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Measures of Trend Fall Below Zero

Over the past week, most of my core market health indicators deteriorated. The most significant are my measures of market trend. This category fell below zero this week. This changes the portfolio allocations to the following. Long / Cash portfolio: 40% long and 60% cash Long / Short Hedged portfolio: 70% long high beta stocks and 30% short the S&P 500 Index (can use the etf SH) Volatility Hedged portfolio: 100% long (since 11/11/2016) Another few things of note come from breadth and risk. Currently, most of the measures of breadth that I follow are still in the healthy range. My measures of risk are deteriorating quickly, meaning that risk is rising. What this tells me is that people are getting nervous, but they’re selectively selling. So, I’m still not too worried about a longer term top being put in place. Conclusion My core indicators are tumbling one by one, perceptions of risk are rising, but breadth is holding up fairly well. At the moment, this looks like rotation rather

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Wait and See

Over the past week, my core market health indicators didn’t move much. They continue to bounce around with the market.   One thing of concern is that a few measures of breadth are starting to show some weakness. Last month I highlighted the decline in the ratio between the S&P 500 Equal Weight Index (SPXEW) and the S&P 500 Index (SPX). It is still warning of a move to mega caps. The cumulative advance decline line for NYSE (NYAD) is now giving a small warning. The small dip in price for SPX caused a lot of damage to NYAD. The longer this indicator goes without making a new high the more serious the warning will become. I don’t get concerned until it diverges for two or three months so this is something to watch, not something to worry much about.   Another measure of breadth comes from Trade Followers Twitter sentiment. The count of bullish stocks diverged from price just before SPX moved to 2400. As the market tries to move higher

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Market Health Bouncing Around

Over the past week, my core market health indicators bounced around, but didn’t move enough to make any changes to the core portfolios.   I’ve started to see a lot of chatter stating that this is the start of a larger top. So far, I’m not seeing the same evidence. There is a bit of deterioration in some of my measures of breadth, but nothing drastic for a small decline in the general market. The most significant change comes from the ratio between the S&P 500 Equal Weight Index (SPXEW) and the S&P 500 Index (SPX). As I mentioned last month, when this ratio dips below its 20 week moving average we usually see some consolidation. The dip was delayed, but it seems that we’re now experiencing it.   Another measure of breadth is the percent of stocks above their 200 day moving average. Long time readers know that I don’t worry until it falls below 60%. As you can see, there are still a healthy number of stocks above

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No Changes To Portfolio Allocations This Week

Published on March 1, 2017 by in Market Comments

I’ve got a scheduling conflict this week so I won’t be able to do the normal Friday post. However, I took a look at my core market health indicators and it is highly unlikely that any of them will move enough in the next two days to change the portfolio allocations this week. Enjoy the rest of the week everyone.

 
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Measures of Strength and Economy Go Negative

Over the past week, some serious damage has been done to my core stock market health indicators. Most notably, the measures of the economy and market strength have gone negative. The changes the portfolio allocations as follows. Long / Cash portfolio: 60% long and 40% cash Long / Short portfolio: 80% long high beta stocks and 20% short the S&p 500 Index (or use an inverse etf like SH) Volatility Hedged portfolio: 100% long (since 11/11/2016)   As always, use your own risk tolerance and read on the market to guide your investment decisions.

 
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Consolidation Possible

The ratio between S&P 500 Equal Weight Index (SPXEW) and the S&P 500 Index (SPX) is giving a small warning sign that, at the least, we’ll see some sideways consolidation over the next few weeks. As you can see from the chart below, a dip below the 20 week moving average generally results in consolidation. It often precedes pull backs of 5% to 15%. The reason it occurs is that “smaller” big cap stocks are being sold as money is being moved into mega cap stocks. It takes more money to push a mega cap stock higher than it does to push a “smaller” large cap stock higher. It also takes less selling to drive the smaller stocks lower. Thus, mere rotation from large to mega caps creates a drag on SPX. At this point we don’t know if the rotation is just portfolio managers rebalancing or the start of a flight to safety so stay alert.   Over the past week, my core market health indicators mostly strengthened, but a few

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Bouncing Around

170210MarketHealth

The S&P 500 Index (SPX) finally broke out of its recent range and moved above 2300. That move didn’t bring a strong response from my core market health indicators. Instead, they bounced around this week. They’re all still positive, but some of them are showing weakness that could turn them negative without a continued rally. An example of an indicator that is barely holding on is the ratio between the SPX equal weight index (SPXEW) and SPX. When this indicator is below its 20 week moving average it tells us that money is moving into mega cap stocks (which is often a flight to safety). Healthy markets have broad based buying of the stocks in the S&P 500 Index. Right now, we’re seeing a slight increase, but not the strong move higher generally associated with big rallies.   Conclusion All the indicators are still positive, but could quickly move lower if the market doesn’t continue to rally. This is a time to keep a close eye on the market.

 
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Quality, Trend, and Strength Flagging

170203MarketHealth

Over the past week, all of my core market health indicators fell. Of most concern is the measures of market quality, trend, and strength. All of them are on a trajectory that could easily take them into negative territory with any further market weakness. But, for now, all of the categories are still positive so the portfolios are still 100% allocated to stocks.  

 
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Bounce Back

170127MarketHealth

All of my core market health indicator categories, with the exception of market quality, bounced back this week. With the upward momentum, the fears I had last week have been alleviated. Now, we’ve rallied to the 2300 level on the S&P 500 Index (SPX) that I mentioned last week as reistance. We want to see the  indicators hold up as the market shows some weakness at resistance.

 
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Measures of Trend and Strength Fall

170120MarketHealth

Over the past week, most of my core market health indicators fell, with the rest holding mostly flat. One thing of serious note is that the measures of trend fell sharply and the measures of strength are flagging. They are both falling fast enough that they could be negative by next week. One other thing that signals caution is Twitter sentiment for the S&P 500 Index (SPX). It is close to breaking a confirming uptrend line. If it happens, we should expect some consolidation. If the uptrend in sentiment holds, the upside will likely be limited to 2300 on SPX in the short term. The market will probably pause there for at least a day or two. Conclusion The market needs rally soon or we’re likely headed for a larger consolidation. It’s time to start paying attention.

 
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