09 Mar Market Risk Report as of March 9, 2020
From Chief Investment Officer Tom Veale,
“The week just past proved to be quite confusing for most observers of the investment markets. Bi-Polar movement oscillating like an out-of-control pendulum was enough to make most investors shake their heads. When it was finished the major indexes were nearly unchanged from the previous Friday.
SignalPoint’s Market Risk Indicator (MRI) took measure of the activity and here’s what it reports: The MRI dropped two points to 25 which is below the median value and the MRI Oscillator dropped to minus 7 indicating rapidly declining risk. This week I’ve added the raw data MRI to our usual smoothed MRI to show just how things are playing out.”
“While the smoothed MRI dropped nicely by two points, the raw value dropped all the way to the Bullish threshold. We now have two components (Relative Valuation and Speculation) in their own bullish territories while the remaining components are still neutral. All four components dropped in their own risk profiles due to last week’s trading activity.
The Relative Valuation Index moved nicely downward and gives a good longer term view of appreciation potential.”
“It is now at the lowest level since last September.
Our Speculations Index has also moved nicely toward being bullish.”
“Changes have occurred so quickly it would seem the data is just barely keeping up. This component now is as low as it was back in February of 2019.
These changes to our MRI components have tilted the potential for future gains in a positive fashion. Where we saw only modest gain potential at the start of 2020, recent discounting of share prices offers better value with far less speculation.”
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.