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Market Strength Goes Positive

Last Friday, my market strength indicator went positive. All of my core market indicator categories are now positive. This puts the long / cash portfolio and the long / short hedged portfolio 100% long high beta stocks. Note: I’m not going to report portfolio allocations for the long / cash portfolio and the long / short hedged portfolio going forward. However, I’ll continue to post my core market health indicator categories as they change. As always, structure your own portfolios based on your own risk tolerance.

 
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Market Risk Cleared

Over the past week, my market risk indicator finally cleared. In addition, my core market health indicators have strengthened. This changes the core portfolio allocations as follows: Long / Cash portfolio: 80% long and 20% cash Long / Short portfolio: 90% long high beta stocks and 10% cash Volatility Hedged portfolio: 100% long (using high beta stocks or an ETF like SPX or QQQ) As always, use your own risk tolerance to construct your portfolio.

 
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VXZ Going Away

On January 30th, 2019 VXZ will be discontinued. It is being replaced by VXZB. In addition to VXZ being delisted, VXX will also be delisted and replaced by VXXB. So, any of you using VXZ (like I am) will want to replace the position with VXZB before the end of next month. You can read more about it at Six Figure Investing.

 
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Rebalancing Volatility Hedge

FYI, today near the close I rebalanced the volatility hedged portfolio. VXZ was up 14% and my longs were down about 9%. I sold some VXZ and bought some long positions with the profit. The portfolio is now back to 50% long and 50% VXZ.

 
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Market Risk Warning

My Market Risk Indicator is signalling today. That means I add a mid term volatility hedge to the Volatility Hedged portfolio and the Long / Short hedged portfolio. The Long / Cash portfolio goes 100% to cash. The portfolio allocations are as follows: Long / Cash portfolio: 100% cash Long / Short hedged portfolio: 50% long high beta stocks and 50% long mid term volatility (or an ETF like VXZ or VIXM) Volatility Hedged portfolio: 50% long and 50% long mid term volatility (or an ETF like VXZ or VIXM) As always, use your own judgement and personal risk preferences to allocate your own portfolios. And, of course, never trade a financial instrument that you don’t understand.  

 
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Market Strength Whipsaw

Over the past week my core measures of market strength whipsawed. The category went positive last week, then went back to negative yesterday. Another thing of note is that my core measures of stock market risk fell substantially. This indicates a foundational weakening in market action (as opposed to my market risk indicator which looks for fear in the market). The core portfolio allocations have changed to the following: Volatility Hedged portfolio: 100% long (since 5/7/2018) Long / Short Hedged portfolio: 70% long high beta stocks and 30% short the S&P 500 Index (or use an ETF like SH) Long / Cash portfolio: 40% long and 60% cash

 
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Market Strength Goes Positive

Last Friday my core measures of strength went positive. That changes the portfolio allocations as follows: Volatility Hedged portfolio: 100% long (Since 5/7/2018) Long / Short Hedged portfolio: 80% long high beta stocks and 20% short the S&P 500 Index (or use an ETF like SH) Long / Cash portfolio: 60% and 40% cash

 
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Market Quality Goes Positive Again

My core measures of market quality have gone positive again. My measures of market trend and strength are lagging. As I mentioned a few weeks ago, this suggests a somewhat choppy market ahead (although I was completely wrong on the chop keeping us from new highs in the S&P 500 Index — so maybe the consolidation will happen just above new highs). With market quality going positive the portfolio allocations change as noted below. As always, use your own personal risk tolerance to structure your own portfolio. Volatility Hedged portfolio: 100% long (since 5/7/2018) 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 an ETF like SH)  

 
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Consolidation Likely

My market health indicators are signalling that some consolidation is likely. All of the core categories are negative with the exception of risk. When this happens it usually signals that investors are taking profits, rebalancing portfolios, and/or rotating between sectors. At this point, I don’t expect a large draw down. It’s more likely that we get some chop (maybe a month or so) before moving to new highs in the S&P 500 Index (SPX). The movement in my core indicators change the portfolio allocations as follows: Volatility Hedged portfolio: 100% long (since 5/7/2018) Long / Cash portfolio: 20% long and 80% cash Long / Short Hedged portfolio: 60% long high beta stocks and 40% short the S&P 500 Index (or use an ETF like SH) As always, use your own risk tolerance to manage your portfolio.

 
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Market Quality Recovers

Over the past week, my measures of market quality recovered and are now back above zero. This changes the portfolio allocations as follows: Long / Cash portfolio: Long 60% cash 40% Long / Short Hedged portfolio: Long 80% high beta stocks Short 20% the S&P 500 Index (or use and ETF like SH) Volatility Hedged portfolio: 100% long (since 5/7/2018)

 
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