08 Jul Market Risk Report as of July 8, 2019
From Chief Investment Officer Tom Veale,
“With only modest change to three of the Market Risk Indicator’s components the drop in our Divergence Index helped reduce market risk by one point this week to 25% suggested cash for diversified stock portfolios. This week’s MRI Oscillator is negative 2 showing modest downside risk pressure.”
“The declining risk has occurred even as stock market indexes have reached above previous all-time highs. In hindsight it now appears that 2018 was a whole year of consolidation which climaxed in late December. Market Breadth continues to improve but small and midcap stocks are still slightly behind the major indexes. With the MRI just below its historical Median value modest gains for the second half of 2019 are possible.”
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.