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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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Back to Full Exposure

170113MarketHealth

Over the past week, all of my core market health indicators rose. Most notably, are my measures of market quality. This category of indicators went negative just two weeks ago, then flipped back to positive this week. Normally, the core indicators don’t whipsaw because they are attempting to catch intermediate term trends. In fact, there were only a handful of times in the last 16 years where a category went negative for only two weeks. This is the first occurrence of a category whipsawing without any of the other categories already in negative territory. With measures of market quality now positive the core portfolio allocations are as follows: Long / Cash portfolio: 100% long Long / Short Hedged portfolio: 100% long high beta stocks Volatility Hedged Portfolio: 100% long (since 11/11/2016)  

 
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Widespread Buying

170106spxew

Since the US election in November, the market has had broad participation as evidenced by a strong relationship between the S&P 500 Equal Weight Index (SPXEW) and the S&P 500 Index (SPX). During the month of December, however, SPXEW didn’t keep up with SPX. The ratio between the two fell sharply as both small and large cap stocks stalled, while at the same time mega cap stocks gained support. Now, the ratio is turning back up in an apparent resumption of the widespread buying. We can dig a little deeper into what stocks are getting the most attention by looking at the most bullish stocks on Twitter over the last two months, one month, and one week. Since the US election the most bullish stocks are across several industries. During December, the list gravitated toward more technology and health care. Over the past week, the list is once again widening in the number of industries listed. This is a condition we want to see going forward as evidence of widespread

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Raising Cash

161230MarketHealth

Over the past week my core market health indicators continued to fall. Most notably was the measures of market quality, which fell below zero. This changes the core portfolio allocations as follows: Long / Cash portfolio: 80% long and 20% cash Long / Short Hedged portfolio: 90% long high beta stocks and 10% 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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Drifting

161223MarketHealth

Over the past week, all of my core market indicators drifted slightly lower. Most notably are the measures of market quality. They bounced back and forth across the zero line this week. That category is positive at the moment, but it won’t take much to go negative. Market quality often leads the other indicators by several weeks so, at the moment, we don’t know if it is signaling a intermediate term trend change or noise that won’t be reinforced by other indicators for several weeks.

 
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Core Indicators Fall

161216MarketHealth

Over the past week, all of my core market health indicators fell slightly. However, none of them weakened enough to change any portfolio allocations. Measures of market quality continue to inch toward the zero line and will likely need a rally next week tor remain positive.

 
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Breadth Improves

161209NYAD

Last week, I mentioned that I’d be watching breadth and measures of market quality closely due to the fact that they were lagging the market. This week, breadth as measured by the NYSE Advance / Decline line (NYAD) has improved and cleared the divergence that had been in place. As mentioned in the post, divergences under 13 weeks are often noise… which ended up being the case this time. NYAD making new highs as the market breaks out is the type of action I like to see. My measures of market quality ticked up slightly this week, but they aren’t showing the strength I’d like to see in the intermediate term. This isn’t too concerning in the overall scheme of things, but the lack of strength could cause them to fall below zero in the next week or two if their intermediate term trend isn’t righted. This would have us raising cash or adding hedges amid a rising market if the price trend continues.   Conclusion Breadth measures are confirming

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Adding Exposure Amid Weak Breadth

161202MarketHealth

Over the past week, my core market health indicators continued to bounce around with some moving up and others falling. Most notably, my core measures of risk moved above zero. This changes the core portfolio allocations as follows: Long / Short Hedged portfolio: 100% long high beta stocks Long / Cash portfolio: 100% long Volatility Hedged portfolio: 100% Long (since 11/11/2016) Another thing of note this week is that my measures of trend are now in overbought territory. This occurred as my measures of market quality fell. It’s not a situation I like to see happen. This adds some doubt to the current market, but some of the other measures I watch are simply showing normal bullish rotation. So the question is, bullish rotation or the start of a larger decline? We’ll have to wait and see. Another thing that is somewhat concerning is that measures of breadth suffered more than expected this week. Take a look at the percent of stocks in the S&P 500 Index above their 200

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