From Chief Investment Officer Tom Veale,
“The week just past pushed SignalPoint’s Market Risk Indicator up another point to 36, three points into its Bearish territory and clocks in as the 5th week of bearishness.”
“The MRI Oscillator stands at +4 showing modest upward pressure on market risk. Two MRI components are in their own bearish territories while two more are currently neutral. Three of the four rose in their own risk ranges while one declined slightly.
All this occurred while the major indexes rose yet again last week. However, we see Market Breadth narrowing with a few mega-cap stocks lifting the indexes while declining stocks outnumbered advancing stocks by a significant margin. Generally that isn’t a healthy condition when looking forward.
The average yield on dividend paying stocks has been diluted by rising stock prices since the March lows. Value Line’s median estimated dividend yield for the next 12 months is 2.2%. That’s back to where it was 26 weeks ago – before the C-19 crisis. That happens to be coincident with the February, 2020 market high point. While still generous compared to the manipulated treasury yields 2.2% is the long term median VL yield since 1982, so no bargain. With valuations high, speculation narrowing and yields no better than median we see no hurry to start new investments in general but adequate reason to harvest profits where available.”
The Market Risk Indicator is an assessment tool that serves as a guide through all markets as to the prudent use of a liquid cash cushion. It helps determine an approximation of the amount of cash reserve relative to a diversified equity portfolio. (this is depicted by the graph above)
At times of high risk in the market, the MRI will suggest a higher level of cash reserve. At times of low market risk, the MRI will suggest a lower level of cash reserve. This investment process helps to measure and manage market risk.
Because of this, the fear associated with the uncertainty of the market can be replaced by the security of a sound investment strategy.