Over the past week, my market risk indicator finally cleared. In addition, my core market health indicators have strengthened. This changes the core portfolio allocations as follows: Long / Cash portfolio: 80% long and 20% cash Long / Short portfolio: 90% long high beta stocks and 10% cash Volatility Hedged portfolio: 100% long (using high beta stocks or an ETF like SPX or QQQ) As always, use your own risk tolerance to construct your portfolio.
Over the last few weeks, several of my core market health indicator categories have turned positive. However, they’re barely moving above zero and have turned down early this week. In addition, my market risk indicator isn’t showing any signs of wanting to clear. Its core indicators are showing strength, but have turned back down. The downturn is happening at both a normal resistance point to consolidate the recent rally and where it should if we’re in a bear market. This, along with my core indicators compressing near zero, is creating an inflection point that could resolve either higher or lower. This will make the next few weeks very important for the market. So far, price is merely consolidating the rally out of the December 24th lows. As long as the S&P 500 Index (SPX) can say above or near its 50 day moving average I won’t worry too much. However, a clear break of the 50 and 20 dmas would tilt the odds toward revisiting and breaking the lows. Dow Theory
On January 30th, 2019 VXZ will be discontinued. It is being replaced by VXZB. In addition to VXZ being delisted, VXX will also be delisted and replaced by VXXB. So, any of you using VXZ (like I am) will want to replace the position with VXZB before the end of next month. You can read more about it at Six Figure Investing.