I have updated my portfolio allocation to account for several changes over the past month. My recent activity has included harvesting short-term profits as well as getting stopped out of a few bearish positions.
Technically the market (SPY) has completed a head-and-shoulders pattern, breaking below the neckline level of 1,405-1,407. A lower low has been put in and is a bearish development. I look to increase bearish exposure if the S&P 500 is unable to retake its 200-day moving average. I will focus on news out of Europe in addition to Spanish and Italian 10-yr yields. Will the Dow Theory continue to flash red? Will confidence fall due to the upcoming fiscal cliff?
If the SPY is able to nullify its recent head-and-shoulders pattern, by breaking back over the neckline of (1,410-1,415), then investors may aim for a retest of the bull market highs at the 1,460s. I would look to decrease my downside exposure in this case; perhaps the rally that results may be tradable.