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Adding Exposure Due to Measures of Trend

Over the past week our core market health indicators bounced around a bit, but mostly improved. Our core measures of risk improved after a few weeks of falling closer to the zero line. One thing that is concerning in this category is a few of the indicators have been painting lower highs since July 2014.


Our measures of the economy turned back down this week after trying to complete bottom formations. Our measures of market quality and strength fell as well. The good news came from our measures of trend. They finally went positive. As a result, our core portfolio allocations will change to reduce cash and/or short positions and increase long positions. The new allocations are as follows.

Long / Cash: 80% long and 20% cash

Long / Short: 90% long stocks we believe will outperform in an up trend and 10% short the S&P 500 Index (using SH).

Volatility Hedge: Remains 100% long (since 10/24/14). This is a result of our market risk indicator’s strong readings. None of its four components are warning which shows market participants are very willing to take risk at the moment.

Below is a chart showing the core portfolio changes over the past fifteen months. Yellow represents raising cash and/or adding short positions. Green is adding long positions. Red represents an aggressive hedge using an instrument that benefits from rising volatility.


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