Just a quick note today about my core indicators. Measures of risk and trend have gone negative. Core measures of the economy, market quality, and strength are very close to going negative. If the situation isn’t repaired by Friday our core portfolios will have allocation changes that will result in raising cash and/or adding a short of the S&P 500 Index (SPX). The most likely scenario is that the core portfolios will be roughly 60% exposed to the market. Either with 40% cash or 80% long positions and 20% short positions. A continued decline into Friday would most likely result in more cash and/or hedges.
The volatility hedge relies on my market risk indicator. It hasn’t warned yet, but is getting closer. It still has two components that are still positive. At the moment it appears that this portfolio will remain 100% long. A swift decline Thursday and Friday would likely have it changing to an aggressive hedge (using puts or a volatility ETF/ETN).
It’s time to take a look at your holdings and decide what you’d prefer not to hold during a more serious decline…but as always, let’s wait till Friday before making any changes. I’ll do a post at least an hour before the close with any new portfolio allocations.