First Risk-Off Signal Flips Suggesting Stock Market Rally Is Easing
2023.07.03 11:00
The Treasuries signal is the first to break and flip to risk-off in several weeks, suggesting that the 1st half rally in stocks is taking a breather. The outperformance in long-duration Treasuries has been building up for a month, with the biggest gains coming from the bond, the place where investors seeking out a safe haven often land. The outperformance would still fairly be described as modest at this point, but the trend has been steady and building.
How To Interpret the Signals: Within each strategy, there is a risk-on and risk-off investment recommendation, with the risk-off option being the more conservative of the two. When a particular signal indicates that investors should be risk-off, for example, subscribers should consider investing in the risk-off option and avoiding the risk-on option. The opposite, therefore, would be true when the signal flips to risk-on. In each strategy, you’d always be invested in one option or the other.
Here’s how to read the scorecard for each strategy:
Target Investor
Some of the strategies will be more aggressive than others. The “Leverage For The Long Run” strategy, for example, uses the and 2x-leveraged S&P 500. The more conservative “Lumber/Gold Bond” strategy, however, uses intermediate-term Treasuries and the S&P 500. In every case, a risk-off signal indicates that you should be invested in the more conservative of the two options, while a risk-on signal indicates you should be invested in the more aggressive one.
SHORT-TERM SIGNAL: UTILITIES/S&P 500 RATIO
This is for short-term traders with a higher risk tolerance who are interested in using an equity momentum strategy to anticipate changes in market risk tolerance.
Current Indicator: Risk-On
Strategy: Beta Rotation – Example: Invest in S&P 500 (SPY) over Utilities (XLU)
SHORT-TERM SIGNAL: LONG DURATION/INTERMEDIATE DURATION TREASURIES RATIO
This is for short-term traders with a higher risk tolerance who want to use the activity in the U.S. Treasury market to judge overall risk levels.
Current Indicator: Risk-Off
Strategy: Tactical Risk Rotation – Example: Invest in Long-Duration Treasuries () over S&P 500 (SPY)
Long/Intermediate Duration Treasuries Ratio
INTERMEDIATE-TERM SIGNAL: LUMBER/GOLD RATIO
For short- and long-term investors willing to trade more frequently using the classic cyclical vs. defensive asset comparison.
