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Home Portfolio Allocation Archive for category "Long / Cash Position"
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Core Portfolios Fully Hedged or All Cash

160108MarketHealth

As I mentioned on Monday, the damage done to the core indicators would be hard to overcome and that the intermediate term trend is now likely down. Since Monday things have only gotten worse. All of my core indicators dipped even deeper into the red. As a result, the core portfolio allocations are now fully hedged or 100% in cash. My market risk indicator has three of four components warning at the moment, but the forth is still positive. That leaves the volatility hedged portfolio 100% long. Here’s a complete list of the allocations: Long / Cash portfolio: 100% cash Long / Short Hedged portfolio: 50% long high beta stocks and 50% short the S&P 500 index (or use SH) Volatility Hedged portfolio: 100% long As an example of the broken intermediate term trend here’s a point and figure chart of the S&P 500 index. The damage done this week was pretty significant, but looking longer term there is still the possibility that once the current correction has ended we’ll

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Tipping Point

151218markethealth

The chart of my core market health indicators says it all. Weak economy and every other category near zero. This week my measures of trend fell into negative territory, while the other categories are barely hanging on. It appears that the 2020 area on the S&P 500 Index (SPX) is a tipping point. The market needs to bounce here or I suspect the rest of the categories will fall below zero next week. Due to the negative reading from measures of trend, the core portfolio allocations change this week. Here are the new allocations: Long / Cash portfolio: 60% long and 40% cash Long / Short Hedged portfolio: 80% long high beta stocks and 20% short the S&P 500 Index (or use the ETF SH) Currently, two of the four components of my market risk indicator are warning. A third is waffling and could warn at any moment. The fourth is well away from a signal, but a sharp sell off would probably take it negative too, which would bring

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Odds Favor New Highs

151120MarketHealth

I’m seeing several signs that suggest the market is getting ready to make a breakout to new all time highs. Over the past few weeks my core indicators didn’t deteriorate much as the market consolidated. This week they all strengthened with the exception of the economy category. Most notable is that my measures of market quality moved back above zero again. That changes the core portfolio allocations. The current allocations are below: 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 the ETF SH) Volatility Hedged portfolio: 100% long (since 10/9/15) One thing I’m seeing that suggests we’re headed to new highs is the Trade Followers sentiment indicator which is calculated from the text of tweets about the S&P 500 Index. 7 day momentum is turning up from a level that has historically been an oversold level during bullish trends. These upturns are generally associated with a resumption of the uptrend in

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Market Quality, Trend, and Strength Rise

151106markethealth

Over the past week my core measures of market quality, trend, and strength all rose significantly. Market trend and strength moved above zero which results in changes to the core portfolio allocations. Market quality is just barely below zero and will almost certainly go positive next week (even with some consolidation in the market). Here are the new allocations: Long / Cash portfolio: 60% long and 40% cash Long / Short Hedged portfolio: 80% long high beta stocks and 20% short the S&P 500 Index (or use the ETF SH) Volatility Hedged portfolio: 100% long (since 10/9/15) As always make your own decisions about your own portfolio allocations based on your personal risk tolerance. Enjoy the weekend everyone!

 
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Core Risk Improves

151023markethealth

Over the past week most of my core measures of market health improved. Most notably is that my measures of risk went positive. This changes the portfolio allocations as follows: 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 the ETF SH) Volatility Hedged portfolio: 100% long (from 10/9/15) Another thing of note this week is that the Bullish Percent Index (BPSPX) is back above 60%. This reduces the risk of a steep or waterfall type decline. Here’s a post that explains the risk associated with poor breadth in the market.

 
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Market Risk Cleared

151009MarketHealth

As I mentioned on Tuesday, my market risk indicator cleared during the week and the positive readings have held throughout the week. However, my core market health indicators are all still below zero. This changes the portfolio allocations as follows. Long / Cash portfolio: 100% cash Long / Short Hedged portfolio: 50% long stocks I believe will outperform in and uptrend and 50% short the S&P 500 Index Volatility Hedged portfolio: 100% long As was the case in mid August the core indicators don’t like the current market internals, but the perception of risk is low. You’ll need to assess your own needs and risk tolerance to decide how much of a hedge (if any) you leave on your portfolio. If you’d rather use an ETF for the long portion of your portfolio here are some ideas on how to find one. Look at the comments too as a reader found several ETFs that met the high beta criteria. At the end of August I wrote a post explaining why

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Softening Hedge and Rebalancing

With the sell off this morning I’m taking the opportunity provided by a spike in volatility to take some profit from the hedge and soften it in the Long / Short Hedged portfolio. I’m taking all profit from the hedge and buying new long positions with it. In addition, I’m selling 1/3 of the aggressive hedge (mid term put options, VXZ, or XVZ) and buying a short of the S&P 500 Index (or using SH). Usually, the longs in the portfolio have dropped enough that the new allocations are fairly close to a 50% long and 50% hedged position after a rebalance. But due to the large increase in volatility without much price damage in the market since 8/21/15 (when my market risk indicator signaled) the new allocations have a slightly smaller hedge than is normal after a rebalance. The new allocations for the Long / Short portfolio are as follows. 53% Long stocks that I believe will outperform in an uptrend (high beta stocks) 15% Short the S&P 500

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Still Aggressively Hedged

150828MarketHealth

Just a quick note about the portfolio allocations and the current market health indicator readings. All of my core health indicator categories rose this week, but they’re still mired in negative territory. In addition, my market risk indicator is still signaling. As a result, the core portfolios remain aggressively hedged with an instrument that benefits from higher volatility (mid term put options, mid term volatility — VXZ, dynamic volatility — XVZ, etc.). I’ll do an in depth post with my thoughts on the market later today that will highlight VXZ. Here’s a preview chart. Notice that the S&P 500 Index (SPX) has retraced it’s decline from last Friday’s close, but VXZ is still up 15% from Friday’s close. Volatility begets volatility…which is why mid term volatility makes a good hedge during fast moving markets.

 
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Market Risk Warning

150821MarketHealth

My market risk indicator is warning today. That changes the portfolio allocations of the Long / Short portfolio and the Volatility Hedged portfolio to 50% long high beta stocks and 50% aggressively hedged. An aggressive hedge is a vehicle that benefits from higher volatility such as put options, or volatility ETF/ETNs like VXZ or XVZ. Please note that XVZ is thinly traded so limit orders (and likely several small purchases) would be prudent. Use your own discretion in which product you use…and as always never buy a product you don’t understand. If you’re using put options our portfolio allocations indicate that you should fully cover your portfolio at or near the money. Use your own discretion in term structure, but be aware that I look to mid term (4 to 7 months) puts first. If you’re uncomfortable with volatility or put options an actively managed bear fund like HDGE is a short option to use as a hedge. It will likely offer more protection than a simple short of the

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Market Quality Falls

150814markethealth

Over the past week my measures of market health bounced around with some gaining and others falling. Most notably, measures of market quality fell below zero. This changes the core portfolio allocations to the following. Long/Cash portfolio: 100% cash. Long/Short portfolio 50% long stocks that I believe will outperform in and uptrend — 50% short the S&P 500 Index (using SH or a short of SPY). My market risk indicator is still reluctant to warn. The two least sensitive components have flat lined over the past several weeks. They have been moving slightly just above or below zero. The most sensitive components are are compressing in a range well above zero. This leaves the volatility hedged portfolio 100% long. Basically, the market is on dangerous underpinnings, but price hasn’t broken down. My market risk indicator is telling us that market participants are waiting for a price break before getting concerned. The indexes are painting patterns that can be either accumulation or distribution. They are best characterized as trendless. A great

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