On an absolute basis, this indicator is actually somewhat encouraging. Although it remains high, it has pulled back to less extreme levels. On a change-over-time basis, however, downturns in this indicator have typically led market pullbacks—and once again, we see that here. With the recent uptick, though, this indicator also suggests the risks are not pressing.

Risks apparent, but not immediate
Despite the substantial recovery in stock prices, market risk factors are clearly still apparent, if not immediate. Technicals are reasonably encouraging, with both the Dow and the S&P 500 back above their 200-day trend lines. The Nasdaq, however, just dropped below its trend line, so we may not be out of the woods yet.

There’s a big difference between high risk and immediate risk—and it is one that is crucial to investing. Not all of the indicators suggest an immediate problem, and several suggest risk is receding, which means we may well have seen the worst of it this time.  

Brad McMillan is the chief investment officer at Commonwealth Financial Network, the nation’s largest privately held independent broker/dealer-RIA. He is the primary spokesperson for Commonwealth’s investment divisions. This post originally appeared on The Independent Market Observer, a daily blog authored by McMillan.

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