Paratrade Systems Weekly Research News

20 Aug

How do other markets respond to equity rallies?

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.

Add Comment

Subscribe to the Paratrade Newsletter
Receive our free brochure: Three Key Factors that Produce Stock Market Rallies
We respect your privacy.