The strong rally this week cleared the warning from my market risk indicator. In addition, my core measures of market health shot strongly upward. The fear evidenced last week has been replaced by expectations of new highs going into the end of the year. One item of note is that my core measures of market risk are still negative. They will probably take another week or two to clear. That puts the new portfolio allocations as follows:
Volatility Hedged portfolio: 100% long
Long / Cash portfolio: 80% long and 20% cash
Long / Short portfolio: 90% long high beta stocks and 10% short the S&P 500 Index (or use the ETF with symbol SH)
Nervousness ahead of the election caused enough fear in the market that my market risk indicator warned last week. We hedged with that fear against the chance that it turned to panic. The panic didn’t materialize and now the market is trying to normalize itself. As a result, we go back to normal portfolio allocations based on core indicators.