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Adding Longs to Core Portfolios

Our core market health indicators saw improvement in everything except our measures of the economy. We’re increasing exposure in our core portfolios today. Our Long / Cash portfolios will now be 60% long. Our hedged portfolio will be 80% long and 20% short. The short is a simple short of the S&P 500 Index (or SH). Below are charts showing where we added exposure (green lines) and raised cash or added hedges (yellow and red lines).  The core long / cash portfolio has had limited exposure that has varied from 20% long to 100% long. The hedged portfolio (Long / Short Hedge) Has had a bit more exposure to the long side, but carried a fairly significant hedge during the last part of this rally.  This was due to our core market health indicators remaining mostly negative during the move from 1550 to 1650.

 
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Almost There

Stock Market Strength and Trend

Our core market health indicators all improved this week.  Early in the week several of them were flat to down, but the rally on Friday brought them back.  They are all on the verge of turning positive.  Even our measures of the economy are starting to show some strength.  We should be adding more exposure to our core portfolios by next Friday unless the market turns down significantly.

 
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Getting Close to Adding Exposure

All of our core market health indicators improved again this week.  None of them rose enough to change our portfolio allocations, however, it appears that over the next few weeks we should be adding exposure and removing hedges.  The only thing that we can see that would change this view would be a very sharp and substantial sell off in the market. Our measures of risk improved substantially which continues to confirm that market participants just don’t believe the market will suffer a deep correction.  Our measures of the economy, market trend, quality, and strength all rose very quickly this past week as the S&P 500 Index held firm and continued to move up after the break above 1600.  

 
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Core Market Health Indicators Still Negative

Our core market health indicators all improved this week, but are mostly refusing to move above zero. Our measures of risk abated quite a bit this week and are once again our only positive indicator.  Our measures of the economy, market quality, trend, and strength all rose as well.  The market trend improved the most, but is still well below zero.  This is concerning considering the fact that the S&P 500 Index (SPX) is at all time highs. We’re currently seeing the same pattern that our indicators painted in April and May of 2011 where the market was making new highs but our indicators refused to go positive.  In May of 2011 our only positive indicator was risk just as is the case today.  The market ended up resolving the disparity by first trading in a 8% range and culminating with a 20% correction.  However, the worst of the decline came nearly four months after our indicators went negative.  We’re 2 1/2 months into the current negative warnings so it’s

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Lackluster Core Market Health Indicators

Published on April 27, 2013 by in Market Comments
Stock Market Health Indicators

Over the past week we saw a good move up in the S&P 500 Index (SPX), however, our core market health indicators didn’t show a lot of strength.  They all moved up, but without conviction.  Market internals continue to diverge from price which suggests further consolidation. Our measures of risk which fell sharply in our last update didn’t recover much this past week.  They are all still positive, but at fairly low levels. This signals that market participants are finally starting to recognize the potential of a larger decline in the market. Our measures of the economy and market quality recovered slightly.  Our measures of trend and strength rose from deep oversold levels, but not nearly as much as we would like given the strong price action.  We suspect that a move well above 1600 in SPX will be necessary to move these indicators into positive territory. It is disconcerting to us that the market is so close to all time highs and our indicators are so far below zero. 

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Core Market Health Indicators Fall Sharply

Published on April 20, 2013 by in Market Comments
Stock Market Health Indicators

Over the past week all of our core market health indicators fell sharply.  Many of them have readings usually seen after a severe correction in price. This condition highlights the large disparity between market internals and price. We have a stock market that believes external forces (like QE) are the driving factor.  Until that belief is shaken we  suspect we’ll continue to see internals diverge from the market as a whole. Our measures of risk have finally started to show some weakness. Market participants are beginning to get concerned that this small consolidation could turn into something larger. Our market risk indicator is still quite far away from a signal, but our other measures of risk are getting fairly close.  At the moment it appears that weakness over the next week might get our Long/Cash portfolios 100% in cash and or Hedged portfolio 50% Long and 50% short (using SH or an equivalent).  While a rally would leave us positioned the same.  It would take a very swift move down

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It Doesn’t Pay to be Smarter Than the Market

Stock Market Health Indicators

  It doesn’t pay to be smarter than the market. Our core market health indicators mostly improved this past week, however everything but risk remains deep in negative territory. Our measures of the economy continue to slip lower as economic reports from around the world bring disappointment.  Our measures of trend slipped as well, however this is mostly due to the market stalling over the past month so we expect improvement if the S&P 500 Index (SPX) can stay above 1550 and ultimately break above 1600. Our measures of risk, quality, and strength all improved as the market showed resilience in the face of bad news.  That’s probably the most important observation we make this week.  There is virtually no perceived risk.  I use the word “perceived” because we see plenty of risk. But if there is one thing I’ve learned over my life is that it doesn’t pay to be smarter than the market. As a result, our hedged portfolio remains modestly long and won’t be aggressively hedged unless

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Core Market Health Indicators Weaken More

Published on April 6, 2013 by in Market Comments
Stock Market Health Indicators

  All of our core market health indicators fell again this week.  The price action on Friday caused most of the damage.  Our measures of the economy only weakened slightly, but they are still in the very weak range.  Our measures of market quality, trend, and strength fell sharply. The good news is our measures of risk only declined slightly.  People just aren’t afraid of this market.  As a result, our portfolio allocations haven’t changed.      

 
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Core Market Health Indicators

Published on March 18, 2013 by in Market Comments
Market Health Indicators

In our weekend updates I always reference our core market health indicators so I thought it would be helpful to create a chart to add some perspective.  I’ll post a new chart at the end of each week so you can see how far above or below zero each indicator is.  In addition, you’ll be able to compare each indicator from week to week to see which are falling and which are rising. By watching them each week I get a “feel” for the market that helps me understand the underlying influences.  My hope is that it will help you too. For better comparison purposes I’ve normalized all of the indicator categories to a scale of 1 to 10. Currently our weakest set of indicators is our measures of the economy coming in at -7.  Earlier this year we saw some strength and thought it was going to bottom, however that hope was short lived and the indicator has turned back down. It had reached -3 so this was a

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