Capital market seismograph does not pull the ripcord yet.
As promised, we will keep you up to date on developments in the capital market seismograph. As you know, the seismograph combines various economic variables, such as early economic indicators, interest rate developments or price fluctuations on the stock markets. From these, it distills the probabilities for three market states over the next month. Green represents the expectation of a calm, positive market. Yellow denotes the probability for a turbulent positive market. And red indicates the probability of a turbulent-negative market. If this rises significantly, a massive stock market storm is looming and it's time to get out.
Despite the distortions of the last few days, the red probability is still in the non-critical range today. But that can change on a daily basis - especially if volatility and/or the interest rate spread between corporate bonds and government bonds increase significantly. "We are monitoring this very closely and are constantly making new calculations with updated data," informs Oliver Schlick, Managing Director of Secaro GmbH, who regularly calculates the model and links it to investment recommendations.
"The seismograph has three goals: First, we want to reduce losses in sustained downward movements to such an extent that investors are not in danger of losing house and home and then making the wrong selling decisions out of fear at the wrong time. Secondly, we want to participate in upward phases on the stock markets. And thirdly, sideways death should be avoided," explains Schlick.
With "sideways death", the professionals described a basic problem of models that change their stock ratios very quickly. If an upward trend is interrupted by sharp corrections, they sell after an initial price decline to avoid a further crash that might occur at that moment. If the mood on the stock market then changes again, new investments have to be made at significantly higher prices. If this happens more often in a zigzag market, the performance is significantly worse than if the investor had simply remained invested. "That's the balancing act. The model has to be sensitive, but not too sensitive," Schlick explains.
Recent years have shown that the capital market seismograph can do this. In the spring of 2020, for example, the seismograph pulled the rip cord in early March. "This did result in a loss. But this was manageable, measured against the subsequent market movement," recalls Schlick. When the markets then recovered rapidly, the model was extremely quickly reinvested from April 9 in a world of fear, and has remained significantly overweight since early May 2020, despite interim turbulence to date. "This has been very successful in retrospect. We are therefore convinced that the model will once again get us through what is likely to be a difficult period as well as possible," concludes Schlick.
The bottom line:
The current development shows the limits of all stock market models. When a war breaks out virtually overnight, monthly economic data - an important component of the private-wealth stock market indicator - cannot be meaningful.
During this period, we therefore take our cue from the results of the capital market seismograph. Should the latter pull the ripcord, we would also drastically reduce the equity quota. Please register with your mail address at www.private-wealth.de for a free six-month trial subscription so that we can send you a "private-wealth-alert" in this case.
Note: Despite careful selection of sources, no liability can be accepted for the accuracy of the content. The information provided in private wealth is for informational purposes and is not an invitation to buy or sell securities.