Two months I created a post to take a pulse of the market when we were at all time highs. Since it was super well received, let's update our risk metrics from the previous post and see where we stand after this correction. Clearly, we're not as euphoric as last time. TL;DR at the bottom.

Always keep in mind:

All models are wrong, but some are useful. – George Box

We'll capture the market by taking a weighted average of my favorite metrics:

Alphasquared (link) – 40%

https://preview.redd.it/fq2kwiikd1pe1.png?width=1198&format=png&auto=webp&s=e24760e2e72477bf62fe521f7c0bf28431605e53

• This one is my most trusted metric and what I've used for almost two years now to DCA. It was the only one to pinpoint the Bear Market perfectly. With the best track record of all, we weigh this at 40%.
• The current Risk is: 43 out of 100 (down from 60.8)

Benjamin Cowen (YouTube) – 30%

https://preview.redd.it/d1d13w3ld1pe1.png?width=2754&format=png&auto=webp&s=f1a535e60835e5218152d5f8990bb6bc4220e2f5

• This one missed the 2022 bottom by a fair bit and it seems to have been quite high when we reached 73 risk. I like to diversify my indicators and there's a certain reputation around this so I'll include it, albeit at a lesser weight of 30%
• The current Risk is: 49 out of 100 (down from 60.6)

RSI (link) – 20%

https://preview.redd.it/hfrt7xamd1pe1.png?width=2069&format=png&auto=webp&s=ddbbd6a01bbbdd05d65baaea96c82583927f5d90

• We all know the RSI. It's a trusty indicator, albeit a simple one. This is a weekly timeframe.
• The current Risk is: 47.7 out of 100 (down from 68.8)

CBBI (link) – 10%

https://preview.redd.it/d1w0wybnd1pe1.png?width=1110&format=png&auto=webp&s=b4f82a821fcda6d571cfd003ae8851b064c913c5

• This one missed both the top in 2021 and the bottom in 2022, but not by a huge margin. It has since been refitted without mention, but we'll still include it with 10% weight.
• The current Risk is: 70 out of 100 (down from 81). Still elevated but no longer in strong selling territory!

Now, let's combine all of these:

What This Means

Our weighted risk score has dropped from 64.4 to 48.4 out of 100. This puts us in more neutral territory compared to the elevated risk we saw two months ago. It's worth noting that every previous bull run has featured multiple corrections of 30-40% before reaching the actual market top.

The Importance of Strategy

Having a clear strategy remains crucial during these market fluctuations. If risk continues decreasing, this presents an opportunity to accumulate at better prices. Conversely, if risk begins climbing again in the coming months, a disciplined DCA-out approach becomes important.

The worst approach would be to get disinterested and leave the space after incurring losses. Remember that lower risk environments are precisely when accumulation becomes most beneficial. Even if we enter a bear market, which can be painful and boring, this is historically when the groundwork for significant returns is established.

The core principle remains: the lower risk goes, the more you should consider buying. The higher risk goes, the more you should consider taking profits in incremental steps.

TL;DR: The recent 25% drop from ATH has significantly lowered our risk metrics from 64.4 to 48.4. Historical patterns suggest this is a correction rather than the end of the bull market (see charts).