Momentum Models Reduce USD Long and UST Short Biases, Flip Bearish S&P 500

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 down -0.4% over the past week, with equity models down -0.1% WoW, FX models down -0.1% WoW, and rates models down -1.0% WoW.
• Momentum models are up +0.8% in aggregate over a three-month time frame, with equity models the best performing (+2.8%).

Market Implications

• Momentum models are long USD across all major pairs. We remain short USD vs EUR, JPY and CAD.
• Meanwhile, our Market Risk Barometer showing FX volatility close to driving equity volatility, which would be bearish USD.

Latest Signals

Equity momentum model signals shifted notably. The S&P 500 signals flipped from very bullish to modestly bearish, while the Nikkei signals shifted to very bearish from modestly bearish. DAX and FTSE signals remain very bullish (Chart 1).

Rates momentum model signals are less bearish. Signals in the US 5Y and 10Y shifted to modestly bearish from very bearish, with the US long bond signal remaining modestly bearish. The Bund signal flipped to modestly bullish from very bearish, the JGB signal is unchanged (very bearish), while gilts shifted to modestly bearish from very bearish (Chart 1).

FX momentum models saw small shifts. Most notably, EUR/USD shifted to modestly bearish from very bearish. Other USD pairs are unchanged – USD/JPY and USD/CAD are modestly bullish, while GBP/USD, AUD/USD and NZD/USD remain modestly bearish. In the EUR crosses, EUR/CHF shifted to modestly bullish from very bullish, EUR/SEK shifted to modestly bearish from very bearish, and EUR/NOK flipped to modestly bullish from modestly bearish (Chart 2).

Model Performance

• Momentum models were down -0.4% over the past week, with equity models down -0.1% WoW, FX models down -0.1% WoW, and rates models down -1.0% 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.)