Weekly Risk Report 10/13/2008
This is one for the record books. Back in the '80s when I structured the i-Wave to use with the investment model, I purposely designed it so that it would not be easy to give me a "negative" number as the Cash Reserve suggestion. It would take such an absence of buyers and such a dramatic drop in quarterly losses that it just wasn't going to happen.
Well, this week it almost did.
Never before (since 1982) has the IW given us such low suggested cash reserves. Should the markets remain weak we may actually see it suggesting the unthinkable - Margin buying. While I'm not personally a fan of using debt for investing, responsible use of debt for any business can be of benefit. When you look at the attached graphic, you'll see that even the volatile times we've had in the last 12 months pale in comparison to this last week.
The IW is up to the challenge, however, and the data is current enough to make good decisions going forward. This week we have three of the four components giving us very strong Bullish signals. Relative Valuation, Speculation and Divergence are all shouting that this is a special buying opportunity. Zeal is neutral and, as we can imagine, there's not much in the way of IPO activity right now.
I don't know if today's activity is a sign that the eye of the storm is directly overhead if it's actually passed. I do know that wise use of surplus cash is being confirmed by our model and our risk indicator. We've been steadily building out our positions in the U.S. and world markets. Our cash reserve levels are now, in sync with the IW, at very low levels also. Now we'll watch to see if the seeds we've planted start to grow. Our model will be there to help us take in the harvest, too.
