Futures Momentum Model Signals – Bond Models Signal Sell As Final Buy Signal Flips

• One change in bond model signals turns bonds signals all ‘sell’. 
• The S&P500 maintains the only net ‘buy’ signal in equities. 

• Over the past three months, the best-performing bond has been the one-month lookback for Bunds (3.1%), for equities it has been the one-month lookback for the Nikkei (2.9%). 

Spiking energy prices continue add upside risks to inflation developments, pushing yields higher and leaving equities under pressure. As things stand the US risks breaching its debt ceiling and defaulting on debt, but there are indications a resolution is inching closer. Hedge funds have reduced shorts in CAD and real money have scaled back long positions. On this backdrop, bonds signal ‘sell’ and only the S&P500 signals net ‘long’. 

Latest Signals 

One change, the three-month lookback for the Bund model flips from ‘buy’ to ‘sell’ (Table 1). For the first time this year, all bond models across all lookback periods signal ‘sell’ (Chart 1). 

Five changes in equities models, the Nikkei one- and three-month lookback models flip from ‘buy’ to ‘sell’, the DAX three-month lookback also flips to a ‘sell’ signal, as does the FTSE-100 one- and three-month lookback models (Table 1). Net signals are now ‘sell’ for the Nikkei, DAX, and FTSE-100 and ‘buy’ for the S&P500 (Chart 1). 

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 one-month lookback for German Bunds. It has delivered 3.1% returns and is currently signalling a ‘sell’ signal (Table 1, Chart 2). 
• Equities: the best-performing equity model has been the one-month lookback for the Nikkei. It has delivered 2.9% returns and is currently giving ‘sell’ signals (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 macro research analyst at Macro Hive, and is currently finishing an MSc in Finance at Cass Business School.

(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.)