Futures Momentum Model Signals – Number of Bond Sell Signals Increase

• All bond models signal net-sell.
• All equity models continue to signal buy for the sixth week.
• Over the past three months, the best performing bond and equity model has been the one-month lookback for gilts (3.5%) and the twelve-month lookback model for the Nikkei.

This week’s release of the Federal Reserve minutes for the 3 November FOMC meeting confirmed the possibility of a faster taper announcement in December. This has seen US yields rise, especially at the front end. Meanwhile, euro area and Chinese COVID-19 restrictions tightened on rising cases and hospitalisations. Notably, China introduced quarantine measures on returning seafarers, which could aggravate global supply-chain issues. Elsewhere, oil markets were unimpressed when the US and other countries released more supply from strategic reserves. Brent oil prices rose 1% over the past week. On this backdrop, we saw bond models increase the number of ‘sell’ signals, all equity model signals remain ‘buy’.

Latest Signals

The number of Sell signals increase as buy signals flip for the one-month US long bond and UK long Gilt lookback models (Chart and Table 1). US 5- and 10-year lookback models signal ‘sell’ for nine weeks straight.

Signals across all equity models remain ‘buy’ and have been net-buy for the past six weeks (Chart 1, Table 1). S&P500 signals have been ‘buy’ across all lookback models for the past six weeks.

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 gilts. It has delivered 3.5% returns and is currently signalling a ‘buy’ signal (Table 1, Chart 2).
• Equities: The twelve-month lookback model for the Nikkei delivered 6.8% 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.)