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Market Health Strengthens – Adding Exposure

Over the past week all of our core market health indicators strengthened. Our measures of the economy rose back above the zero line which results in us adding long exposure to our core portfolios. Both of our long/cash portfolios will now be 40% long and 60% cash. Our hedged portfolio will be 70% long and 30% hedged with a market short (either shorting SPY or buying SH). As always, the longs in the hedged portfolio are stocks that we believe will outperform the market in an uptrend. We leave it to you to make your own picks.

In the past when the market was choppy near a high and four out of five of our categories went negative, then a reversal occurred in one of the categories (what just happened today with economic measures moving above zero) the market continued on to new highs 60% of the time and made a intermediate term top 40% of the time. ┬áThis tells you that we’re not out of the woods yet, but the odds favor higher prices and a continuation of the current intermediate term trend (even if we continue to see choppiness and a bit of weakness in the near term).

Below are charts with the changes on our portfolio allocations over the past year. Yellow lines represent raising cash or adding hedges. Green lines represent adding longs and removing hedges.

140502HedgeAllocations

 

Here’s a chart of our health indicator categories with their current readings.

140502MarketHealth

 
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