The Volatility

 9 Oct 2021

Dear Fellow Investor,

Volatility in world markets has reached extreme levels.

One months price action in the Dow Jones

Notice several price bars exhibiting ultra high volume and wide price spreads. It shows the battle between the bulls and the bears. This extreme volatility is engineered  by insiders and market makers to spread fear and uncertainty. Negative news is also spread to raise the fear level. After all the US markets by several metrics including Warren Buffets  indicator of capital value of entire market divided by GDP, P/E and price to sales are the most overvalued in history. This scares a lot of people.

The goal is to spread fear to shakeout those who hold quality shares. Ownership is transferred from weak to strong hands.

I have received several calls from clients asking me if this was the beginning of a market crash and should I sell my shares ? After all most world markets key off the Dow Jones in New York. Our shares in Singapore and Malaysia would also be hit should US markets collapse.

To answer this question I discovered an indicator called the MMRI which means the Mannerino Market Risk Indicator.  It was developed by a financial trader named Greg Mannerino who operates a blog. My analyst has backtested this on Bloomberg and discovered it has a statistical advantage. As an investor it will give you confidence to hold your quality shares during a correction or buy more. It will also tell you when it is time to sell and move into cash.

MMRI Indicator

Formula

 

DXY X TNX / 1.61 

 

Low Risk 0-100

Moderate Risk 100-200

High Risk 200-300

Extreme Risk 300+

 

DXY = 94.10 X

TNX= 1.605/ 1,61= 93.8

 

Presently Low risk for a crash so buy the dip  93.8

DXY = Dollar Index

TNX = 10 year US treasury bond 

 

93.8 shows low risk for a market crash so we can hold our shares and is safe to buy the dip of a quality share.  A professional futures trader could buy the S & P futures but of course must manage his risk.  The formula measures the relationship between the value of the US Dollar Index versus the US 10 year Treasury bond and divides by 1.61.  

Back testing shows a declining dollar and 10 year treasury yield is bullish for stocks. I do not know the significance of 1.61 and I have emailed the developer on this. So far no answer as this maybe is his secret.

If there is a big slam down and the indicator stays in the low risk range I personally would use volume to confirm my entry. I would like to see ultra high volume which signals exhaustion by the sellers. In VSA this is called stopping volume as described by Richard Wycoff.   

In the major market crashes in 2008, 2000 and 1987 the value was over 300.  In the March 2021 correction the value never went over 150 which means moderate risk and the correction was short lived.  

The KLSE and SGX are congesting with an upside bias. The energy sector and the Malaysia economy is supported by rising crude, CPO and commodities.  Our Dialog shares are coming back to life.    Kim Loong and United Plantation  are recovering due to historical highs in CPO and the government now allowing foreign workers to enter Malaysia. We have held these shares for the last 3 years bought at lower levels to capture the handsome dividends and the added value of being quality companies.  

Malaysia and Singapore are opening up so I am optimistic for the market  but there will be corrections along the way. Genting casino is now open and once the 90 % vaccination rate is achieved visitors outside of Pahang will be free to go.  The threshold of 90 % vaccinated is very close to being met. Yesterday it was 89.7 %

Take care

Bill

New born tiger cubs at Zoo Negara. Crowds are coming back which is another sign of recovery. Best to go during weekdays.