My Risk-On/Risk-Off indicator has declined sharply and is now at -0.50, firmly re-entering Risk-Off territory.
Here’s the chart:
Let's break down what the chart shows:
The blue line in the top panel is the S&P 500 index price.
The black line in the bottom panelis our custom indicator, which comprises 20 Intermarket ratios that pair various risk-on and risk-off assets.
Green is a bullish environment, and red is a bearish environment.
The Takeaway: This indicator has been fluctuating between Risk-On and Risk-Off modes for most of the year. However, over the past week, it has sharply declined and moved well and truly back into Risk-Off territory. This downward pressure indicates a change in the market environment, suggesting that the focus has shifted from opportunity to risk.
Moving forward, I will be monitoring to see if this recent weakness sticks around to determine if we experience further downside price action at the index level. The July highs from last year for the S&P 500, around 5,667, appear to be the next important support threshold, which I have highlighted in my bull market checklist.
While there are still pockets of opportunity, the current environment calls for selective equity exposure rather than broad-based buying. If this bull market resumes, there will certainly be a time to adopt a more aggressive approach, but the current signals from our RORO indicator suggest that now is not that time.
Grant Hawkridge | Chief Aussie Operator, All Star Charts
ICYMI: NVIDIA’s earnings drop yesterday, and JC, Spencer and Kenny went live — reacting, analyzing, and calling the shots on the next move. Watch the reply here.
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