Risky Business - How Much Risk Will Investors Tolerate?

When big events hit the financial markets, you usually hear talk of investors being in either a "risk on" or "risk off" mode. And that's typically based on that day's movement in a prominent indicator or two. Simply put, when the investing world feel stable, people look for ways to beat the markets by stretching for extra returns in riskier assets. And when things feel disruptive, they look for safe assets.

We at Excalibur Pro understand the influence "risk on" and "risk off" has on not only individual instruments and markets, but what it can mean for people who like to trade correlations, technicals and momentum. So, we created a methodology based on some past white papers at places like the IMF, that looks at an instrument's current value versus its 60-day moving average, and when the current value is 5% above or below that moving average, we are entering a "risk on" or "risk off" environment. We have selected a number of riskier assets to monitor and when you look at them together, you get a clearer picture of where investors are in terms of risk tolerance - and where things are headed.

To give you an even easier snapshot of where the risk world is, we have created the Excalibur Risk Index, which takes the average values of the instruments vs moving averages above.

Our Market Risk graph today shows the degree to which risk has infiltrated the markets. While a handful of instruments remain in that neutral zone (between +5% and -5%), the trend is certainly lower - meaning toward "risk off". The only risky asset right now (from those we have selected, there are other options) that is showing "risk on" is the NYSE Fang + Index ETF - Amazon's strong earnings report last week can take credit for that.