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Risk appetite points to potential softness

by Sentimentrader
2026-09-15
The Risk On/Off Indicator ended a long risk-on stretch after deteriorating quickly. Similar signals showed no immediate weakness, but returns softened about a month later; avoiding that interval improved in-sample results without materially reducing drawdowns.

Key points:

  • The Risk On/Off Indicator held on the risk-on side of its range for a long stretch, then deteriorated quickly.
  • Historically, that persistence did not produce immediate weakness, and the softest stretch arrived about a month out.
  • Stepping aside in that window improved the historical record without removing the large drawdowns.

Risk appetite has persisted for a long time

The Risk On/Off Indicator has stayed above 35 for quite a while now, and just recently it fell from above 67 back below 35. Intuitively, a reading that has reached this level looks like it should be flagging something about market risk ahead.

Risk appetite points to potential softness

That concern is not without support. Moreover, the drop from the strong side of the range to below the risk-on line came quickly, and what is worth watching is what history has done after this state.

On duration alone, the record does not support immediate weakness. Among the completed instances, the S&P 500 was higher a month after the signal 88% of the time, and the data looks fine.

Risk appetite points to potential softness

However, that single reading do

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