I’m seeing several signs that suggest the market is getting ready to make a breakout to new all time highs. Over the past few weeks my core indicators didn’t deteriorate much as the market consolidated. This week they all strengthened with the exception of the economy category. Most notable is that my measures of market quality moved back above zero again. That changes the core portfolio allocations. The current allocations are below:
Long / Cash portfolio: 80% long and 20% cash
Long / Short Hedged portfolio: 90% long high beta stocks and 10% short the S&P 500 Index (or the ETF SH)
Volatility Hedged portfolio: 100% long (since 10/9/15)
One thing I’m seeing that suggests we’re headed to new highs is the Trade Followers sentiment indicator which is calculated from the text of tweets about the S&P 500 Index. 7 day momentum is turning up from a level that has historically been an oversold level during bullish trends. These upturns are generally associated with a resumption of the uptrend in the market. You can see the daily interactive chart of twitter sentiment for the market here. Here’s a post that shows how I use the charts and how the twitter indicator called the top in August. One thing to watch over the next several days is 7 day momentum. If 7 day momentum turns back down from zero (as it did in August) it will suggest that more consolidation is needed. What we want to see is a clear move back above zero.