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More Deterioration

141226markethealth

Over the past week most of my core market health indicators fell. This is a bit discouraging in the face of rising market indexes. Only the measures of risk are currently positive. The risk indicators show a market that is drifting under the surface rather than exhibiting underlying strength. As a result, it won’t take much weakness to move them into negative territory. There are no changes to the core portfolio allocations this week and the overall condition of the other categories suggest that no changes will be made next week either. Enjoy the Holidays!  

 
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Still Waiting for Clarity

141219markethealth

Over the past week our market health indicators bounced around a bit, but none of them changed enough to modify our core portfolio allocations. During the week our core measures of risk went negative, but recovered and closed slightly higher than last week. This tells us how close we are to a tipping point. Nevertheless, I follow the indicators so there will be no portfolio changes until I see more clarity.

 
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Risk Rising

141212markethealth

Over the past week all of our core market health indicators fell. Most notable is our measures of risk. Our core measures of risk fell from moderate levels to almost warning. It will take a large sell off in the last hour to take this category below zero and have us increase our hedges and/or raise cash. Our market risk indicator has three of its four components warning. This is very unusual given the fact that the market is only down about 3% from all time highs. This tells me that market participants are skittish…which increases the risk of a sharp sell off. If this indicator signals we’ll be changing the hedge to an instrument that benefits from higher volatility. I don’t expect it to signal today, but if it does I’ll update this post before the market closes. Another sign of rising risk is the performance of Junk Bonds (JNK) compared to High Quality Bonds (LQD). LQD is rising while JNK is falling. This tells us that bond holders

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Consolidation Warning from Trade Followers

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The Trade Followers momentum indicators for many of the major indexes (DJIA, SPX, and Nasdaq 100) are warning of a short term correction in the market. This increases the odds that we’ve finally got the short term top I’ve been expecting for the last month. I still think that the most important index at the moment is the Russell 2000 so I’d like to see it confirm before getting too bearish. If we’re getting the expected dip then it will be important to watch how internal indicators react.

 
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Market Health Improves

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Over the past week most of our market health indicators improved. None of them moved enough to change our portfolio allocation, however our measures of market quality and strength are getting very close to going positive. I expect at least one of them to go positive by the end of next week if the market continues upward. If we get a dip then we may have to wait as long as the first of the year before making any allocation changes. We’re experiencing a market that is trying to sort itself out after a huge decline and retracement. The retracement still hasn’t repaired the damage done to market internals during the decline. Below are some examples. As I mentioned recently, the NYSE Advance / Decline line (NYAD) finally broke above its previous peak. This is an encouraging sign, but the breakout is weak and NYAD turned down last week even though the S&P 500 Index (SPX) posted a small gain. In an strong bullish market I would expect to see

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No Portfolio Changes This Week

Just a quick note. No portfolio changes this week. If I get time over the weekend I’ll do a full update with our core indicators and things I’m watching.

 
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Maybe A Dip

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I’ve been waiting for a short term top for almost three weeks now. Maybe we’ve finally got one. If this is the case it’s time to watch market internals to see if they hold up or fail in the face of lower prices. One of the things I’m watching most carefully is the percent of stocks above their 200 day moving average. Long time readers know I like to see them stay above the 60% level. My reason for concern is that many previously loved stocks are flirting with their 200 dma. The market is at a point where these stocks need to see higher prices that keep them (or get them) above their 200 dma or they’ll likely drag the market lower.

 
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