Market Risk Report as of February 8, 2021

From Chief Investment Officer Tom Veale,

“The Advance/Decline ratio for the NASDAQ Composite and the NYSE both remain very strong at above 6:1 as of the end of last week. This would indicate the markets’ rally is broadly based and not just a few large cap stocks leading the way. A similar view is seen with new 52 week “highs” in over 1300 issues last week vs just 96 new “lows.” This strong technical case is at odds with the more fundamental view seen when reviewing the average Price to Earnings ratio. There we see a situation where stocks seem priced to require excellent earnings to be reported.

With all the cash flowing into the stock market we’ve seen the SignalPoint Speculation Index swell and become quite bearish. Value Line’s evaluation currently requires a gain of 115% over the previous 13 weeks for a company’s stock to make the “Best Performers” list. Compare that to a decline of just 8% for a stock to show up on their “Worst” list and you get a feel for the speculative bias. It’s as though there were no longer any badly managed companies or any situations that would depress stocks. Of note, however, are the 7 gold/precious metals companies that are part of the 41 Worst Performers list (out of 1700 companies). This is an unusually large number of companies from just one industry to be displayed. The worst of this sub-group is only down 17% in the last 13 weeks. So, even being on the Worst list seems not to assure any true bargain shopping right now. With all this as background we find the SignalPoint Market Risk Indicator (MRI) still bearish and up another point this week at 42. This bearishness has now continued for 29 weeks. Three of the MRI’s four components remain in their own bearish ranges. The MRI Oscillator relaxed a bit to +3 indicating only mild upward risk pressure.

While 29 weeks of caution is an unusually long period of time historically, circumstances during Year 2020 and into 2021 have also been unusual. It remains to be seen if Corporate America can deliver the earnings and growth needed to sustain such high levels of speculation and valuation.

Value Line’s “Selection & Opinion section shows one change to their Model Portfolio II (above average dividend yield). They remove International Flavors and Fragrances (IFF, yield 2.38%) and replace it with convenience food company Restaurant Brands International (QSR, yield 3.46%). Their Model Portfolio III (above average 3-5-year growth) remains unchanged. “