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Global Market Risk Index

  • Writer: Lester Davids
    Lester Davids
  • 16 minutes ago
  • 2 min read

Trade Local & Global Financial Markets with Unum Capital.

To get started, email tradingdesk@unum.co.za


Reversing From Weekly Oversold. The reversal out of the 'EXTREME FEAR' position (see lower panel) reflects the recent rebound out of deeply oversold short term conditions for risk assets i.e. stocks/equities. Most recently (Wednesday 09 April at ) we highlighted the index trading in a deeply oversold range which coincided with the recent ultra short term lows for the S&P 500, Dow Jones Industrial Average and Nasdaq Composite.



 

Previous Post: US 500 / US30: Sharp Rally Off Risk Reading

The chart below highlights the reading of the market risk index on Wednesday 09 April at 10h16. From around this level, risk assets rallied sharply, coinciding with the deeply negative sentiment reading. Well done to clients who recognized the risk and took advantage of the opportunity to deploy capital!



S&P 500 / US 500: As noted on Wednesday after at 16h07 (South African Time)


 

Previous Post (Wednesday 09 April, 10h16): The Market Risk Index Is Worth Noting!


*Weekly Time Frame* - Current


*Monthly Time Frame* - Current


The indicator is a custom-built risk and sentiment index, designed to assess market risk appetite, including whether sentiment is at an extreme position (i.e. excessively bullish or excessively bearish).


  1. Components:


    • Copper: Copper often serves as a proxy for global economic activity. A decline in copper prices could signal slowing economic growth, increasing risk.

    • High Beta vs Low Beta: High beta stocks tend to be more volatile than low beta stocks. A widening spread between high and low beta returns might indicate increased risk aversion.

    • Growth vs Value: Growth stocks typically outperform value stocks in bull markets. A shift towards value stocks could suggest investors are becoming more cautious.

    • EM Currencies: Emerging market currencies can be sensitive to risk appetite. A weakening of EM currencies could signal increased risk aversion.

    • AUD/USD: The Australian Dollar is often used as a proxy for global risk sentiment. A decline in AUD/USD could indicate increased risk aversion.

    • Consumer Staples vs Consumer Discretionary: Consumer staples are generally considered defensive assets. A shift towards consumer staples could suggest investors are seeking safety.

    • Semiconductors vs S&P 500: The semiconductor sector is cyclical and sensitive to economic downturns. Underperformance of semiconductors relative to the broader market could signal increased risk.

    • Russell 2000 ETF: This ETF tracks small-cap stocks, which are generally considered riskier than large-cap stocks. Underperformance of the Russell 2000 could suggest increased risk aversion.

    • U.S. Dollar Index (Inverse): A strengthening US Dollar often signals a flight to safety, suggesting increased risk aversion.

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