01 Feb Market Risk Report February 1, 2021
Is the market playing “Chicken” on a two lane road? Or is it a warp speed version of Musical Chairs? Whatever the Game, one has to ask, “When will it Stop? SignalPoint’s Market Risk Indicator (MRI) rose yet another point to 41 this week and posts the 28th week of being Bearish. All four components of the MRI rose in risk this week pushing the MRI Oscillator to a +8 reading, indicating significant upward risk pressure. Three of the four components are also bearish while one remains neutral.
It might be instructive to see how the three bearish components currently look.
Please note the duration of the bearish signals. This doesn’t appear to be a flash signal but a triple and enduring bearish period. Even so, through much of it the major indexes have been managing to rise. We’re not sure what Goldilocks plans to do with the Three Bears at this time but it appears from last week’s trading she has invited a lot of new investors to the party.
Current conditions will not make it easy for our Relative Valuation Index to drop back to the neutral range. That will require significant improvement of the average Price to Earnings ratio of the broad market. There’s no more room for short term interest rates to drop and inflation won’t probably decline in the near future, either. Rich P/E ratios push private companies to consider taking their stock to the public markets via IPOs or other methods. When a company can get paid well in excess of 20 times a dollar’s worth of earnings it is enticing. This is part of why our IPO Activity Index is also bearish.
Our Speculation Index seems stuck in bearish territory as well as money continues to flow into the markets and drive share prices upward. Currently the top performers in the Value Line 1700 Stocks range between +106% and +412% gains in the latest 13 weeks. That list represents 41 companies. The 41 worst performers over that period range from -9% to -31%. In other words, almost all of the 1700 Value Line stocks are currently showing positive gains over the most recent quarter year.