Weekly Risk Report 09/22/2009
This week we have experienced all four of the Risk Indicator’s components rising in apparent risk. Two remain bullish (Relative Valuation and Divergence) while one is quite bearish (Speculation) and one neutral (IPO Zeal). The current overall assessment puts the data in the middle of the Average Risk range. The Oscillator, which shows direction and speed of change is indicating rapidly rising risk.
For the last few weeks we’ve seen selling in essentially all areas of the market and have been accumulating cash in reserve for any future declines we may see. This rise in indicated risk allows us to continue selling into the markets’ strenth. While treasury rates remain historically low, it can be anticipated that they will at least return to more normal levels. If this were to happen, it would push the Relative Valuation component back solidly into its own bearish camp. So far only Divergence (a measure of homogeneous thinking by investors) is solidly bullish. This says that investors are not yet fleeing the Merry-Go-Round. It is very difficult to predict just how long such enthusiasm will last. It is, however, reasonably easy to guess where the pendulum will swing once it starts to shift in direction. We continue to seek profitable recovery of our cash reserves wherever possible.
