Stock Market Risk Returns To Historic Extreme
Erik McCurdy | Aug 08, 2012 04:13AM ET
The S&P 500 index closed moderately higher on Tuesday, extending the volatile uptrend from early June and approaching previous long-term highs of the cyclical bull market from 2009.
With respect to cycle analysis, the move higher yesterday reconfirms that an alpha phase rally is in progress from late July. Additionally, the move well above the beta high (BH) of the previous cycle reconfirms the bullish translation that has persisted since early June.
Although mainstream sentiment has once again shifted from despair to optimism, the big picture perspective remains unchanged. The US economy remains stock market risk had increased to the highest one percentile of all historical observations from the last 80 years. The severe decline in May reduced that risk slightly, but the speculative advance during the last two months has caused the risk/reward ratio of the stock market to deteriorate to another historic extreme. As always, nearly anything can happen over the short-term. However, from a long-term, investment perspective, it remains a time for extreme caution and we remain fully defensive.
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