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Get Ready For A Breakout

Last week, I said you should get ready for a rally. This week my core market health indicators are telling us to get ready for a breakout above 2500 on the S&P 500 Index (SPX). Most of them improved and various measures of breath also improved. One breadth indicator that I’m watching closely is the percent of SPX stocks that are above their 200 day moving average. There are still about 32% of these stocks below their 200 dma. If SPX breaks above 2500 I expect this measure to rise quickly as money managers look for value as the market rallies.  

 
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Get Ready

Over the past two weeks, my market health indicators have bounced around a bit and while doing it have been compressing near the zero line. When this happens, an strong move often follows. At the moment, the odds favor the bulls. Get ready for a rally.

 
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Damage Done

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

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Weakness Without Much Fear

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

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Still Positive

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.

 
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All Green

Over the past week, my core measures of the economy joined the other categories and finally got into positive territory. This changes the core portfolio allocations to the the following. Long / Cash portfolio: 100% long Long / Short portfolio: 100% long high beta stocks Volatility Hedged portfolio: 100% long (since 11/11/2016)

 
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Holding Steady

Over the past week, my core market health indicators bounced around a bit, but are holding steady in bullish territory. One thing of note, is that my measures of the economy are on the verge of going positive. I suspect that there is a good chance they go positive in the next few weeks.   Conclusion The market is rallying with healthy internals. Odds are we continue to move higher.

 
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Here We Go

Over the past week, all of my core market health indicators rose. As I suspected, we’re getting new highs and not a long term top… just yet.

 
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Ready to Launch

Over the past week, most of my core market health indicators rose dramatically. It appears that market internals are preparing for a move higher. As I mentioned last week, it looks like the current dip is merely rotation before a move to all time highs rather than the making of a long term top. The measures of market quality and strength moved into positive territory this week. That changes the core portfolio allocations 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% short Volatility Hedged portfolio: 100% long since 11/11/2016

 
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Trying to Break Higher

Over the past week, my core market health indicators mostly moved higher. With the exception of market risk, they’re compressing around the zero line. This usually happens near inflection points where the market breaks hard one way or the other. Market risk isn’t showing up so that gives the edge to the bulls. The current dip looks much more like a rotation before a rally than a long term top being made.   My measures of market trend moved into positive territory this week. As a result, the portfolio allocations have changed as noted below. As always, use your own risk tolerance to structure your portfolio. Long / Cash portfolio: 40% long and 60% cash Long / Short portfolio: 70% long high beta stocks and 30% short the S&P 500 Index (or use the ETF with symbol SH) Volatility Hedged portfolio: 100% long (since 11/11/2016)  

 
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