Daily gauge subscribers know that Paratrade got a strong buy signal for the S&P 500 on the close of Wednesday. We also got a big rise in Risk Parity fuel and we had a sell signal on the Yen. The question became: After we load up on S&P futures what should we expect from the Yen, T-Notes, Bunds, Gold etc.? Let’s compare the Yen to bonds to see which, if either, falls more during an S&P rise.
It seems clear that shorting the Yen is a better trade if you’re expecting a stock market rise (rising by at least .2 std. dev’s.). This chart is a little misleading. All the difference was achieved between July and Dec 0f 2014. Outside of that, it’s a tossup. In fact, shorting t-notes was the better position between 9/11 and 10/13.
Next, we’ll look at gold and Bunds. One would like to think that Bunds would mirror t-notes. They should largely decline when the S&P rises. I wasn’t so sure about gold but could argue that a safety asset wouldn’t do well when equities were rallying.
Wow – it turns out that shorting Bunds on days when the S&P is rising is a very mediocre idea. If the Risk Parity gauge is bullish and we are looking for a fixed income asset to pair with an S&P position then Bunds are the answer!
As for Gold – well it does perform badly when equities rise but it’s by no means a lock. It’s safe to say that Gold traders should expect to perform badly during (equity) bull markets but there are probably surer bets to be made.