Risk-On Message Being Sent Out By The Market
A brief note on my Risk-On / Risk-Off index & indicator
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My Risk-On and Risk-Off ratio has climbed to its highest level EVER.
This breakout to new all-time highs in my Risk-On / Risk-Off ratio is consistent with the improving uptrends, momentum and strong breadth backdrop being seen across the board:
Yes, You did hear me correctly… ALL-TIME HIGHS!
After breaking out of a two-year range in July this year, the ratio has continued to move higher.
Up and to the right!… That is the simplest way to identify an uptrend!
The improvement in the ratio has been fueled by both an upturn in the Risk-On index and continued deterioration in the Risk-Off index:
Confirmation of the strength in the Risk-On index comes from a broader look at the Risk-On and Risk-Off pairs. Looking at a range over the past 52 weeks, only a scattering of pairs are closer to the Risk-Off extreme than the Risk-On extreme:
Most of the Risk-On vs Risk-Off asset pairs (13 of 20) have seen more strength coming from the Risk-On component than the Risk-Off Component.
Over the past month, the average pair has continued moving higher, now sitting just below 75%.
This reflects a favourable backdrop for stocks overall.
When we aggregated these into a custom indicator, we can see the recent ascent back towards the January & July peaks of this year:
The message right now is clear…
We are seeing overwhelming strength out of Risk-On assets.
The Risk-On environment we have been in since the middle of the year remains intact.
So, as long as the Risk-On index and the Risk-On/Risk-Off ratio are showing improvement and that improvement is being confirmed with a healthy breadth environment, it is presumably advantageous to lean into this market strength.
Do you think the market is overbought?
Or there is more fuel in the tank for stocks?
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As always, stay safe and good luck out there…
Please reach out with any other questions…
GH
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