29 Jul Market Risk Report as of July 29, 2019
From Chief Investment Officer Tom Veale,
“Pressure is starting to be felt in the Market Risk Indicator’s components as stock indexes climb. Three of the four components rose in their own risk bands while one remained unchanged. One component, our Divergence Index, is in its second week of bearishness. The upward risk pressure was enough to push our MRI up another point to 26% suggested cash reserve for diversified stock accounts. The MRI Oscillator remains at +3 indicating mild upward risk pressure. While 26% is the median value for the MRI, it suggests markets could continue to rise at historical rates for the next 6 to 12 months.”
“With interest rates currently below average and broad market Price/Earnings flat there is room for some upward market gains. Our Speculation Index remains at the bottom end of its neutral range as some speculative money chases Initial Public Offerings.”
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.