Just a heads up about our core indicators and portfolio allocations. At the moment our core measures of risk are positive. It appears that they’ll stay that way into the close tomorrow. It would take an extremely sharp down day tomorrow to push them back to negative. As a result, the core portfolio allocations will most likely change tomorrow. The long / cash portfolios will both be 20% long and 80% cash. The hedged portfolio will be 60% long stocks we believe will outperform in an up trend and 40% short the S&P 500 Index (SPX). The volatility hedge will remain 100% long.
The market is drifting higher as the Trade Followers momentum indicators suggested last week. Meanwhile, the things I’ve been watching lately have drifted sideways. That leaves us in a position where we are waiting for a dip to see how market internals react. One thing of note is the percent of stocks above their 200 day moving average. It is sitting at 76% which is a healthy level. But when I look at individual charts I’m seeing weak stocks staying weak and strong stocks continue to power higher. That has caused the market itself to drift slowly higher over the past few weeks instead of a strong rally. This suggests that the next dip could cause serious damage to internals as people take profit in a divided market.
One other thing of concern is that one of the sectors supporting this rally is consumer staples (XLP). I don’t like to see defensive sectors leading a rally in the indexes.
So we wait…and watch. We’ll get a dip eventually and the nature of that dip will show the market’s hand.