Weekly roundup #16

Forward Return Analysis & macro data roundup

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This is a new weekly series where you will get a number of indices and ETFs analyzed using the "Recognizing Market Chaos" framework. I will highlight the best opportunities based on the overviews and include the image in the blog post. This is the first post for the new theme, so I need a little more time to adjust the content and find the right way to deliver the most value.

For an introduction, see the posts on recognizing chaos in the market.

I made some other changes and improvements to the model. I added a likely estimate of upside momentum in forward returns (gray line). This is another layer to assess whether the forward returns structure is supported by all possible estimates. Then I added a volatility analysis to the model, shown in another image. This feature added another 3-8% of validity to the model (depending on the asset). Also the overview now contains a signal strength column, which shows the relationship of the bullish probability and quantile prints ranging from 0 to 4, where 4 is the highest signal strength.

Another update to the model, resulting in another 5% improvement in the prediction of the return. I also split the momentum indicator into two parts, a trading part that optimizes between 5 and 30 days, and a trend part that optimizes between 63 and 126 days. The first subplot now shows the momentum indicator as a color code for the price index. Green is bullish and red is bearish.

Another addition is the forward return model for two more time frames, the 5-day forward return and the 10-day forward return. In the upper left corner you can see the r-square for the validity of the model.

Index overview

Most indices are in an uptrend, with only two exceptions: VIX and IPSA. In the U.S., S&P500, Dow Jones, NASDAQ and Russell 2000 are all in an uptrend. However, the term return structure determined by the quantiles indicates a weak term return structure (negative 15-day term returns). The Dow Jones has the lowest signal strength, followed by the NASDAQ and the S&P500. For the VIX, we see a downtrend and a mixed forward return structure that could mean some swings but nothing in the sustained spectrum.

For LONG exposure, the STOXX50 provides the best signal with multiple quantile 4 prints and the highest signal strength among the various indices. On the STOXX50, we see the short-term hurst action moving into the mean revesion range, and the various forecast windows point to the same outcome - higher returns over the next 5 to 15 days.

On the short side, it is a continuation of the HSI short. The index is still showing poor return forecasts and weak signal strength. HSI is currently in an uptrend (only 1-2 days), but the signal will turn back to a downtrend as the midpoints are very close.

LONG:

New: 3 different time frames for the forward return model

SHORTS:

Last weeks return (5 days:)

Long:

1. NIKKEI (N225) -1,22%

Short:

1. HSI -5,27%

Yearly coupon:

monthly coupon: