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Excerpt from the Hussman Funds' Weekly Market Comment (1/5/09):

As of last week, the Market Climate for stocks was characterized by favorable valuations and modestly unfavorable market action. Early improvement in market internals has continued to the point where continued follow-through could provide evidence of fresh willingness among investors to accept risk. We're not quite at that point yet, and we are almost certainly facing continued economic challenges, so the improvement in market internals remains somewhat tenuous for now.

Our current “line-in-the-sand” so to speak is about the 850-900 level on the S&P 500. Above that level, which is the area where our defensive strike prices are staggered, the Strategic Growth Fund will tend to participate in both advances and declines in the general market. If the recent advance fails sharply or abruptly, our participation in market fluctuations will become increasingly muted below about the 850 level on the S&P 500.

At present, market conditions remain generally constructive, and while we don't have enough evidence to remove hedges outright, we also aren't inclined to quickly tighten hedges and take profits in response to moderate advances (something we would do to a greater extent if we begin to observe weakening or divergent internals).

Source: John Hussman: We're Remaining Hedged, With 'Line in the Sand' at 850-900