Over the past week our core market health indicators rose sharply again. Everything with the exception of our measures of the economy are hovering right near a pivot point. Our measures of market strength have gone positive while measures of risk, quality, and trend are barely negative. It appears that those three categories will most likely go positive next week if the S&P 500 Index (SPX) breaks to new highs. Overall I’m seeing healthy behavior after six weeks of consolidation.
With the current conditions starting to look positive we’re adding a bit more exposure to the core portfolios.
The long / cash portfolio will now be 20% long and 80% cash.
The long / short (hedge) portfolio will be 60% long stocks that we believe will outperform SPX in up trends and 40% hedged with a short of SPX (or using SH).
The volatility hedged portfolio remains 100% long (since 10/24/14) due to no signs of extreme risk in the market.
Below is a chart with the core portfolio changes over the past year. Yellow lines represent raising cash or adding a hedge. Green lines indicate adding exposure. The red line indicates an aggressive hedge using an instrument that benefits from higher volatility (put options, volatility ETFs, etc. ) in both hedged portfolios.