Market Risk Report as of July 26, 2021

From Chief Investment Officer Tom Veale,

“The time since the start of the Coronavirus wave that swept through most of the continents has felt like an assault on Mount Olympus. A quick check of the Olympic Banners in Tokyo reminds us we lost a year to that virus. They read 2020, not 2021.

Looking at the Market Risk Indicator’s rather wild ride over that same period shows another aspect of the pandemic. We see the deep valley at the start followed by a massive tide reversal of money rushing back into the market. It was confusing, to say the least.

We’re seeing the MRI acting in a more tame way since mid-June but it’s stubbornly resisting falling back toward its median value. Part of the reason is the MRI components are still in opposition. Our Relative Valuation Index this week dropped to a neutral rank after showing above average risk since November of 2020. Good earnings combined with a modest pause in the markets helped accomplish the drop. This occurred while a plethora of new stock issues came to market forcing our New Issues Index to give cautionary signals for most of that same time. Our Speculation Index showed the shift toward new issue investing sapping cash from traditional stocks. That brought its rank back to neutral starting in April. Finally, our Divergence Index is reflecting the confused trading seen the last few weeks by once again showing levels above average.
In the meantime there have been plenty of Gold Medals passed out to the Dow 30, S&P 500 and NASDAQ Composite for New Record Highs – including last week’s close.
Best regards,
The MRI comes in again this week at 38 while the MRI Oscillator dropped to zero. Interest rates from 13 week to 10 year Treasuries remained unchanged last week and historically very low.
The improved trading late in the week helped to improve the market breadth with about even advancing issues and decliners. New 52 week Highs and Lows were both above 5% of total issues which gives a feel for the lack of consensus by short term traders.”

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