Weekly Risk Report 12/29/2008
The market has now been plus or minus 2% for the last 5 weeks and plus or minus 11% since the second week of October. The most recent five weeks show considerably less of the panic volatility than the previous 7 or 8 weeks. Between consolidation, year end window dressing by mutual funds and tax related selling, there's been no room for much of a rally.
Our i-Wave market risk profile again shows most of the downside risk has been experienced. Upside potential remains at a greater probability when viewed from the vantage point of the IW's 26 years of data. It remains in the lowest 1% of the database relative to risk. Three of the four components remain in their own bullish areas while the 4th edges closer to its own bull territory.
Not once since January of 1982 have we had so many weeks in one year showing unusually low market risk. Between early November 2007 (our last high risk signal) and the end of January of 2008 the markets had already given back nearly 20%. This is the usual measure for a "market correction." From there the markets continued to stay relatively flat through the end of September. After that a near free fall took the major indexes down to about half the '07 highs. What had been a "correction" turned into panic selling.
While not wonderful, we have seen general index rises of about 10% from the lows set around Thanksgiving. All of this activity, all of the very high levels of volatility, the tremendous volume of short selling, will likely make 2008 a record year on many fronts. 2009 beckons and our SignalPoint equity portfolios enter the New Year essentially fully invested. Our income portfolios also enter 2008 at near fully invested. It is rare to have so many asset classes all under duress at the same time. This, too, will mark 2008 as an unusual year.
Best wishes for 2009
