Market Risk Report as of October 26, 2020

From Chief Investment Officer Tom Veale,
“It’s been 14 weeks since the SignalPoint Market Risk Indicator (MRI) started indicating bearish near term activity. Was it crying “Wolf” or “the Sky is falling?” It’s helpful to understand what a bearish MRI signal means. Generally it means less than average appreciation can be expected. Since the long term Slope of the markets is positive, a bearish signal means that slope is lessening, flattening or might even be declining. A look at the MRI histogram shows how the S&P 500 has struggled in recent weeks.”

“Two MRI components declined in risk while two rose slightly. Relative Valuation remains in its own bearish territory mainly because of high Price to Earnings. Also bearish is our IPO (new listings) Index. The other two are neutral. Overall this gives the MRI an unchanged reading of 36 for the week with an MRI Oscillator value of just +1 (slight upward risk pressure). Shifting speculative activity from the more traditional markets to the new listings is a symptom of both very high tolerance for high P/Es and also low anticipated risk expectations of new listings. Over the last 13 weeks there has been an increase in the number of issues being traded of 3.8%. As money shifts from traditional stocks the large indexes tend to flatten out. Our IPO Index is there to catch this rare occurrence.”

“If you have any questions related to our Market Risk Indicator, please don’t hesitate to call for further explanation.”

 

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.

 

 

 

Share Article:

Share on facebook
Share on linkedin
Share on twitter
Share on email
Share on print