market Reslience Index (MRI) Series

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The Market Resilience Index (MRI) series are based on a proprietary method of calculating return acceleration and highlight changes in the aggressiveness of investors and, we believe, reflect the emotional stance of investors. We use the MRI to anticipate changes in the market’s resilience, its ability to recover quickly from negative news and events. We used them for over ten years to make asset allocation decisions before seeking to identify the underlying drivers of the MRI. Used in conjunction with trend analysis and return reversal, our model portfolios display strong performance (LINK). 

The three main MRI for each asset class index (e.g., DJIA, US 10-year bond) are: 

1. Macro MRI - measures the longer-term trends that last up to several years. A positive slope indicates resilience and supports higher prices longer term. A negative slope indicates vulnerability and lower prices longer term.
2. Exceptional Macro MRI - indicates, on its appearance, when the Macro MRI is more likely to develop a steeper positive slope, or, on its disappearance, a less steep slope.
3. Micro MRI - shows the short cycles of resilience that take place a few times a year.

While all are calculated from index prices, we DO NOT use any form of statistical decomposition of the index series to create the MRI.  

The upleg of the cycle creates resilience. 

• When the Macro MRI is trending positive, we say that it is present or positive. 
• When the Exceptional Macro MRI occurs, it is positive and provides resilience.  
• The uplegs of the Micro MRI are described as providing resilience. 

These three MRI provide weekly indicators of the current market resilience. The MRI are additive. They reinforce each other when they're moving in the same direction, and they negate each other when they're moving in opposing directions. 

When all three are providing resilience, we describe the resilience rating as a "3," which is the most resilient. A rating of "0" means that none are in the uplegs of their cycles and we describe the market as least resilient or most vulnerable.

When the market is resilient, it can recover quickly from negative news and events. When it's vulnerable, it will recover slowly from negative news. 

We use the percentile levels to describe the levels of the Micro and Macro MRI. Cyclical patterns are found over the 100-year history of the Dow Jones Industrial Average. If we indicate that the current level is at the 90th percentile, for example, you'll have an idea that it's very close to the top of its normal range that has been established over the 100-year period. 

If a stock index is at the 10th percentile of the historical Micro MRI cycle and on the upleg of the cycle, we can expect that the stock index will likely experience resilience from the Micro MRI for several weeks as it continues to move higher through the upleg. 

If a stock index is at the 90th percentile of historical levels and still in the upleg of the cycle, we can assume that there will be a peak in the Micro MRI in a week or two. 

After the Macro MRI begins the downleg of its cycle, its downward trend indicates that the long-term trend of stock prices is most likely negative.    

There are two ways the Macro MRI ends its downleg and moves higher. The most common over the last 100+ years is for the Exceptional Macro to appear, which signals exceptionally high resilience and foreshadows a later shift in the Macro MRI to the upleg of its cycle. This important inflection point is the clear beginning of a bull market when it pays to be more aggressive in investment decisions. The less common way is for the Macro MRI to turn positive without the appearance of the Exceptional Macro, which happened in 1927 and 1993.