There is not a lot to say about the index this week.  Last week we dropped hard and this week the reading is the same at 22.22%.  The equity risk index goes from 0-100% so a reading of 22% is pretty bad.  When it is climbing we start to look harder for bullish trades but when it is at these levels we tend to lean towards shorting rallies more then buying them.

Happy Trading,

The Macro Trader
Dave@TheMacroTrader.com

P.S.If you are interested in learning more about Macro Trading sign up for our FREE Macro Trading 101 course in the box below.

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For the week ending 1/9/09 our Equity Risk Index made a 6 month high of 38.89%. Last week crushed it and brought it all the way back to the readings we saw in November of 22.22%. When the market fell apart breadth fell apart and T-Bond relative strength picked up as money left stocks and went into bonds.

So what will get the risk index climbing again? Consistent breadth, a real uptrend, and a decline in Treasuries would be a start. But what should be no surprise to our regular readers, we are not expecting that anytime soon.

Happy Trading,
TheMacroTrader.com
Dave@TheMacroTrader.com

P.S.If you are interested in learning more about Macro Trading sign up for our FREE Macro Trading 101 course in the box below.

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While updating our models this weekend we thought it would be useful to show an example of one of our trading models.  As we have stated previously we use a very systematic process to find trading opportunities.  Half of our research time is spent building technical and valuation models that help guide us into and out of different asset classes.  The other half of our research is spent reading and talking to people looking for ideas.

One market that has been fairly good to us lately has been junk bonds.  We have a few different models that we follow to help tell us when the market is good and when it is bad.  This particular model looks at the price action in junk bonds as well as the yield spread to Treasuries to tell us when conditions are favorable and when they are not.

When we trade junk bonds we typically use the HYG IBOXX High Yield EFT which has good daily trading volume.  In the chart below you can see how our model did versus buy and hold.  While HYG fell by 37.2% from its peak our models worst drawdown was 5.48%, and while HYG is currently down over 24% from its highs the model is just a few percent from its recent high.

As you can see, using models can help you find and manage good investment opportunities. In a year in which most investors lost 30-50% of their wealth we were able to stay slightly positive with very low volatility.

If you are interested in learning more about what global macro trading is and what we look at then you may be interested in subscribing to our weekly newsletter. If you would like to learn more about what global macro is then sign up for our FREE Macro Trading 101 course.

Happy Trading,
The Macro Trader
Dave@TheMacroTrader.com

To sign up for our FREE Macro Trading 101 Course just fill out the form below.

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We at TheMacroTrader.com have one major purpose, to provide you with actionable and profitable trading ideas through our weekly newsletter and mid-week updates. Last year our model portfolio did a great job by beating the SP500, the Barclays Macro Index, and actually being positive for the year.  In order to better serve our current clients and to wxplain to prospective clients what it is that we do we are now offering a FREE Macro Trading 101 course.  It is a multi-part e-mail course that is sent out twice a week.  Each e-mail contains a PDF attachment that covers a topic related to global macro.  Our first few installments cover the benefits and advantages of global macro and then we start to delve into different asset classes, their drivers, and how to trade them.  Later in the course we will be getting into economic analysis, risk management, and even finally a gameplan that you can use to help you find where the best risk to reward opportunities are hiding.

To receive our FREE Macro Trading 101 course simply fill out the form below.

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For the second week in a row our Equity Risk Index ticked higher.  This time one of our breadth signals turned bullish.  While using our risk indexes it is important to look at the level as well as direction.  As you can see in the chart below it has been steadily climbing but is still only at 38.89% bullish.  On a scale of 1 to 100% 38.89% is nothing to get too bullish over.  What a rising risk index does tell us is that we should be looking at the long side more and more.  But it does not mean we should be loading the boat.  Basically as with anything the risk index is a tool and not a crystal ball.

The market has rallied quite in a bit in the last two months and may be at the end of its bear market rally. Short term we have changed from bullish to neutral and would not be surprised to see the market break either way. So what do we do? We have been doing the same thing we always do, simply look for good risk to reward opportunities and size our positions accordingly.

Happy Trading,
The Macro Trader
Dave@TheMacroTrader.com

If you would like to receive our course: Macro Trading 101 just put your e-mail in the box below.

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The new year has gotten off to a good start so far.  Stocks are up across the board and everything in the corporate bond arena is up strong as investors start leaving Treasuries to find fill their risk appetites.

Our equity risk index is up due to this strength as stocks have been leading the overall bond market the last few weeks.  Another factor that is likely helping this market out is yearly rebalancing of institutional and retail funds.

While this is probably just a bear market rally it likely has a ways to run.  Most bear market rallies stall after they have moved about 20% but we are far more oversold than normal and with it being a new year a lot of the sidelined cash is likely to be put to work.  Of course as always you should be using strict risk management rules on every trade and on your portfolio.

HappyTrading,

The Macro Trader
Editor@TheMacroTrader.com

P.S.-If you want to receive our FREE Macro Trading 101 course just fill out the box below.

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