Market Risk Report as of February 17, 2020

From Chief Investment Officer Tom Veale,

“Note: The markets seemed to sense I was out of town for a week and improved while I was away. This report covers the weeks of Feb 10th and 17th to catch up.

02/10/2020 – The dip we’d seen as part of the Coronavirus reaction brought Value Line’s P/E down nicely, if briefly. It impacted the Market Risk Indicator (MRI) in each of the four components as well as overall. A drop of 1 point brought the suggested cash held in reserve for diversified stock portfolios back to 28%. The MRI Oscillator calculated to be minus 1, showing slight downward pressure on risk.

02/17/2020 – A little more even activity the previous week pushed three MRI components upward with just one declining. The Divergence Index dropped out of its bearish range to neutral. This balanced the slight rise in the other three. Overall, the Market Risk Indicator (MRI) stayed steady at 28% suggested cash being held in reserve for diversified stock portfolios. The MRI Oscillator remains at minus 1 (slight downward risk pressure). All four components are currently neutral as is the MRI overall.

 The Coronavirus fallout continues to push prices around in sectors with sensitivity to China either as a supplier or potential customer for goods and services. This seems to be more of a short term trader reaction than a true fundamental change.”

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.