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The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

Modern monetary theory has been…

Strong U.S. Dollar Weighs On Blue Chip Earnings

Strong U.S. Dollar Weighs On Blue Chip Earnings

Earnings season is well underway,…

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The Market Could Become Irrational

The Sigma Whole Market Index continues to rally, and looking at the chart, it looks like nothing can stop it. We remain above the top of the uptrend. This rally is so steep that it defies gravity's laws.

Sigma Whole Market Index Chart

The Sigma Trend Index closed for the 4th consecutive session above the key 34 level. Looking in our database (on a 10 years basis), this always occurred prior to an important correction. We would like to have this information for the 1999-2000 period but we can't because some indexes we use in our model didn't exist at this time.

We consider this rally is driven by the same motivation than the one which occurred in late 1999. Why? At this period the Fed had a zero policy rate in order to allow companies to make major IT investments to avoid the "2000's bug". So, the market knew it wouldn't have any increase in interest rates prior to January 2000 => easy money = big big run in equities.

Now, we are in the same situation, thanks to the US shutdown, we know it won't have any tapering (= reduction in Federal Reserve bond purchase activity) prior to March and maybe June. => easy money, once again => market could become irrational like in 1999-2000. We must remain careful with short positions.

Sigma Short Term Table

The ST model computed new stop levels for some indexes:

NDX Short Term Table

CAC Short Term Table

Short Term Trading Book:
- SPX: 1 short at 1742.85
(stop @ 1791, 3pts above the ST model to take into account bid/ask spread)
- NDX: 1 short at 3361.01 (stop @ 3450, 5pts above the ST model to take into account bid/ask spread)
- CAC: 1 short at 4272.14 (stop @ 4410, 5pts above the ST model to take into account bid/ask spread)
- DAX: 1 short at 8860.35 (stop @ 9102, 10pts above ST model to take into account bid/ask spread)
- EStoxx: 1 short at 3027.17 (stop @ 3115, 5pts above the ST model to take into account bid/ask spread)

Medium Term Trading Book:
- No more medium term position at this stage.


For those of you interested in our trades or in our methodology, you can visit our site. A full description of our ST model and MT model is available on our site. You can also subscribe to our twitter account (@SigmaTradingOsc), it is free and you are updated on our latest view/trades.


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