21 Dec Market Risk Report as of December 21, 2020
From Chief Investment Officer Tom Veale,
“We are beginning to see reports from other sources that equity prices are moving beyond richly valued. This week SignalPoint’s Market Risk Indicator is unchanged at a bearish 37 and clocks the 22nd week of being so. The MRI Oscillator is +4 indicating some upward pressure on risk. One component remained unchanged (Divergence Index – Bullish) two fell in risk (Relative Valuation and Speculation Indexes – Bearish) and one rose slightly (IPO/New Issues Index – Bearish). Even so, the major market indexes rose modestly last week.”
“With few alternative investment choices with any appreciable yield, the stock market still seems to be investors’ favorite choice for now. New issues continue to mount for the 2020 year. As of last week’s close there are an additional 644 new company listings between the NYSE and the NASDAQ. That’s nearly a 10% increase in the number of choices for which investment dollars can be used. The dilutive effect has yet to show up in the major indexes as of this time.
Our current activity has been to monitor share prices and capture profits where it makes sense to do so. Further, we continue to track the cash levels of our Portfolio Strategies to ensure adequate purchasing power should markets pause, consolidate or decline.”
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.