Market Risk Report as of July 27, 2020

From Chief Investment Officer Tom Veale,
“We’re never pleased to announce a move to high risk posture for SignalPoint’s Market Risk Indicator (MRI). However, we’re not going to argue with the data. Two components are currently bearish (Relative Valuation and Speculation) while one remains bullish (Divergence Index). The opposing views of the components shows how difficult it is to gauge market risk under such circumstances. All that said, the MRI rises to 33, the bearish threshold, this week for the first time since the end of September, 2018. This is a rise of one point over last week’s report. The MRI Oscillator comes in at +6 indicating rising risk pressure.”

“The Value Line “Best Performers” list now shows a need for a stock to have doubled in the previous 13 weeks to be included. Compare that to the modest 13 week decline of just 14% to be listed on their “Worst” list and you get a feel for why the Speculation Index has again become bearish. Further, Value Line’s median Price/Earnings ratio rose this week as earnings season progresses. This bumped our Relative Valuation component upward keeping it in bearish territory. There’s little room for short term interest rates to rise with the P/E level as high as it is – and as we know, there’s also very little room for ST rates to be lowered.”

 

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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