Weekly Risk Report 11/10/2008
While nobody liked the look of the market several early days last week, it ended on a better note. Even so all three major market indexes fell for the week. Declining stocks were about double advancing stocks last week. New Lows for the year were milder than in recent weeks but there's hardly any new 52 week highs. This keeps our Divergence component solidly in Bullish territory.
Relative Valuation shifted upward this week, but is still far below its more average range. So, we have three of our four components showing very bullish signals. IPO activity continues to be nearly non existant right now so our 4th component is neutral.
Overall, our larger and smaller cap risk indicators are both in in the lowest 10 percentile of their history from 1982 to present. A lot of discussion in the media and financial press is now focused on the next two quarters of earnings. So much so that we can assume stock prices are reflecting the anticipated near term earnings drop. Rarely have market sell-offs been as broad and deep as the one we've just experienced. It offers those who wish to start investments a rare opportunity to buy into a deeply discounted market.
Many of the sectors we watch have risen from their recent lows but still have a distance to travel before we will react. The discounts now seen compared to the last 12 month highs is simply amazing. Real Estate Investment Trusts are off nearly 50% from their year highs on average. Energy stocks show a discount of 40% from highs. Even health care, which held up quite well this year, has now dropped to about 30%. When we look overseas we see price drops of 35% to 65% for whole regions. With such high correlation world wide in markets it is hard to find an island of sanctuary.
For those who have been working with SignalPoint through September and October there's been efforts to carefully shop within our portfolios to utilize the available cash. Technical indicators such as the Bullish Percent Indexes for the major industrial categories have risen from their lows. Profit taking continues to affect several of these with each attempt at a rally. It would appear that Telecommunications and Information Technology are reviving. We may have to wait until after the 1st of the year to any rally of substance. Tax selling season continues through year's end. In this last stage, many times the "bad" get worse while the "good" get better. There's not much in the "good" column this year. We continue to watch each sector, category and style of investment for signs of recovery.
