Market Risk Report as of July 20, 2020

From Chief Investment Officer Tom Veale,
“Overheated speculation had been a driving force for market risk concern. This week our Speculation Index drops back into its neutral range for the first time in five weeks. Three of the four Market Risk Indicator (MRI) components dropped in their own risk scale which limited the rise to just one point this week. At 32 it is still one point short of becoming bearish and still neutral. The MRI Oscillator comes in a +1, the lowest it’s been in 14 weeks, showing only modest upward risk pressure at this time.”

“The leveling out of risk indicates investors’ sobering review of where national health and economic activity are now and for the foreseeable future. Our Relative Valuation component remains bearish while the Divergence Index is still bullish at this time. Last week we saw the Dow and S&P 500 rise while the NASDAQ Composite fell. This could be considered part of the same confusion that has MRI Components at odds.

The MRI last showed bullish conditions the week of June 12, 2020. Since then the NASDAQ has risen a full 7%. The majority of activity in SignalPoint’s select portfolio strategies has been on the Sell side. Shares purchased during the deepest part of the pandemic panic have turned profitable enough to justify returning some cash to the reserves. The improved cash position is comforting in light of the rising risk being shown by the MRI.”

 

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.

 

 

 

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