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Adding Exposure Due to Measures of Trend

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Over the past week our core market health indicators bounced around a bit, but mostly improved. Our core measures of risk improved after a few weeks of falling closer to the zero line. One thing that is concerning in this category is a few of the indicators have been painting lower highs since July 2014. Our measures of the economy turned back down this week after trying to complete bottom formations. Our measures of market quality and strength fell as well. The good news came from our measures of trend. They finally went positive. As a result, our core portfolio allocations will change to reduce cash and/or short positions and increase long positions. The new allocations are as follows. Long / Cash: 80% long and 20% cash Long / Short: 90% long stocks we believe will outperform in an up trend and 10% short the S&P 500 Index (using SH). Volatility Hedge: Remains 100% long (since 10/24/14). This is a result of our market risk indicator’s strong readings. None of

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Measures of Trend Go Positive

Published on March 18, 2015 by in Market Comments
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Our measures of trend finally made it to positive territory yesterday. If they can hold into the close on Friday we’ll be changing our core portfolio allocations by reducing cash or short positions and adding longs. The change won’t have an effect on the volatility hedged portfolio since it’s still 100% long (since 10/24/14). I’ll do an update Friday before the close with the new allocations. One thing to keep an eye on if the market continues to push higher is the NYSE Advance / Decline line (NYAD). It continues to show healthy readings even though other measures of breadth like the percent of stocks below their 200 day moving average are starting to print tepid readings (65% area). This tells us that even though many stocks are below their 200 day moving average they’re being bought (advancing issues). As I have stated over and over again, I don’t think the long term trend will change until we see a serious decline in all of our measures of breadth. At

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Pivot Point

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Over the past week all of our core market health indicators fell slightly. The volatility and large range days in the market didn’t do a lot of damage. The one exception is our core measures of risk. They fell quite a bit and will likely go negative if the market continues to fall next week. On the other hand our measures of trend want to go positive, but just can’t get any upward momentum. If the market can rally next week then they will likely go positive. That puts us at a pivot point between increasing risk or a continued up trend. Another sign that the market is at a critical point comes from Trade Followers. Their algorithm that captures support and resistance levels for the S&P 500 Index (SPX) puts 2040 as a must hold level. If that level breaks then 2020 is the next level of support, but minor in nature. There is very little support below that level which sets up the potential for a cascade lower

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Market Health Stable as S&P 500 Falls

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Over the last week our measures of market quality, trend, and strength all improved even though the S&P 500 Index (SPX) declined. Measures of the economy fell a bit and our core measures of risk started suggesting a little caution. Our market risk indicator is still a long way away from any warning signal with only one of four components currently negative. Overall, the indicators were fairly stable and suggest that the current decline is healthy consolidation. Of course this could change, but I take the evidence as it comes. What I’ll be watching most closely is our core measures of risk. None of the indicators moved enough to change any of our current portfolio allocations. One thing of note this week is that Elder Impulse for the S&P 500 index on a weekly chart has turned blue. It appears that it will close with a mild warning today. A blue bar often precedes at least a few weeks of sideways movement and occasionally is the start of a more

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Breadth Still Healthy

Published on March 3, 2015 by in Market Comments
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There really isn’t anything significant happening in market internals lately. From all appearances the market wants to go higher, but probably needs to consolidate a bit before another rally. If the market dips keep an eye on breadth to see if anything changes from bullish to bearish for early warning of a significant decline. Here’s an update of some of the breadth measures I follow. They all have healthy readings, but with a few nuances. The NYSE Advance / Decline line (NYAD) is confirming the recent move to new highs. This is the most healthy sign of breadth I’m watching. Breadth between the most bullish stocks on Twitter and StockTwits and the most bearish stocks is also showing readings that are consistent with a bullish trend. However, it is now at levels that have often preceded a short term decline. The bullish percent index (BPSPX) has historically strong readings above 60%, but is down from the giddy readings during the rally in 2013. The highs over the past six months

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Market Health Bouncing Around

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Over the past week our market health indicators bounced around a bit, but there were no significant changes. As a result, our portfolio allocations will remain the same. The only thing of note is that even though the S&P 500 index (SPX) has moved higher this week our measures of trend fell. This isn’t too concerning, but I would have expected them to move into positive territory with the current market action. This will be something to watch over the next few weeks.

 
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Encouraging Signs

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After six weeks of consolidation I’m starting to see a lot of encouraging signs. It appears that the market finally wants to move higher. Our measures of risk and quality have now joined our measures of market strength in positive territory. If they can hold into Friday’s close we’ll be reducing our hedges and adding longs to the portfolio. Here are a few things I’m seeing from Trade Followers that bolsters the argument for a rally above 2100 on the S&P 500 Index (SPX). First is support and resistance levels. After months of next to no tweets above current prices, traders are now projecting prices as high as 2200. The majority of tweets are near 2040 and 2050 so a break above the strong resistance level of 2100 should carry to a minimum of 2040. Another thing that is improving is breadth. The number of strong stocks is rising and the first few days of this week saw the number of weak stocks fall even though the market is pausing

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Most Bullish Stocks on Twitter

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Trade Followers has taken down the pay wall for the most bullish and bearish stocks on Twitter and StockTwits for a few days. The other features still require a subscription, but we wanted to reward our long time readers with a few days of fun with the bullish and bearish lists. You can access today’s most bullish list and other menu items here. Below is a sample of today’s bullish stocks.

 
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Strong Rebound in Market Health

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Over the past week our core measures of market health rebounded sharply from over sold conditions. This is an encouraging sign that the current rally is being supported by better internals than the previous moves to the top of the current range. None of them have moved enough to change our core portfolio allocations. We’re still 100% cash in the long/cash portfolios. The hedged portfolio 50% long and 50% short. Our volatility hedged portfolio is still 100% long due to the fact that our market risk indicator isn’t registering extreme risk. Below is a chart with current readings for our core indicator categories.

 
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Market Health Still Weak

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Over the past week our core market health indicators mostly fell. The notable exception is our measures of trend. They continued to move higher in the face of a falling market. This is an encouraging sign even though almost every indicator we track in the intermediate term is mired in negative territory. Another measure that has been supportive for the market is cumulative NYSE Advance / Declines (NYAD). More stocks continue to rise than fall on a weekly basis. This is creating a positive divergence with price. Meanwhile the percent of stocks above their 200 day moving average continues to weaken. It remains to be seen which breadth indicator will win. Until we get a resolution we’re hedged in the core portfolios. The volatility hedge isn’t seeing enough risk in the market to be hedged. It’s still 100% long.

 
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