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26 Months of Risk on At Risk

Looking at the chart of the relative performance between US equities and 10y T bonds, there is no doubt we have been in a risk on scenario for more than 26 months. Now, we are close to the bottom of this uptrend (outperformance of equities relative to bonds). So, a move below the lower end of this uptrend would be a clear negative signal for equities.

Relative Performance of US Equities versus 10-Year Notes Chart

We have the same conclusion looking at relative performance between US large caps, mid caps and small caps. The large caps (more defensive) have been a massive under performer for the last 18 months. The situation changed a couple of weeks ago (pink box), and the US large caps started to outperform US small caps. This is the first sign of an increase in risk aversion.

Size Relative Performance Chart

The Sigma Whole Market Index found some support at current levels and it is crucial to stay above the 2 horizontal blue lines. If we move below those 2 supports, a sharp acceleration to the downside will probably be on the agenda.

Sigma Whole Market Index Chart

There is no change in our indicators at this stage.

Sigma ST Model Table

The ST model computed a new stop of the Estoxx50, other levels are unchanged:

ESTOXX ST Table

Short Term Trading Book:
- SPX: long at 1754.73 (stop @ 1708, 3pts below the ST model to take into account bid/ask spread)
- NDX: long at 3506.23 (stop @ 3361, 5pts below the ST model to take into account bid/ask spread)
- CAC: long at 4107.69 (stop @ 4030, 5pts below the ST model to take into account bid/ask spread)
- EStoxx: long at 2947.84 (stop @ 2898, 5pts below the ST model to take into account bid/ask spread)
- DAX: long at 9106.25 (stop @ 8707, 10pts below the ST model to take into account bid/ask spread)
- IBEX: long at 9745.8 (stop @ 9550, 10pts below the ST model to take into account bid/ask spread)

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

Out of model position:
- no 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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