The Risk Manager Report - 2/3/16

By DB Moenning
The "Risk Manager" Report is designed to be an executive summary of the Market's "Big Picture" risk/reward environment and to help you keep Portfolios "in-line" with Market Conditions at all times.

The Big Picture Environment:

The first step to Successful Investing is to identify the Market's "Big Picture" Environment in terms of risk versus reward. This is critical to success over the long term because different "environments" require different strategies. For example, in Bull Markets the objective is to maximize returns, while success in Bear Market Environments demands an emphasis on capital preservation. By reviewing the Environment every single week, we are assured that we will remain "in-tune" with conditions and not be surprised by environment changes.

At the center of our risk management work are our Top Guns Exposure Models (see below). The models detail the current conditions for the Trend and Momentum of the Market and help guide us to the proper exposure to market risk.

Executive Summary: February 3, 2016

  • Current Environment:

    After selling off more than 5% on each of the past two sessions, oil futures are moving higher this morning on word that Russia is willing to talk with OPEC. However, the supply data from API that was released after the close yesterday showed that inventories continued to rise, which, of course is bearish. So, investors can be forgiven if they view the early move in oil with a skeptical eye. In the overnight markets, Asia saw declines (despite talk of endless QE in Japan) while European bourses are in the red today. Stocks opened modestly higher but are quickly sinking, continuing their slide this week.

    Loading chart � 2001


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Managing Risk

Our disciplined approach to managing risk is designed to keep our Portfolios "in-line" with the major trends of the market. We strive to keep portfolios mostly invested during Positive Environments and to Reduce Exposure to Market Risk during Bear Markets and severe corrections.

The keys to our Risk Management strategies are our two proprietary Risk Management Systems. Both systems are sophisticated Models incorporating the entire spectrum of market indicators. Our disciplined, professional systems act as our primary guide to exposure to market risk.

Risk Manager Systems Summary

  • Graduated Risk Management System
    Recommended Exposure to Market Risk (Short-Term): 30.00%
  • Long-Term "Big Picture" Trend Management System
    Current Signal: Neutral

Graduated Risk Manager Exposure System
(Determines Current Market Exposure)

Our Graduated Risk Manager System is a disciplined approach to Risk Management and is designed to keep portfolios "in-tune" with the overall condition of the Market at all times.

The System is a Model comprised of of 10 independent Models. Each model includes is successful in its own right and gives separate buy and sell signals which effects a set percentage of our exposure to the market. Our Trend models (Short-Term Trend, Intermediate Term Trend, Trend & Breadth Confirm, and Sentiment) control a total 40% of our exposure. The 3 Momentum Models and 3 Environment Models each control 10% of the portfolio's exposure to market risk. The model's "Recommended Exposure to Market Risk" reading (at the bottom of the Model) acts as our longer-term guide to exposure to market risk.

TGT Risk Management Models
(Our Guide to Shorter-Term Market Exposure)

Trend Signals (40%)


S.T. Trend Outlook Model Sell 0.00% Negative
Int. Trend System Sell 0.00% Negative
Trend and Breadth System Sell 0.00% Negative
Investor Sentiment Hold 5.00% Neutral
Momentum Signals (30%)
Market Diffusion Index Sell 0.00% Negative
A/D Thrust Hold 5.00% Neutral
Long Term Momentum Sell 0.00% Negative
Market Environment (30%)
Monetary Conditions Hold 5.00% Neutral
Economic Model Hold 5.00% Neutral
Valuation Model Buy 10.00% Moderately Positive
Recommended Exposure to Market Risk: 30.00%

Long-Term "Big Picture" Trend System

Designed for Long Term Investors who do not wish to make a lot of adjustments to their holdings (i.e. 2 to 3 adjustments per year), our "Big Picture" Trend System focuses on the overall Environment of the market. The goal is to identify the "Major Trend" of the market and keep portfolios on the "right side" of the market's current cycle. The Model includes hundreds of indicators (both long term and short term) in the areas of "the tape," monetary conditions, investor sentiment, economics, valuation, overbought/oversold conditions, and industry leadership. Since 1982, the model shows a gain of +18.04% per year* (in its most conservative form and +26.7% for the aggressive version) versus +9.93% for the S&P 500.

When the Environment is rated as "positive" (about 32% of the time) our studies have shown that the S&P has advanced at a rate of +38.4% annually. However, when a negative environment exists (about 20% of the time) the S&P loses almost -21% per year.

"Big Picture" Trend System

Signal Analysis

Current Signal Hold
Date of Last Signal 1-13-16
Price (S&P 500 Index) 1938.68
Current Price (S&P 500 Index) 1903.03
Gain/Loss N/A
Model Analysis
Model Score (out of 10) 4.5
Rating Negative
Projected Annual Return -25.50%

Model History (From June 1982)

% of Trades Profitable 87%
Model Gain Per Year +16.7%
S&P 500 Per Year +10.0%

Recommended Exposure to Market

(For Long Term Accounts Seeking Minimal Trading)