Last week, I mentioned that it might be time for some consolidation. This week, it appears more likely. My measures of market quality have dipped below zero and my measures of market trend are dropping pretty fast. This indicates that we should get some sideways to down movement over the next several weeks. I suspect that the market has at least one more good rally in it, but we’ll need a pause before it happens. The consolidation will most likely be due to rotation out of mega cap stocks into smaller stocks as a “sell the news” event when/if the tax plan passes.
With market quality falling below zero the core portfolio allocations change as follows:
Long / Cash portfolio: 80% long and 20% cash
Long / Short portfolio: 90% long high beta stocks and 10% short the S&P 500 index
Volatility Hedged portfolio: 100% long (since 11/11/2016)