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Drifting

161223MarketHealth

Over the past week, all of my core market indicators drifted slightly lower. Most notably are the measures of market quality. They bounced back and forth across the zero line this week. That category is positive at the moment, but it won’t take much to go negative. Market quality often leads the other indicators by several weeks so, at the moment, we don’t know if it is signaling a intermediate term trend change or noise that won’t be reinforced by other indicators for several weeks.

 
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Core Indicators Fall

161216MarketHealth

Over the past week, all of my core market health indicators fell slightly. However, none of them weakened enough to change any portfolio allocations. Measures of market quality continue to inch toward the zero line and will likely need a rally next week tor remain positive.

 
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Breadth Improves

161209NYAD

Last week, I mentioned that I’d be watching breadth and measures of market quality closely due to the fact that they were lagging the market. This week, breadth as measured by the NYSE Advance / Decline line (NYAD) has improved and cleared the divergence that had been in place. As mentioned in the post, divergences under 13 weeks are often noise… which ended up being the case this time. NYAD making new highs as the market breaks out is the type of action I like to see. My measures of market quality ticked up slightly this week, but they aren’t showing the strength I’d like to see in the intermediate term. This isn’t too concerning in the overall scheme of things, but the lack of strength could cause them to fall below zero in the next week or two if their intermediate term trend isn’t righted. This would have us raising cash or adding hedges amid a rising market if the price trend continues.   Conclusion Breadth measures are confirming

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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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No Portfolio Changes

No changes to the portfolio allocations this week. Enjoy the holiday weekend!

 
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Bouncing Around

161118MarketHealth

As the market rallied this past week, my core market health indicators bounced around a bit. Most notably, my measures of trend surged to nearly over bought conditions. Core measures of risk continue to lag the market and look like they’ll need another week or two of sideways or upward movement (probably some backing and filling near new highs) in the S&P 500 Index (SPX) to go positive. One sign that the market is recovering from a breadth perspective comes from the Bullish Percent Index (BPSPX). The damage done to point and figure charts is being repaired and has brought BPSPX back above 60%. That takes a lot of pressure off from a risk perspective. Conclusion Market internals are repairing themselves in anticipation of a rally to new highs, however, we may need a bit of backing a filling before moving higher.

 
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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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Heads Up

Just a heads up. My core measures of risk have gone negative and my Market Risk Indicator is warning. If this condition persists into Friday afternoon then we’ll be adding an aggressive hedge to the Volatility Hedged portfolio and the Long/Short portfolio (using mid term volatility). The Long/Cash portfolio allocation will go to 100% cash. I’ll do a full post tomorrow before the close.

 
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Danger Signs

161028MarketHealth

Over the past week, my core market health indicators collapsed. They are all moving quickly toward zero. Most notably, is my core measures of risk. They are very close to going negative. In addition to my core measures, breadth measures are starting to warn as well. The bullish percent index (BPSPX), which tracks the percent of stocks in the S&P 500 Index (SPX) that have bullish point and figure charts, has fallen below 60%. When this occurs the odds of a 10% decline (from current levels) increases substantially. Especially if my market risk indicator signals. Currently, two of four components of that indicator are warning. However, the other two are a long way away from a signal. I suspect it would take a quick fall through 2100 on SPX to create a warning. Another breadth indicator that is warning is the percent of stocks in SPX that are below their 200 day moving average. It is also below 60%. I’m sure you’ve all noticed that small cap stocks have broken

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