It’s still early in the week, but I wanted to give you a heads up that our measures of trend are currently negative. We require a weekly close below zero before changing any portfolio allocations so this is simply early warning that we might be raising some cash and adding a larger hedge come Friday…but I’ll wait till Friday to make any changes in order to avoid whip saws.
Our market risk indicator has two of its four components signalling, but the two positive components are a long way from a warning. What is interesting about their current condition is that the least sensitive components are warning while the most sensitive are a long way from a signal. This means there is some instability in the underlying market and that we’d quickly get a market risk signal if prices drop substantially.
Our core measure of risk fell out of over bought readings in early July, moved back up to kiss overbought in August, and is now falling again. This is another sign of the slow process of building a longer term top.
One other warning is momentum leaders showed substantial weakness yesterday. This indicates market participants are reducing risk. Here are the details of momentum names failing. Below is a chart with some examples.
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