Market Risk Report as of January 25, 2021

“The three Market Risk Indicator components that have been bearish for so long remain so this week. This pushed the MRI’s reading up another point to an indicated 40 with the MRI Oscillator at +5 (upward risk pressure). This is the 27th week of the MRI suggesting bearish conditions and weak market appreciation potential looking out 3 to 6 months.

Even so, most of our portfolio strategies’ positions rose slightly last week. We will soon be hearing whether the final quarter of 2020 offered reasonable quarterly and year over year comparisons relative to revenues and earnings. Our Relative Valuation Index will require improvement in earnings if it is to move back to a neutral position from its currently bearish stance. Our Speculation Index has struggled to drop in risk when so many stock prices are still rising so rapidly. Currently, Value Line shows it takes a 99% gain (Yes, nearly a double) in a stock’s price to make it onto their “Best Performer, Latest 13 Weeks” list. The very best stock on that list is up 306% in that time frame. Compare that to the attendees of the Worst Performers list and we see hints of over-enthusiastic activity by investors. It only takes a drop of 11% to make the Worst list. Historically this has indicated challenging conditions for further advancement. 60% of the time markets have underperformed their average performance looking out 6 to 9 months from a bearish signal. Bearish Relative Valuation readings indicate that 75% of the time markets don’t achieve even average performance at 3 months out.

Our investment portfolio strategies continue to trigger minor reductions in investment exposure and profit capture. We are keeping a very close watch on our cash allocations as markets continue to indicate less than stellar forward appreciation potential.”

Best regards,

Tom Veale




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