bottom of a 5% pullback. It’s
interesting that Investors are so bullish now. In 2016 Bollinger bands were
signaling “oversold” a bullish reading.
Now we have bearish readings from Bollinger Bands and a sharply rising
RSI. I suspect investors may be getting
too bullish and the current up-trend may turn in a few weeks. I am not expecting
a huge pullback, but a 5-10% correction is way overdue.
My sum of 17 Indicators improved from +2 to +4 on the day
and improved from -4 to +9 on a 10-day basis. That’s a big swing and is quite
bullish. However, like the cyclical spread indicator above, this may be too
much of a good thing.
On the Bearish side:
-Bollinger Bands are again “overbought.” That means the
Index is 2 standard deviations above its average over the last month. It has
actually surpassed it my more than we’ve seen in the past 2-years and that’s a
bearish sign.
-RSI is currently neutral, but very close to a sell.
-The Smart Money (late day action) is still headed down,
but it is hinting at a reversal up.
-The overbought/oversold ratio is now overbought, but
this indicator is traditionally early so it is not important.
My guess is that a short-term top is coming soon, but may
be further off than most expect. Perhaps the Christmas rally will carry through
the second or third week of December.
In summary: I am mildly bullish short-term and 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…
Financials (XLF) moved into #1. Technology (XLK) slipped
to #2, tied with ITA (Aerospace and Defense. (Nothing like the threat of war to
boost ITA.)
There were big changes today. Most of the ETFs gained over the last several
days and the financials (XLF) were up 5% over the last three. With interest
rates expected to rise in the future Financials have made a big move from a
momentum perspective. However, over the last 2-months, XLK (Technology) has
gained 7.5% while XLF (Financials) are up 5.6%. We’ll see what happens. For now,
I will continue to hold XLK.
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.
Walmart (WMT) was 1st today. Intel (INTC) slipped
to #2.
Avoid GE, Merck, United Technologies and Disney. 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…
Intel is down 1% since I bought it 31 Oct 2017. This is a risk of a momentum strategy. The
hottest stock can get identified after an earnings surprise and the stock has
already moved. The momentum then slows
and profit taking follows. I am going to
hold Intel because I think buying will pick up again if they are able to keep
up earnings growth. In addition, its PE is a low 15.4 vs the average DOW PE of
25 as of the end of October. The Yield on the S&P 500 (SPY) is 1.9% while
the Dividend for Intel is 2.3%. I think it is worth holding.
SHORT-TERM TRADING PORTFOLIO - 2017 (Small-% of the
total portfolio)
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
THURSDAY MARKET INTERNALS (NYSE DATA)
Market Internals
were Positive on the market. (Market Internals are based on a package of
internals and all must be positive to create a positive indication.
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
Thursday, Price & Volume were positive; Sentiment & VIX
indicators were neutral. With VIX recently below 10 for a couple of
days in May, June, July, August, September, October and now November, 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. This Buy
is meaningless. The long-term system is
designed to signal a buy after a bottom and it is reasonably good in that
role. Now, near a top, it is just
another sign of too much of a good thing.
