Our core market health indicators strengthened enough during this past week to move all of them into positive territory. As a result all of our portfolios are 100% long.
Our core measures of risk have been overbought for almost three weeks. They can stay that way for a few months as the market rallies strongly. The longest occurrence since 1990 was October through December 2013 (three months). As I’ve noted before overbought conditions on this category of indicators have almost always been followed by a 10% correction within a few months. The exceptions to this were in early 1999 and all of the occurrences during 2013…which should tell you something about the strength of the current market. I’m not concerned about this indicator yet, but when it turns down from overbought readings it will provide warning that a decent correction is most likely underway.
Below is a chart with our current market health readings. Below that are our portfolio adjustments over the past year (green lines represent adding longs and removing hedges, yellow lines are raising cash and adding hedges).