Over the past week all of our core market health indicators fell sharply. Most notably is that perceptions of risk are rising sharply. Two of the components of our Market Risk Indicator are currently warning. The sharp drop in this indicator shows that investors are dancing close to the door. Our measures of market quality and strength fell quickly as well. Our measures of the economy have fallen back below zero which has us raising cash in the long / cash portfolios. They are now 80% long and 20% cash. We’re adding a 10% hedge to the hedged portfolio. It is currently 90% long with stocks that we believe will outperform the market in an uptrend and 10% short the S&P 500 index (or an ETF like SH).
If the current trajectory of our measures of market quality and strength continues we’ll probably be raising more cash next week. But as always we’ll wait for a signal. I’ll post mid week if anything significant happens to any of the indicators. Have a good weekend.
Below is a chart of our core health indicator categories.
Below is a chart showing our portfolio allocation changes over the past year. The yellow lines represent raising cash or adding a hedge. The green lines represent adding longs, removing hedges, and deploying cash.