The sharp drop in the market today is creating a lot of buzz from the financial press, but isn’t really showing up as fear or panic in the measures I follow. None of the four components of my Market Risk Indicator have gone negative. This is unusual given the fact that the drop is a result of the fear of a global macro event (speculation that Greece may leave the Euro) which could cause a large disruption in currency valuations. The day isn’t done yet, so there is the possibility that my measures of risk escalates into the close, but at the moment they are treating this as a “normal” profit taking event.
Our core measures of risk fell a bit this week, but like our Market Risk Indicator they aren’t showing panic. Our other market health indicators dipped slightly but haven’t been damaged enough to change any of our core portfolio allocations. I suspect that we’ll have enough evidence by next Friday to determine if the current dip turn into a fear event. Until then we wait with a small hedge. I’ll do an mid week update if I see any signs that our allocation might change at the end of next week.
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