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Home Portfolio Allocation Archive for category "Long / Short Position"
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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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Adding Exposure Amid Weak Breadth

161202MarketHealth

Over the past week, my core market health indicators continued to bounce around with some moving up and others falling. Most notably, my core measures of risk moved above zero. This changes the core portfolio allocations as follows: Long / Short Hedged portfolio: 100% long high beta stocks Long / Cash portfolio: 100% long Volatility Hedged portfolio: 100% Long (since 11/11/2016) Another thing of note this week is that my measures of trend are now in overbought territory. This occurred as my measures of market quality fell. It’s not a situation I like to see happen. This adds some doubt to the current market, but some of the other measures I watch are simply showing normal bullish rotation. So the question is, bullish rotation or the start of a larger decline? We’ll have to wait and see. Another thing that is somewhat concerning is that measures of breadth suffered more than expected this week. Take a look at the percent of stocks in the S&P 500 Index above their 200

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Off to the Races

161111MarketHealth

The strong rally this week cleared the warning from my market risk indicator. In addition, my core measures of market health shot strongly upward. The fear evidenced last week has been replaced by expectations of new highs going into the end of the year. One item of note is that my core measures of market risk are still negative. They will probably take another week or two to clear. That puts the new portfolio allocations as follows: Volatility Hedged portfolio: 100% long Long / Cash portfolio: 80% long and 20% cash Long / Short portfolio: 90% long high beta stocks and 10% short the S&P 500 Index (or use the ETF with symbol SH) Conclusion Nervousness ahead of the election caused enough fear in the market that my market risk indicator warned last week. We hedged with that fear against the chance that it turned to panic. The panic didn’t materialize and now the market is trying to normalize itself. As a result, we go back to normal portfolio allocations

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Market Risk Warning

161104BPSPX

As I noted yesterday, my Market Risk Indicator is issuing a warning. As a result, the portfolio allocations change as follows. Long / Short portfolio: 50% long high beta stocks and 50% hedged with mid term volatility (VXZ) Long / Cash portfolio: 100% cash Volatility Hedged portfolio: 50% long and 50% hedged with mid term volatility (VXZ) As I mentioned last week, the bullish percent index is below 60% which significantly increases the risk of another 10% decline from the current level. My core measures of market health had the economy improving and moving above zero this week, while the core measures of risk fell below zero. Conclusion We have a market risk warning in place. It’s time to aggressively hedge until the current storm passes.

 
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Setting Up for Year End Rally

161007MarketHealth

Over the past week, my core measures of market quality moved back above zero. During the same period my measures of market trend and strength surged higher as well. The strength in these indicators suggest that the market will rally into year end. Earning season could change the market’s opinion, but without major problems during the first few weeks I suspect we’ll be off to the races. The move in market quality changes the current core portfolio allocations as follows: Long / Cash portfolio: 80% long and 20% cash Long / Short portfolio: 90% long high beta stocks and 10% short the S&P 500 Index (or use the ETF SH) Volatility Hedged portfolio: 100% long (since 7/5/2016) Here is a chart that shows the core portfolio allocations over the past year. Green lines represent adding long exposure. Yellow is raising cash or adding hedges. Red is an aggressive hedge using mid term volatility. Another sign that market participants are expecting a year end rally comes from the ratio between the

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Core Portfolios Reducing Exposure

160902MarketHealth

Over the past week, my core market health indicators bounced around a bit. Most notably is that my core measures of the economy fell below zero. This results in a change in the core 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 an ETF like SH) The Volatility hedged portfolio is not impacted by the core indicators so it is still 100% long (since 7/1/16) One other notable thing this week is my core measures of risk are still close to signaling a very bullish condition for the market. They aren’t being impacted by the small dip that started a couple of weeks ago which is a positive sign, but they haven’t moved into the “very bullish” territory yet either. This is the thing I’m watching most closely for signs of a strong rally into the end of the year.

 
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Adding Exposure

160805MarketHealth

Over the past week the majority of my core market health indicators improved. Most notably is the market strength category. It has finally pushed above zero, resulting in a change to the core portfolios. The new allocations are as follows. Long / Cash portfolio: 80% long and 20% cash Long / Short portfolio: 90% long high beta stocks and 10% short Volatility Hedged portfolio: 100% long (since 7/1/2016) In early July, I highlighted some problems with leadership in the market. Most of those problems have been resolved. As you know, I’ve been watching the ratio between the Nasdaq 100 (NDX) and the S&P 500 (SPX). It made a good break higher two weeks ago and is currently fueling the rally as NDX plays catch up to SPX. One thing that hasn’t fully resolved itself is the ratio between the S&P 500 Equal Weight index (SPXEW) and SPX. The current rally has this ratio moving sideways, which shows lackluster participation from the “smaller” big cap stocks in SPX. If the ratio

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