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Not Much Change

160513MarketHealth

This week had little effect on my core market health indicators. They mostly deteriorated, but in a small way. One significant change this week came from my measures of market quality. They are approaching oversold territory. The last time this happened was in early February just before the market began the current rally. Don’t take that as a prediction, just an observation. The short story is we wait another week to see if the dip continues or ends.

 
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Still Waiting for Resolution of Long Term Trend

160506MarketHealth

Another week passes and we’re still waiting for a resolution of the long term trend. Is it up or is it down? I don’t know. Dow Theory is still calling the long term trend down. My core market health indicators are mildly positive. That leaves us modestly long in the core portfolios. My market risk indicator isn’t even close to warning so the volatility hedged portfolio remains 100% long. Quite a difference from three reliable methods that use disparate inputs. This is just one more example of the market giving mixed messages. The conclusion is, we’re left waiting for more information in hopes that the different strategies pick the same direction and we get a good trend to ride… either up or down.

 
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Mixed Messages

160429spxPnF

The market is exhibiting behavior that we often see during times of indecision. Price is swinging in a large range and at the same time intermediate and long term indicators are giving mixed messages. Take a look at how compressed the the Y axis is on a point and figure chart for the S&P 500 Index (SPX). This clearly shows the sideways range of the past two years along with with multiple changes in the short to intermediate term trend (over the past year). The current trend is up and will stay that way as long as SPX stays above 2020… which coincidentally is about where the 200 day moving average is. The next set of mixed messages comes from a weekly chart of SPX. Weekly RSI is trying to turn down near normal bear market peak levels, while at the same time MACD is moving above levels associated with bear markets. Monthly momentum and MACD are mostly exhibiting bear market behavior. MACD is a little stronger than we normally

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Measures of Trend Positive

160422MarketHealth

Over the past week all of my core market health indicators improved. Most notably are my measures of trend, which went positive. Measures of market strength almost made it into the green, but missed it by a fraction. I suspect that category will be positive next week (even with a bit of consolidation in the market). With measures of trend moving from negative to positive it changes the core portfolio allocations as follows: Long / Cash portfolio: 60% long and 40% cash Long / Short Hedged portfolio: 80% long high beta stocks or ETFs and 20% short the S&P 500 Index Volatility Hedged portfolio: 100% long (since 3/4/16) The chart below shows allocations changes over the past year. Green lines represent adding long exposure, yellow represents reducing exposure or adding a SPX short as a hedge, red lines represent aggressive hedging with volatility. It’s been a rocky road where we get aggressively hedged in a steep decline then the market makes a low shortly after without accelerating to the downside.

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Dow Theory Non-Confirmation

Published on April 15, 2016 by in Dow Theory, Featured
160415DowTheory

Yesterday the Dow Jones Industrial Average (DJIA) closed above its last secondary high point, however the Dow Jones Transportation Average (DJTA) is still about 4% away from its last secondary high. This creates a non-confirmation where one index is making new highs while the other is lagging. When a non-confirmation occurs it puts the current trend in doubt… kinda. As I’ve said before, most non-confirmations just don’t matter. They’re normal conditions during any trend so we have to wait for both averages to agree before drawing any conclusions. Until then the long term trend is still considered bearish. But, it’s time to start watching the transports closely. If they can surpass their last high it will indicate that a new bull market has begun (or that the bear call in February was a whip saw or false signal). Along with the non-confirmation that is inherently bullish my core market health indicators are improving rapidly. The measures of market trend and strength are improving quickly enough that one or both categories

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Watch the Dip

160408DowTheory

It’s been almost eleven months since the Dow Jones Industrial Average (DJIA) has made a new high. It’s been over fifteen months since the Dow Jones Transportation Average (DJTA) has made a new high. But, DJIA is only about 5% away from its highs. This makes it difficult for many people to determine if we’re in a bull or a bear market. According to Dow Theory, we’re in a bear, but getting close to levels that would turn the bear to a bull. When that occurs it’s time to watch the dip. All we have to do is watch to see if the downtrend resumes in force or if we get a small consolidation that rallies and breaks above the last secondary highs in DJIA and DJTA. A break higher will turn the bear to a bull. While we wait for a resolution, the core portfolios are moderately hedged or have a small exposure to the market. The volatility hedged portfolio, that is much more aggressive than the core portfolios,

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Not Much Change

160401MarketHealth

Another week with not a lot of change in my core indicators. The core portfolios remain modestly long. The volatility hedged portfolio is 100% long (since 3/14/16). My recent posts have been short because I’ve been on the coast vacationing. One observation from the trip. The beach just isn’t what it used to be.

 
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Still Bouncing Around

160324MarketHealth

Over the past week my core market health indicators bounced around, but were mostly down. None of them moved enough to change any portfolio allocations. Enjoy the holiday weekend everyone!

 
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Identifying the Long Term Trend

160318spxPnF

As most of you know, I believe the market is currently in a long term down trend. However, I’m starting to see things that put the bear market in doubt… which should be a really good sign that we’re still in a down trend — because bear market rallies create enough doubt to suck people in. Back to the point, take a look at the chart below. It is a point and figure chart of the S&P 500 Index (SPX). This chart shows an intermediate or short term up trend within the confines of a longer term downtrend. But a closer look at the short scale indicates a long term sideways range. It will take a break of the range to add clarity to the pattern. A daily chart of SPX has a fairly clear downtrend channel. This indicates a new bear market is underway. We have to consider the current rally as a bear market rally until the upper bound of the trend channel is broken. If that channel

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Core Market Risk Clears

160311MarketHealth

All of my core market health indicators bounced around this week without much change. However, my core measures of risk moved enough to go positive. This changes the core portfolio allocations as follows: Long / Cash portfolio: 40% long and 60% cash Long / Short hedged portfolio: 70% long high beta stocks and 30% short the S&P 500 Index (or use SH) Volatility hedged portfolio: 100% long (since 3/4/16)  

 
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