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Risk Report – 12/11/2013

The first week after Thanksgiving shows all four Market Risk Indicator (MRI) components rising. As a result, the MRI rose a point to show 28% suggested cash in reserve for diversified equity portfolios. The MRI Oscillator is now +5 showing upward pressure on market risk.

As mentioned in recent weeks, we’ve noticed market breadth narrowing. Here’s a graph captured from this week’s BARRON’S magazine:

Even as the Dow 30 index has been rising, we see that market breadth has flattened out. Generally this is a good early warning sign of at least a market consolidation.

Here’s a view of the MRI since the beginning of 2008.

2013 has seen the MRI sustain a higher risk profile than any time since the 2008 Panic. It also shows that markets can continue to advance even as risk becomes more palpable. With risk only just above the long term average, we are continuing to monitor each component for early warning signs of the Bull aging. Here are the four MRI Components and their status:

Relative Valuation, up, Neutral

Speculation, up, Neutral

Divergence, up, Bearish

IPO Expansion, up, Neutral

The bearish reading of the Divergence component indicates market participants are becoming less confident that the markets will continue to rise. While new 52 week highs still outnumber new lows, the percentage of new lows has risen to push this component’s value into the bearish range. This confirms what the market breadth has been signaling for a few weeks.

While the Speculation component is still neutral, it’s been rising. (it’s more pronounced in the small cap end of the market than in the S&P500, Dow 30 or the NASDAQ 100. See Risk Report – 11/07/2013 for further information)

Please feel free to ask questions as they may arise.

Best regards,

Tom Veale

SignalPoint Asset Management, LLC
Office Hours: 8:00 am—4:30 pm Monday—Friday
1201 E. Walnut Street, Springfield, MO 65802
Phone: 877.769.9980