30 Mar Market Risk Report as of March 29, 2021
From Chief Investment Officer Tom Veale,
“Last week’s trading saw greater confusion than we’ve seen in a while. Declining issues outpaced advancing ones on both the NYSE and NASDAQ exchanges. 52 Week New Lows rose significantly while New Highs stayed high as well. SinglePoint’s Speculation Index declined some but is still bearish. Our Divergence Index rose back to bearish levels and our Relative Valuation and IPO Activity Indexes both were only modestly unchanged and still bearish. Overall, this gave us all bearish signals and a two-point rise in the Market Risk Indicator (MRI) to 48 this week. The MRI Oscillator sits at +5 indicating significant upward risk pressure.
The MRI suggests far less potential stock appreciation compared to a year ago when we had a very strong bullish signal. This does not mean investors should be abandoning stocks but rather it might be a good time to hold off on starting any new investments. Reversion to the Mean would be considered reason to then add new money to the markets.
The 10 Year Treasury rate remained fixed at 1.125% while the yield sagged a bit on existing bonds to 1.685%. Short rates (13 and 26 week) coupon rates remained mostly unchanged and still near zero. The median yield of dividend paying stocks in Value Line’s universe remains at 1.8% this week and quite low compared to the 40-year average of 2.2%. Those who invest for income have difficult choices to make.
At 36 weeks of consecutive bearish signals from our MRI it appears the reserves of cash held by our various portfolio strategies is a prudent stance. Going forward, we still have substantial investments across broad areas of the economy should risk moderate. We will look for opportunities to redeploy the cash reserves should risk relax or significant discounts materialize. “