We need to have a robust indicator for the definition of trauma than can work for 2008 and 2018. The volatility conditions are radically different so this isn’t simple but it can be rather rewarding. I have written a number of essays explaining the calculation. We have just gone through a new trauma event:
This is by no means a perfect system. We are looking to enter after a long position or short the market after a reasonable amount of time has gone by since the last trauma event. (the numbers above each daily price bar) Our best returns normally come during the first 15–15 days after “trauma”.
If we assume that equities are (therefore) a buy then we can ask – what should we expect from the Euro and rates? If equities are now to rally it would be while the cloud of tariff imposition either fades or is discounted. That would be bad for the dollar and a little good for rates, even though they normally rise during stock market rallies.
The problem is that buying the Euro while the S&P is rising has not been a winning proposition over the last two years. The relationship is very weak:
Euro behavior is much more about rates that equities. If rates celebrate tariff relief (if we get tariff relief) then the Euro can run, otherwise it will be a day to day decision.