Momentum Models Gain With Equity Leading

When evaluating the performance of our momentum models we are considering the average performance across the one-, three-, and 12-month momentum models.

Summary

• Momentum models were up +0.5% over the past week, with equity models gaining +1.0% WoW, and FX and rates models both up +0.3% WoW.
• Momentum models are down in aggregate over a three-month time frame, with equity models the best performing (flat).

Market Implications

• Momentum models are very bearish US fixed income across the curve – we have reinstated our short 10Y and 30Y UST positioning.

Latest Signals

Equity momentum model signals are mostly unchanged over the past week. The signals for the S&P 500 and Nikkei remain very bullish, with the FTSE bias also unchanged at modestly bearish. The bias in the Nikkei shifted from very bullish to modestly bullish (Chart 1).

Rates momentum model signals are also mostly unchanged over the past week. Signals in the US 5Y, 10Y, long bond and gilts are all unchanged (very bearish), as are bunds (modestly bearish). The only shift has been in JGBs, where the bias has shifted to modestly bearish from very bearish (Chart 1).

Turning to FX, again momentum models’ biases have seen some modest shifts over the past week. USD/JPY, USD/CAD and EUR/SEK signals remain very bullish, EUR/USD stays very bearish, and GBP/USD remains modestly bullish. AUD/USD flipped from modestly bullish to very bearish, while EUR/CHF flipped from modestly bullish to modestly bearish. EUR/NOK shifted from modestly bullish to very bullish, while NZD/USD shifted from modestly bearish to very bearish (Chart 2).

Model Performance

• Momentum models were up +0.5% over the past week, with equity models gaining +1.0% WoW, and FX and rates models both up +0.3% WoW.

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

(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.)