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Home Portfolio Allocation Archive for category "Long / Short Position"
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Intermediate Term Indicator Strengthen

150501markethealth

Over the past week all of my core market health indicators have strengthened except for market risk. My measures of the economy strengthened enough to move slightly above zero. This means we’ll be adding exposure to the core portfolios. The new allocations will be as follows: Volatility Hedged portfolio: 100% long (since 10/24/14) Long / Cash portfolios: 100% long Long / Short portfolio: 100 long Here’s a chart with changes to the core portfolios over the past 18 months. Green is adding long exposure, yellow raising cash or adding hedges, red represents an aggressive hedge using an instrument that benefits from rising volatility. One thing of note is that my core indicators (which are intermediate term in nature) are currently at odds with some of the short term indicators I watch. For example, Trade Followers momentum from Twitter is currently issuing a consolidation warning. This indicates that even though we’re adding exposure the market may chop around or dip before it can move higher. Another thing of concern is that

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Adding Exposure Due to Measures of Trend

150320MarketHealth

Over the past week our core market health indicators bounced around a bit, but mostly improved. Our core measures of risk improved after a few weeks of falling closer to the zero line. One thing that is concerning in this category is a few of the indicators have been painting lower highs since July 2014. Our measures of the economy turned back down this week after trying to complete bottom formations. Our measures of market quality and strength fell as well. The good news came from our measures of trend. They finally went positive. As a result, our core portfolio allocations will change to reduce cash and/or short positions and increase long positions. The new allocations are as follows. Long / Cash: 80% long and 20% cash Long / Short: 90% long stocks we believe will outperform in an up trend and 10% short the S&P 500 Index (using SH). Volatility Hedge: Remains 100% long (since 10/24/14). This is a result of our market risk indicator’s strong readings. None of

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Ready for a Move Higher

150220markethealth

Over the past week all of our core market health indicator categories rose. This rise came as the S&P 500 Index (SPX) consolidated just below the 2100 level. Our measures of market risk and quality moved from negative to positive. Our measures of market trend couldn’t quit make it. If the market can hold at current levels I suspect our measures of trend will move back above zero next week. Our measures of the economy are still posting sluggish numbers, but slowly improving. Overall I’m seeing good behavior from almost all the market internal indicators I follow. This suggests the market should rally. As a result, our new portfolio allocations will be as follows: Long / Cash portfolio: 60% long and 40% cash. Long / Short portfolio: 80% long stocks we believe will out perform in up trends and 20% short (using SH). Volatility Hedged portfolio: 100% long (since 10/24/14). Below is a chart with our portfolio changes over the past year. Green represents adding exposure and reducing hedges. Yellow

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Market Health Improving

150213markethealth

Over the past week our core market health indicators rose sharply again. Everything with the exception of our measures of the economy are hovering right near a pivot point. Our measures of market strength have gone positive while measures of risk, quality, and trend are barely negative. It appears that those three categories will most likely go positive next week if the S&P 500 Index (SPX) breaks to new highs. Overall I’m seeing healthy behavior after six weeks of consolidation. With the current conditions starting to look positive we’re adding a bit more exposure to the core portfolios. The long / cash portfolio will now be 20% long and 80% cash. The long / short (hedge) portfolio will be 60% long stocks that we believe will outperform SPX in up trends and 40% hedged with a short of SPX (or using SH). The volatility hedged portfolio remains 100% long (since 10/24/14) due to no signs of extreme risk in the market. Below is a chart with the core portfolio changes

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Measures of Strength Going Positive

Just a quick heads up today. Our core indicators that follow market strength are showing positive readings today as of the close. If this can hold into the close on Friday we’ll be adding more exposure and reducing our hedge in the core portfolios. If we get a strong move to the upside in the market there is a slight chance that one of our other categories (trend, quality, or risk) could go positive as well. I’ll do a full update on Friday before the close, but wanted to give you a heads up to be looking at longs that you think will out perform the market as a whole.

