Just a quick note this week. No changes to the portfolio allocations. Most of my core indicators improved, which bodes well for this being a temporary dip rather than a long term top.
Over the past week, quite a lot of damage was done to my core market health indicators. Two of the categories are at risk of going negative if the market can’t rally next week. Most significant is my core measures of risk. They fell substantially over the past two weeks. This means that risk from core market internals is rising. Meanwhile, the most sensitive components of my market risk indicator aren’t showing the same type of warning. They’re still in the very healthy range. This indicates that risk in the market at this moment is from core market internals and not investor perception of risk or an event. If my core market risk indicators warn without significant movement toward a warning from my market risk indicator, it will be an unusual occurrence for a longer term top. Other times where this condition has happened resulted in short to intermediate term dips during a longer term bull market. Here are some dates: Mid 2004, spring 2005, late 2005, and early 2006 thru August
Over the past week, most of my core market health indicators fell. Most notably, my measures of market strength went negative. This changes the core portfolio allocations (below). Another thing that was interesting this week is that the fear everyone is talking about isn’t showing up in my Market Risk Indicator yet. The most sensitive components of that indicator think the saber rattling this week is a non-event event. That’s not to say a negative risk reaction won’t materialize, but until it does we have to operate under the assumption that this event will quickly fade as a market moving issue. The new portfolio allocations are as follows: Long / Short Hedged portfolio: 90% long high beta stocks and 10% short the S&P 500 Index (or use the ETF with symbol SH) Long / Cash portfolio: 80% long and 20% cash Volatility Hedged portfolio: 100% long (Since 11/11/2016) One thing you can keep an eye on is the bullish percent index (BPSPX). It is still a good distance above my
Over the past week, my core market health indicators bounced around, but all still held positive readings. I expect we’ll continue to see some chop, but it should resolve higher.