In last week's Perspectives piece, we opted not to wade into the discussion of capitulation and proactive efforts to call a bottom. The best evidence of a bottom is only available after the fact and by that point, the focus is already on whether the ingredients for a sustainable rally are present.
Our checklist is designed to move the conversation along in a productive direction. We are looking for conviction that rally attempts either are or are not sustainable. Among the indicators we are paying attention to in this regard is our Risk On / Risk Off Indicator. Our focus this week is on this and other Risk On / Risk Off metrics. Our Risk On / Risk Off Indicator is not based on a specific market signal but is the accumulated message across several pairwise comparisons within and across asset classes.
The message right now is clear: The Risk Off environment we have been in since earlier this year remains intact.
Breaking down the various components shows that we aren't seeing overwhelming strength out of Risk Off assets as much as we are seeing weakness from Risk On assets. That reflects a challenging backdrop for stocks overall and a painful experience for investors who are struggling to find safe harbors in which to ride out the market storm.
