Enough of our core indicators have weakened that our “core” Long / Cash Hedge strategy is now 80% Long and 20% in cash.  Our core strategy ignores our Market Risk Indicator.  As a result, it takes larger draw downs, but has better overall performance because it enters the market earlier in new rallies.  If you follow our Market Risk Indicator you would have gone 100% to cash on 10/19/2012.  You can see a comparison of the hedge strategies here.  Below is the current chart for the core strategy.  The green lines represent adding long stocks.  The yellow lines represent raising cash.    

We saw continuing improvement in our core market indicators this week allowing us to add exposure to the market in our Long / Cash hedge strategy.  We are now 60% long and 40% cash.  Most of our measures of market strength, trend, and risk are positive, while most of our measures of the economy and quality are lagging. This is the point during strong bear market rallies where we often see whip saws.  During the 2000 to 2002 bear market this level of exposure was often associated with a market peak within a few weeks.  However, during normal up trends this level of exposure generally signals a continuation of the up trend. In the chart above green lines are adding exposure and yellow lines are raising cash.