Weekly Risk Report 5/28/2010
“Something feels different”
I’ve been hearing this off and on for about a month. We’ve had several very large one day sell-offs recently. We’ve also had some solid upward moves, generally immediately following the selloff. A year ago on March 9th I suggested people might want to write to their Senators, Congressmen and to Mary Schapiro, Chairperson of the SEC and ask to have the “Up-Tick Rule” put back in place. It is true, “something feels different” is the correct impression. Mid 2007, after nearly 80 years of the Up-Tick Rule being in place to help stabilize negative markets, the SEC decided to remove it (under heavy lobbying from the hedge fund industry). We’ve witnessed the results. In my opinion, these one day massive selloffs can be directly linked to the loss of this control device.
Here it is, about 3 years later and the SEC still hasn’t put the rule or a reasonable alternative in place. Around the beginning of April of this year a variety of proposals came to the public for review. (read more here http://www.sec.gov/news/press/2009/2009-76.htm ) The 60 day public review period is coming to an end and we can hope that there is a replacement that has gained some favor for the individual investor. Clearly a short selling stabilizer is needed.
The “silver lining” of the recent market cloud is that we’ve seen our Risk Assessment Model pull back toward more moderate numbers. This week we had two components of our Risk Assessment Model move downward, one remain unchanged and one move mildly upward. The net effect is a contraction of risk. No components are bearish at the current time.
The SignalPoint process managed to deploy some of the Cash Reserves during the month of May, buying in several different sectors. Most recently we saw buying in the Energy and Basic Materials sectors along with additions to Technology and Financials on the domestic front. U.S. small and mid cap value funds also triggered some buying. All in all, May has been a very active month for our portfolios. We continue to see the BETA or portfolio volatility reduced by our reserves of cash, performance mildly better than market averages and appropriate inventory management of the Equity and Cash sides of our portfolios.
