This custom index of mine is attempting to solidify a change of trend from risk off to risk on.
I call the index displayed in the chart [Figure 1] my "aggregate risk on / risk off index". It uses a combination of 6 different internal relationships to measure the appetite for risk within capital markets.
Figure 1: Aggregate Risk-On/Off Index
In October, the index made a higher low as the S&P 500 made a lower low (positive divergence). Last week, the index jumped above the 200 day MA and broke above the bear market downtrend line. All three of these are signs of a positive trend shift for risk assets.
This is positive news for risk assets and supports an environment where the probability of higher prices increases substantially. Especially if the index can find its way back above the August 2022 highs, confirming a new uptrend. A uptrend is definite as a series of higher highs and higher lows — the higher low was made in October and once those August highs are broken we’ll have the higher high.
The custom index is a simple, equal weight index of the following inter-market relationships:
1. High Beta (SPHB) vs Low Volatility (SPLV)
2. Discretionary (XLY) vs Staples (XLP)
3. Junk Bonds (JNK) vs Treasuries (IEF)
4. Semiconductors (SMH) vs S&P 500 (SPY)
5. Financials (XLF) vs Utilities (XLU)
6. Stocks (SPY) vs Bonds (IEF)
— Brant
Disclaimer:The content provided on the Capital Notes newsletter is for general information purposes only. No information, materials, services, and other content provided in this post constitute solicitation, recommendation, endorsement or any financial, investment, or other advice. Seek independent professional consultation in the form of legal, financial, and fiscal advice before making any investment decision. Always perform your own due diligence.
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Chart of the Day: February 1, 2023
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Chart of the Day:
This custom index of mine is attempting to solidify a change of trend from risk off to risk on.
I call the index displayed in the chart [Figure 1] my "aggregate risk on / risk off index". It uses a combination of 6 different internal relationships to measure the appetite for risk within capital markets.
In October, the index made a higher low as the S&P 500 made a lower low (positive divergence). Last week, the index jumped above the 200 day MA and broke above the bear market downtrend line. All three of these are signs of a positive trend shift for risk assets.
This is positive news for risk assets and supports an environment where the probability of higher prices increases substantially. Especially if the index can find its way back above the August 2022 highs, confirming a new uptrend. A uptrend is definite as a series of higher highs and higher lows — the higher low was made in October and once those August highs are broken we’ll have the higher high.
The custom index is a simple, equal weight index of the following inter-market relationships:
1. High Beta (SPHB) vs Low Volatility (SPLV)
2. Discretionary (XLY) vs Staples (XLP)
3. Junk Bonds (JNK) vs Treasuries (IEF)
4. Semiconductors (SMH) vs S&P 500 (SPY)
5. Financials (XLF) vs Utilities (XLU)
6. Stocks (SPY) vs Bonds (IEF)
— Brant
Disclaimer: The content provided on the Capital Notes newsletter is for general information purposes only. No information, materials, services, and other content provided in this post constitute solicitation, recommendation, endorsement or any financial, investment, or other advice. Seek independent professional consultation in the form of legal, financial, and fiscal advice before making any investment decision. Always perform your own due diligence.
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