 
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Risk on the Rise and Core Indicators Oversold

150116MarketHealth

Over the past week our core measures of risk fell into negative territory. It was the last category to go negative. Our other measures of market health started going negative in early September and haven’t recovered. In fact, they have continued to deteriorate to the point where several of our indicators are now oversold. Our measures of market quality and strength are at points that have often marked lows similar to May 2012 and April 2013. The only recent occurrence of oversold conditions when the market was close to all time highs came in early 2008 and persisted into July/August of 2008. This puts the market in a position where it could go either way. Until conditions clear our Long / Cash portfolios will be 100% in cash. Our Long / Short hedged portfolio will be 50% long stock that we believe will outperform in an uptrend (high beta stocks) and 50% short the S&P 500 Index (using SH or a short of SPY). Our Market Risk Indicator has only

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Risk Falling

141121allocations

Over the past week most of our core market health indicators improved a bit. Our core measures of risk made it into positive territory. As a result, long/cash allocations will now be 20% long and 80% cash. The hedged portfolio will be 60% long stocks we believe will out perform in an uptrend and 40% short the S&P 500 Index (SH). The volatility hedge is 100% long (since 10/24/14). Below is a chart that shows changes to our portfolio allocations. Green lines represent adding exposure and reducing the hedge. Yellow lines represent reducing exposure and adding a hedge. Red lines represent an aggressive hedge using a security that benefits from increasing volatility. This week marks the first week since July that all four components of our market risk indicator are positive. Our market risk indicator is completely independent of our core measures of risk mentioned above so we now have two sets of indicators confirming that market participants are comfortable. It feels more like complacency (and top ticking) to me, but my

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Softening Hedge

141024allocations

Our Market Risk Indicator cleared its warning this week. However, our core measures of market health are still mired in negative territory. As a result, we’ll be softening the hedge in the hedged portfolio and staying 100% in cash in the long/cash portfolios. To soften the hedge we’re removing put options and/or volatility products. For the model portfolio we’re selling ETFs or ETNs like VXZ, VIXM, or XVZ and replacing it with at short of the S&P 500 Index (you can use the symbol SH). The end result is a portfolio that is roughly 50% long stocks we believe will outperform in an uptrend (high beta stocks are likely candidates for the hedged portfolio) and 50% short the S&P 500 Index. Below is a chart with the changes in our portfolio allocations over the past year. Green lines represent adding exposure, yellow lines are reducing exposure (and adding SH as a hedge), red lines are market risk signals where the hedged portfolio uses instruments that benefit from increasing volatility as

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Moving to Cash or Full Hedge

141010markethealth

The volatility in the market over the past week was accompanied by a deterioration in all of our core market health indicators. Every category is now negative. As a result, our long/cash portfolio allocations are now 100% cash. Our hedged portfolio allocation is 50% long stocks we believe will out perform the market in an uptrend and 50% short the S&P 500 Index (ticker symbol SH). Please note that this isn’t a prediction of a market decline. Instead it is simply acknowledgement that enough things are wrong with our underlying indicators that I feel it prudent to step aside until the indicators give clear positive signs. UPDATE 3:32 PM Eastern – OUR MARKET RISK INDICATOR SIGNALED AFTER THIS INITIAL POST. AS A RESULT, OUR HEDGED PORTFOLIO WILL USE AN AGGRESSIVE HEDGE. Our Market Risk Indicator is very close to a warning, but it hasn’t yet (2 PM Eastern). It will take a steep sell off in today’s remaining trading session to create a signal. If it signals before the close

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Raising Cash – Adding Hedge

140926hedgeallocation

Over the past week all of our market health indicators fell. Our measures of trend fell into negative territory which causes us to change our portfolio allocations. The Long / Cash portfolios will now be 60% long and 40% cash. The hedged portfolio will be 80% long stocks we believe will out perform the market in an uptrend (high beta stocks) and 20% short the S&P 500 Index (SH). Our market risk indicator hasn’t signaled so our volatility hedge is still 100% long. Below is a chart with the core portfolio allocation changes over the past year. The green lines represent adding exposure to the market and the yellow lines represent raising cash or adding a hedge. Here is a chart of the current readings (normalized) of our market health categories. The thing I’m watching most carefully at the moment is breadth. The NYSE cumulative Advance / Decline line (NYAD) is getting close to painting a lower low. This would be a warning sign of the most significant top we’ve

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