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Market Update - March 10, 2017

Economic Comment

The tone for this week was set on Wednesday, when ADP reported a huge jump in monthly jobs to 298,000. (ADP Website). This resulted in bond yields rising Wednesday and Thursday as many are anticipating more FED rate hikes in 2017. The Government jobs report today was forecasted to come in between 162k and 240k jobs added. (Bloomberg 2017 Economic Calendar) The number came in at the high end at 235k jobs added and prior month’s revisions were slightly higher as well. (Bloomberg Website) Now the question will be how both stock market and the economy will react to higher interest rates. Let us see what our indicators are telling us.

Bullish Percent’s, (Data source: Dorsey Wright, See definitions at the end of this report.)

10 Week- Bullish Percent (Short-term): This indicator has been very active so far for the month of March. Starting at 68%, (overbought); it is now down to 48%, which is neutral.

Optionable-Stock Bullish Percent (Intermediate term): This indicator is on OFFENSE and still at 62.49%. This indicator has been quietly floating lower; a move under 58% would turn it to DEFENSE.

NYSE Bullish Percent (NYSEBP) (Longer-term): This indicator is on OFFENSE at 65.45% and has been declining. 60% is the level to watch. (Source: Dorsey Wright)

Point and Figure Charts (Source: Dorsey Wright)

S&P 500: March has seen the S&P 500 spike to 2,400. It is now floating lower. The first real support is 2,300, which is 4.1% lower. (Source: Dorsey Wright Website)

S&P 500

SP500 17

Horizontal Axis: Time (numbers represent months, for example, 1=January 2=February and so on, when you reach October, months are represented as letters, A= October, B= November & C= December).
Vertical Axis: Price

Crude Oil: Crude had a big sell off on Wednesday that got everyone excited. However, if you look at the chart below you can see that it is sitting right on a potentially strong uptrend line. (Source: Dorsey Wright Website)

Continuous Crude Oil

ContinuousCrudeOil 3.10.17

Horizontal Axis: Time (numbers represent months, for example, 1=January 2=February and so on, when you reach October, months are represented as letters, A= October, B= November & C= December).
Vertical Axis: Price

US 10-Treasury Note: With strong employment numbers and FED rate hikes looming, the 10-year is on every investors mind. Several weeks ago, the 10-year was testing the bottom of the recent trading range, now it looks to be challenging the top of the trading range. (Source: Dorsey Wright Website)

10-year Treasury

10YearTreasury 3.10.17

Horizontal Axis: Time (numbers represent months, for example, 1=January 2=February and so on, when you reach October, months are represented as letters, A= October, B= November & C= December).
Vertical Axis: Price

Relative Strength: No change over the last couple of weeks, with Domestic Equities remaining at #1, International Equities #2, Commodities #3, Fixed Income #4, Cash #5 and Currencies at #6. However, recent higher rates are causing Fixed Income to weaken further behind the top three. (Source: Dorsey Wright Website)


The US Equity markets are battling between two narratives. One scenario is that the economy will accelerate in the back half of 2017 because of deregulation, lower tax rates and lower health care costs. The other scenario is that the “hard” economic data is portraying a slowing economy; check out the story from the Atlanta Federal Reserve website for March 8, where they reduced their Q1 GDP forecast to 1.3%. With US Equity prices 1-2% from all-time highs and interest rates floating higher, it is a time of confusion. This is why we are still playing defense and are currently cautious. However, with the Equity markets grinding higher it is hard for investors who are trying to control their risk to stay nearer the doors for when the party ends. The question is, will the long overdue 2-4% natural pullback occur in the 1st quarter of 2017 or be put off until the 2nd quarter? We are still cautious given our 2017 forecast.

One more shot of cold weather this weekend!

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This report is not intended to be a client‐specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon.
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Bullish Percent Definitions
NYSE Bullish Percent: This is a major market indicator, which tells us whether to be on the offense or defense. It is calculated by dividing the number of NYSE stocks trading on point and figure buy signals by the total listed on the Exchange. The percent of stocks on buy signals in is then plotted on a grid from 0% to 100%, where each box equals 2%. Levels above 70% are generally considered overbought, and below 30% are considered oversold. The best buy signals come when the NYSE Bullish Percent goes below 30% and then reverses up (must reverse 6%). The best sell signals come when the indicator moves above 70% and then reverses below 70%. The most important concept to keep in mind is field position and what team is on the field. When the NYSE Bullish Percent is in X's, the offensive team is on the field and wealth accumulation strategies are the focus. Conversely, when the NYSE Bullish Percent is in O's, the defensive team is on the field and wealth preservation strategies are the focus.
The Bullish Percent can also be calculated on various indices, for example, the 10-week BP is a short-term indicator and is calculated on 10 weeks’ worth of NYSE price data. The optionable stock bullish percent is calculated off the index of all optionable stocks on the NYSE.
Asset Indexes
An index is unmanaged and not available for direct investment.
Dow Jones Industrial Average is a price-weighted average of 30 U.S. stocks traded on the New York Stock Exchange and NASDAQ.
Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index.
S&P 500 Index is a capitalization-weighted index calculated on a total-return basis with dividends reinvested. The index includes 500 widely held U.S. market industrial, utility, transportation and financial companies.
A 10-year treasury note is a debt obligation issued by the United States government that matures in 10 years. A 10-year Treasury note pays interest at a fixed rate once every six months and pays the face value to the holder at maturity.
The NYSE Composite (^NYA) is a stock market index covering all common stock listed on the New York Stock Exchange, including American depositary receipts, real estate investment trusts, tracking stocks, and foreign listings.
Historical Futures Prices: Crude Oil Futures, Continuous Contract #1. Non-adjusted price based on spot-month continuous contract calculations. Raw data from CME. For more on the roll algorithm used please see this page: https://ww.quandl.com/collections/futures/continuous.
Relative Strength Calculation Explained: Tactical decisions are made utilizing the research and evaluation techniques of Dorsey, Wright & Associates who has extensive expertise in a technique known as Point & Figure charting. This type of analysis attempts to evaluate the supply and demand forces of particular asset classes and ranks the asset classes from strongest to weakest based upon relative strength (RS). We feel asset classes can be ranked similar to the way one might rank sports teams. If you think about your favorite sport, they rank teams based upon how well they perform against their opponents. The more games, matches or races won, the higher in ranking the team will go. We believe the same thing can be done in the investment markets. In the financial markets, a “game” is played each day and it consists of comparing the daily performance of one asset class to another. Each day we compare asset classes to one another to determine which asset classes are the strongest or weakest compared to one another. The ranking process is comprised of the following 4 steps and represents DWA's Tactical Portfolio Research strategy ("the strategy").

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