Futures Momentum Model Signals – All Models Signal Sell Nikkei

• Bund signals are unchanged on last week.
• All lookback model signals flip to sell for the Nikkei. S&P500 lookback models see one change.
• The best performing bond and equity models over the past three months have been the 12-month lookback for the US 5-year (1.8%) and the 122-month lookback model for the FTSE-100 (5%).

2022 G10 central bank meetings started without hikes, the Bank of Japan and Norges Bank remained at -0.1% and 0.5%, respectively. JPY and NOK weakened on the announcements. Markets price a 68% chance of a hike at the Bank of Canada, on 26 January, meeting as CPI pushed to 4.8% YoY. The 10-year Bund tested life above zero as yields globally rise on a backdrop of tightening monetary policy. Oil prices contribute as they push to $88.44, a level last seen in 2014, as an explosion along the Ceyhan pipeline in Turkey added to supply-side issues. On this backdrop, bond models see two new ‘sell’ signals while equity model signals remain ‘buy’.

Latest Signals

Lookback signals for our bond models remain unchanged (Chart 1 and Table 1). The only ‘buy’ signal comes from the three-month lookback model for bunds. Bond models are net ‘sell’ (Chart 1).

Four signal changes to our equity lookback models (Chart 1 and Table 1). The one-month lookback for the S&P500 flips to ‘sell’ while all lookback models for the Nikkei flip to ‘sell’. This is the first change to equity lookback model signals for 2022.

Best Performing Models

Looking at the performance of the best models over the past three months, we find the following:

• Bonds: The best-performing bond model is the 12-month lookback for the US 5-year. It has delivered 1.8% over the past three months and is currently signalling ‘sell’ (Table 1, Chart 2).
• Equities: The 12-month lookback model for FTSE-100 delivered 5% over the past three months. It currently signals ‘buy’ (Table 1, Chart 3).

*The basic strategy is to use returns (lookback windows) to give buy/sell signals. So, if the US stocks are up over the past 3 months, you buy, otherwise you sell (note I use excess returns).

Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.

Ben Ford is a Researcher at Macro Hive. Ben studied BSc Financial Mathematics at Cardiff University and MSc Finance at Cass Business School, his dissertations were on the tails of GARCH volatility models, and foreign exchange investment strategies during crises, respectively.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)