23 Nov Market Risk Report as of November 23, 2020
From Chief Investment Officer Tom Veale,
“This week starts with the SignalPoint Market Risk Indicator unchanged at 34 and bearish. The MRI Oscillator rose to +2 indicating slight upward pressure on market risk. This can be related to the two bearish components, Relative Valuation and IPO/New Issues. One component, our Divergence Index remains bullish but not enough to offset the other two.”
“Further, our traditional Speculation Index rose this week and is approaching its own bearish territory. A drop of just 20% over the last 13 weeks places a company on Value Line’s “Worst Performers” list while it takes a gain of over 54% to elevate a company’s stock to their “Best” list.
With all U.S. major indexes in positive territory for the Year To Date can we assume the reasoning is based on relatively positive C-19 vaccine development news? It would seem so. Currently there are 38 vaccines being tested in Phase 1 trials, 17 in Phase 2, 12 in Phase 3, 6 in limited use but none yet fully approved. The pipeline has filled with traditional and novel approaches to getting C-19 under control. Further, C-19 antibody tests are now more available and at reasonable prices. Even blood donation centers are now testing for the antibody as part of the donation process (most at no charge).”
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.