Over the past week our measures of the economy finally moved back to positive. As a result, our portfolio allocation will change by the close today (1/3/2014). All of our portfolios will be 100% long. Sometimes it feels like we’re buying at a high, but we follow the indicators not our feelings.
All of our other indicator categories except for perceptions of risk improved last week. Our measures of risk are acting very skittishly and have fallen quite a bit with virtually no deterioration in price. This suggests that it won’t take much downside price action for people to start selling in earnest. Currently two of the four components of our Market Risk indicator are very close to signalling while our core indicators are very positive. As a result, I suspect that market risk would be what moves the portfolios to a hedged position or raising cash in the event of a more serious decline.
Below is a chart with the normalized scores for each of the core indicator categories.
Here’s a chart that represents the portfolio allocation changes over the past year. The green lines represent adding longs to the portfolio or removing hedges, while the yellow lines represent raising cash or adding a hedge.