05 Aug Market Risk Report as of August 5, 2019
From Chief Investment Officer Tom Veale,
“Apparently the Federal Reserve is still able to cause ripples in the Stock Market. Should they cut rates? How much should they cut? Is it too much or not enough? Is the economy in dire need of a rate cut? Is Inflation too High or Low or ???? Well, all of that hand wringing seems to have had an influence. Our investor sentiment component, the Divergence Index shot up again giving its third week of bearish signal this week. Two other components rose slightly in their own Neutral ranges and one component remained neutral and unchanged. The combination pushed the Market Risk Indicator (MRI) up two points this week to 28% suggested cash for diversified stock portfolios. The MRI Oscillator shows significant upward risk pressure with a +6 reading this week.”
“Advancing stocks numbered only about half the declining stocks this last week which can be taken as another short term bearish indicator. Both the Market Breadth and our Divergence Index are very short term in prognostic ability. We will see what this coming week does to possibly revert the pendulum back toward center.”
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.