Just a quick note. No portfolio changes this week. However, my core measures of market quality and strength have bounced above and below the zero line this week. As a result, it will probably take a sustained rally next week to keep them above zero. As always, make your own decisions based on your personal risk toleration. Have a happy new year!
The chart of my core market health indicators says it all. Weak economy and every other category near zero. This week my measures of trend fell into negative territory, while the other categories are barely hanging on. It appears that the 2020 area on the S&P 500 Index (SPX) is a tipping point. The market needs to bounce here or I suspect the rest of the categories will fall below zero next week. Due to the negative reading from measures of trend, the core portfolio allocations change this week. Here are the new allocations: Long / Cash portfolio: 60% long and 40% cash Long / Short Hedged portfolio: 80% long high beta stocks and 20% short the S&P 500 Index (or use the ETF SH) Currently, two of the four components of my market risk indicator are warning. A third is waffling and could warn at any moment. The fourth is well away from a signal, but a sharp sell off would probably take it negative too, which would bring
My measures of trend are negative at the moment and it appears that it would take a monster rally (like 75 S&P 500 points) to get them positive before the close Friday. As a result, the core portfolios will be raising some cash or adding a larger hedge. I’ll do a full post with my thoughts (which are mixed at the moment) before the last hour of trading tomorrow.
Over the past week, my market health indicators mostly fell, but none of them fell enough to change any portfolio allocations. The market trend category is the closest to going negative, but still hanging on. One thing of note this week is that fear is starting to enter the market. Two of the four components of my market risk indicator are warning at the moment. It would take a very steep decline in the last hour of trading to cause a market risk warning, however. If that happens, I’ll do another post, but as of now, no portfolio changes.
Over the past week my core market health indicators held steady as the market whipped back and forth. The lack of movement in the indicators while the market was falling sharply on Wednesday and Thursday indicates internal strength. None of the core indicators moved enough to change any portfolio allocations. One thing of note this week is that the sharp dip didn’t cause any of my measures of risk to move much. Market participants aren’t reacting to downward price moves. One illustration of fear comes from price targets gleaned from the Twitter stream for the S&P 500 Index (SPX). On the chart below each red dot represents multiple market participants tweeting the same price level for SPX. Notice that the declines in early and late 2014 put enough fear in the market to result in a fair amount of lower price targets on dips for several months. Traders got skittish and tweeted their fears of how low the market might fall. The August / September correction didn’t result in the
Market Risk Rising
Volatility Hedged Portfolio