As I noted yesterday, my Market Risk Indicator is issuing a warning. As a result, the portfolio allocations change as follows.
Long / Short portfolio: 50% long high beta stocks and 50% hedged with mid term volatility (VXZ)
Long / Cash portfolio: 100% cash
Volatility Hedged portfolio: 50% long and 50% hedged with mid term volatility (VXZ)
As I mentioned last week, the bullish percent index is below 60% which significantly increases the risk of another 10% decline from the current level.
My core measures of market health had the economy improving and moving above zero this week, while the core measures of risk fell below zero.
We have a market risk warning in place. It’s time to aggressively hedge until the current storm passes.