Equity Risk Index

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.

stock market risk index

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.

Equity Risk Index

This week our proprietary risk index remained at the same level as last week with a reading of 31.25%. We have been short term bullish and long term bearish for the last few weeks and we expect to be that way into year end.

stock market risk index

One thing that we are finding more and more bullish (and extremely hard to quantify) is that the market continues to hold up in spite of more and more bad news. As we know market bottoms rarely occur on good news but actually start in spite of bad news. If this is “A” bottom or “THE” bottom we do not know, and frankly do not care. But we do know that the market is advancing and many indicators that we look at are at least close to becoming bullish. As always use stops and position sizing to help manage your risk.

Happy Trading,
The Macro Trader
Editor@TheMacroTrader.com

P.S. If you would like a free 1-Month trial subscription to our weekly newsletter simply e-mail us at Editor@TheMacroTrader.com with trial in the subject line and you will receive your first issue this weekend.

Macro Trading vs SP500 1997-October 2008

Macro Trading has several advantages to regular trading or investing. Most people either are long only or they trade one asset class. Instead of focusing on one area of the financial markets, Global Macro Traders focus on the best risk to reward opportunities they can find regardless of asset class or whether it is long or short. By not tying ourselves to one source of returns we can better balance our risk profile with our return objectives. Global Macro allows one the flexibility to not be dependent on any one thing or be held hostage by the downside of a particular asset.

Here we are comparing the returns of the Barclays Global Macro Index against the SP500. As you can see the Macro Index has performed significantly better than the SP500 from 1997 through the end of October 2008.

Global Macro Trading Index

While the Global Macro Index is currently in a drawdown it is far smaller than that of the SP500. The SP500 is down -37.47% while the Global Macro Index is only down -7.14%.

SP500 and Global Macro Index drawdowns

Anyone that is still tied to the notion that all you need to do is buy and hold has lost money over the last 10 years. While we hope that investors are finally coming around to the idea of absolute returns and risk management, we also realize that investors by nature are irrational and that they will continue to repeat the same mistakes.

We here at The Macro Trader try to generate absolute returns because a relative loss is still a loss. If you are interested in learning more please send us an e-mail.

Happy Trading,
The Macro Trader

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Equity Risk Index

Our stock market risk index did not change this week and remains at 25%. In simple terms the lower the reading the more bearish we are and the higher the reading the more bullish we are. As you can see in the chart we have been fairly bearish for most of the year.

stock market risk index

Most of the economic indicators we follow are very bearish, the trend is down, breadth is poor, and money flows are negative.  On the bullish side sentiment is at extreme lows and valuations continue to improve.  We expect a rally here in the next few days but long term are still fairly bearish.

Happy Trading,

The Macro Trader

P.S. If you want to ensure that you receive every update make sure and subscribe by RSS or E-mail by clicking on the RSS button on the right hand side of the page.

P.S.S. This is usually posted by Monday of each week but due to travel delays it was late this week.

Equity Risk Index

Our stock market risk index did not change this week and remains at 25%. In simple terms the lower the reading the more bearish we are and the higher the reading the more bullish we are. As you can see in the chart we have been fairly bearish for most of the year.

Stock market risk gauge

If you have read our previous posts you know our active beta approach to managing some of the model portfolio. The risk index is one of the primary inputs as to how much to invest. Our complete model is a bit different but essentially you X% of your account depending upon how bullish or bearish the model is. Using this risk index you would only have 25% of your money at risk right now. Since it dynamically changes depending upon what it expects out of the market it is not only a useful timing gauge but also helps measure the proper position size and asset allocation.

Hopefully this short explanation helps some of the answers that we have received lately regarding the risk index. If you have more questions feel free to e-mail us.

Happy Trading,

The Macro Trader

P.S. If you want to ensure that you receive every update make sure and subscribe by RSS or E-mail by clicking on the RSS button on the right hand side of the page.

P.S.S. This is usually posted by Monday of each week but due to travel delays it was late this week.