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Measures of Trend Positive

Over the past week all of my core market health indicators improved. Most notably are my measures of trend, which went positive. Measures of market strength almost made it into the green, but missed it by a fraction. I suspect that category will be positive next week (even with a bit of consolidation in the market). With measures of trend moving from negative to positive it changes the core portfolio allocations as follows:

Long / Cash portfolio: 60% long and 40% cash

Long / Short Hedged portfolio: 80% long high beta stocks or ETFs and 20% short the S&P 500 Index

Volatility Hedged portfolio: 100% long (since 3/4/16)

160422MarketHealth

The chart below shows allocations changes over the past year. Green lines represent adding long exposure, yellow represents reducing exposure or adding a SPX short as a hedge, red lines represent aggressive hedging with volatility. It’s been a rocky road where we get aggressively hedged in a steep decline then the market makes a low shortly after without accelerating to the downside. Then we add exposure as the market crawls higher only to see a top made.

160422PortfolioAllocations

The question now is, “Will the uptrend continue or will the market turn back down?”. I wish I had the answer, but as you know I can’t see the future so I’ll continue to follow the indicators with the comfort that my portfolio will be protected on the big declines and long on the big up trends.

 
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