26 Aug Market Risk Report as of August 26, 2019
From Chief Investment Officer Tom Veale,
“In photography there’s something called “Depth of Focus.” In bright light conditions using the smallest aperture one gains in depth of focus so that subjects closer in and further away are both reasonably well defined. In dim light the photographer is forced to select either the closer subject or the one further away as it becomes impossible to focus on both. That seems to be the choice investors have these days. We could use the dim light and focus just on Friday’s 2.5% to 3% drop or we could increase the illumination and note the double digit gains Year To Date in the major market indexes.
SignalPoint’s Market Risk Indicator (MRI) is meant to shed light on market risk so as to give us a better long term view. Consider the MRI being neutral and steady at 28% suggested cash for diversified portfolios for four weeks in a row. This depth of focus seems to differ from the headlines that only look at the latest day’s performance. The MRI Oscillator is zero currently indicating no upward or downward pressure on market risk.”
“When we look deeper we find that two MRI components remained unchanged this week while two dropped slightly in risk profile. Only our Divergence Index remains bearish as lack of investor consensus troubles the markets. Overall the MRI suggests anything that would calm investors would reduce risk overall.”
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.