US Risk Model UpdateCurrent reading of our risk model is low risk. Swing-traders can increase their exposure applying the concept of progressive exposure.
Some details:
Our risk model considers technical indicators, psychological / contrarian indicators and most importantly, the performance of stocks on our watchlists and in our portfolio. By doing that, we can define if our strategy is in line with the current market environment.
• General Market: The health of the general market is determined by IBD’s methodology which considers Distribution Days, Follow-Through-Days and a number of other non-technical market indicators.
• New 52w Highs versus Lows: If > 1 and the general market indicator is showing an ‘uptrend’-signal, then this indicator is a further confirmation as a high number of individual stocks are supporting the uptrend in case of a ration >1.
• Stocks above / below their 200d MA: if > 1, then we have additional confirmation.
• Volatility Index: this index is a measure of the choppiness of the current market. Reading close to 30 or above are an alarm signal.
• Up/Down volume: if > 1, then this indicator confirms that we are currently in a buying environment, major institutions are pushing their big money into the market.
• Bulls versus Bears: this is a contrarian indicator. Extreme bullish readings are an alarm signal and may indicate the end of a bull market run. On the other side, extreme low readings can indicate the end of a major market correction / bear market.
• Margin Debt: this is also a contrarian indicator. Readings below 0 indicate that there is lots of money available to push the markets higher, extreme high readings indicate that the margin level of investors is very high and sentiment is overly bullish. This might indicate the end of a bull market run.
• Most important: always look at the performance of your own trading over the last week or few weeks. If that is not positive there is no reason to increase market exposure.
