Our Long/Short Hedge strategy is now 100% net long. The break out above 1422 in the S&P 500 Index brought with it strength in enough of our indicators to get us fully invested on the long side of the market. Our long portfolio consists of stocks that we want to own over the long run.
The current situation in our indicators has occurred several times over the past 12 years. Almost all of these instances were followed by multi-week (or month) rallies. We did have one occurrence in May of 2006 that was reversed one week later to an aggressively hedged position and resulted in a whip saw. Here are some examples of where we were 100% exposed to the market after coming out of a correction. July 2003, December 2005, May 2009, November 2010, and January 2012.
We can’t see the future so we don’t know if this will be a good signal, but we follow where the market leads.
On the chart above the green lines indicate adding longs and decreasing shorts. The yellow represents adding shorts and decreasing longs. The red lines indicate an aggressively hedged position using puts, volatility, or actively managed bear funds.