"Risk On" RegimesThis is how I get a general feel for the market AMEX:SPY NASDAQ:QQQ CME_MINI:ES1! CME_MINI:NQ1! .
First, simply looking at the relation between NASDAQ:QQQ and AMEX:XLU
This is to get a gauge by asking.. is the market buying tech/growth, or is the market buying utilities (which is more of a bear market exposure "safer" sector)?
I don't get complicated with that examination. I use a directionally colored 50 day simple moving average to determine that relationship. It is currently pointing up (long tech).
Now for the stuff going on at the bottom (thank you to @jroche1973 for the one on the top)...
Each of these are relational "indicators" similar to the idea of keeping tabs on the relationship between tech/utilities.
The 3 are:
- Equity vol TVC:VIX vs. Bond vol. TVC:MOVE
- Short term "less risky" fixed income NASDAQ:SHY vs high yield "more risky" bonds AMEX:HYG
- VIX contango (measuring the current VIX relative to a 3 month Vol Index CBOE:VIX3M
all 3 of these gauges are currently in "risk on" regime for how I use them.
I write this 30 minutes before a FOMC meeting, with expectations of a 75 basis point hike for the US, with a 100 point hike being on the table as well to combat inflation.
This will clearly move the market one direction or the other depending on what Powell says..
My current guess on the FED situation is they will start to slow hikes Q3 --> stop hikes Q4 --> start easing/expansion by Q1 2023. It's all cycles. This is all pretty dependent on inflation as well, but my $ is on that inflation just peaked out at 9.1 CPI and the FED will/has overtightened to the point of too much growth deceleration. All in the name of killing inflation (which does have to be killed)
All this being said.. bonds, rolling VIX stucture, current tech/utilities, and equity vol/bond vol are all pointing to a more risk on mode currently. Not to mention bad news has been getting bid up... depends on time horizon for each individual, but this isn't the worst spot to allocate some longer term tech holdings and some long duration bond exposure IMO.
This can change quickly literally within the hour depending on what Powell says. Nonetheless, I prefer to look at this stuff as where that is where more of the "smart money" gives hints as to what's going on underneath what we see in market pricing. Fixed income typically has bigger brains than equity bros (sorry equity bros).
At the end of the day I'm accumulating and long CME:BTC1! , the hardest money every created. I will also be long the long duration end of bonds NASDAQ:TLT AMEX:TMF .
Have a good one and hope this sparks some fun ideas for you all.
