Momentum Models Remain Bearish Bonds, Trim USD Longs and Pare Equity Bullishness

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 steady over the past week, with equity models up +0.3% WoW, FX models down -0.1% WoW, and rates models down -0.2%.
• Momentum models are up +1.3% in aggregate over a three-month time frame, with FX models the best performing (+1.5%).

Market Implications

• Momentum models remain bullish USD. We are short USD versus a EUR, JPY and CAD basket.

Latest Signals

Equity momentum model signals are mostly bullish, except the Nikkei. The DAX and FTSE signals remain very bullish, with the S&P 500 shifting to very bullish from modestly bullish. The Nikkei flipped from very bullish to modestly bearish (Chart 1).

Rates momentum model signals are uniformly very bearish, nearly unchanged from last week. Signals in the US 5Y, 10Y, and long bond, together with signals in JGBs, and gilts remain very bearish across-the-board. Meanwhile, the bunds signal has flipped very bearish from modestly bearish (Chart 1).

FX momentum models remain bullish the USD, with a few small shifts from last week. EUR/USD is now modestly bearish after being very bearish. GBP/USD remains very bearish, USD/JPY, AUD/USD and NZD/USD all remain modestly bullish USD (unchanged). USD/CAD is very bullish (unchanged). In the EUR crosses, EUR/CHF is unchanged (very bullish), as is EUR/NOK (still modestly bearish), while EUR/SEK flipped from modestly bearish to modestly bullish (Chart 2).

Model Performance

• Momentum models were steady over the past week, with equity models up +0.3% WoW, FX models down -0.1% WoW, and rates models down -0.2%.

*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.)