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Home Archive for category "Portfolio Allocation"
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This Should Be It

Over the past week, my core market health indicators mostly improved. Most significant is that my measures of market strength have now moved above zero. This changes the core portfolio allocations as follows: Long / Cash portfolio: 100% long Long / Short portfolio: 100% long high beta stocks Volatility Hedged portfolio: 100% long since 11/11/2016   Another thing of note is that we’ve been seeing broad based buying of the stocks in the S&P 500 Index (SPX) again. If the ratio between the SPX Equal Weighted Index (SPXEW) and SPX can get back above its 20 week moving average it will be a very healthy sign. Since the first of the year, investors have favored mega cap stocks. We want to see the smaller stocks in SPX rallying faster than the mega caps as it will indicate broad based buying and increased tolerance for risk. Add to that, SPX looks like it’s now got a clear break above 2500 and we’ve got the recipe for a rally.   Conclusion It looks

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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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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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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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Risk vs. Health

We’ve got an interesting situation in the markets where perceptions of risk are extremely low, but my core indicators show an unhealthy market profile. This suggests that the unhealthy internals are most likely a result of rotation, and not the start of a longer term top. Of course, that’s not to say that mere rotation can’t turn into mass selling. But, for now, I’m not too concerned. One of the reasons I’m not to concerned is that even with the Nasdaq 100 (NDX) weakness over the past week, the percent of stocks in the S&P 500 Index (SPX) above their 200 day moving average is rising. This tells me that investors are rotating into beaten down stocks. This isn’t the way tops are usually made. Tops are made when leaders and beaten down stocks are being sold at the same time.   As I mentioned above, my core indicators are showing weakness in underlying technical support. Most notably, is the market quality category which fell below zero this week. That changes our

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Measures of Trend Fall Below Zero

Over the past week, most of my core market health indicators deteriorated. The most significant are my measures of market trend. This category fell below zero this week. This changes the portfolio allocations to the following. 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 (can use the etf SH) Volatility Hedged portfolio: 100% long (since 11/11/2016) Another few things of note come from breadth and risk. Currently, most of the measures of breadth that I follow are still in the healthy range. My measures of risk are deteriorating quickly, meaning that risk is rising. What this tells me is that people are getting nervous, but they’re selectively selling. So, I’m still not too worried about a longer term top being put in place. Conclusion My core indicators are tumbling one by one, perceptions of risk are rising, but breadth is holding up fairly well. At the moment, this looks like rotation rather

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Measures of Strength and Economy Go Negative

Over the past week, some serious damage has been done to my core stock market health indicators. Most notably, the measures of the economy and market strength have gone negative. The changes the portfolio allocations as follows. Long / Cash portfolio: 60% long and 40% cash Long / Short portfolio: 80% long high beta stocks and 20% short the S&p 500 Index (or use an inverse etf like SH) Volatility Hedged portfolio: 100% long (since 11/11/2016)   As always, use your own risk tolerance and read on the market to guide your investment decisions.

 
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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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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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