Model Signal Alert

September 27, 2023

Welcome to all new subscribers. Great, you are here. A little reminder that I am sending these alert posts if and when I see a few things flashing across either the momentum or reversal model. I have taken the time to program a variety of assets into the system so that I can automate alerts on a daily basis after the close. There were a few triggered yesterday, so naturally, I shall send everyone an update on what’s been happening.

Stocks have been hammered again yesterday. The Vix is testing August highs, and European equity indices are breaking key supports. Treasuries attempted a rally but failed and closed near the lows again. The timing of this latest leg lower is telling, as overall risk sentiment remains weak. The drop in US Conference Board consumer expectations is concerning - note energy and consumer staples sectors are outperforming the benchmark today.

The S&P is on track for its worst September in 10 years. Risk is somewhat stabilising overnight. FX has been choppy, with dealers reporting below-average volumes going through. Japanese stocks consolidate with the dividend reinvestment window opening, while the CSI 300 climbs after a jump in monthly corp profits adds to evidence economy is stabilizing. 

Australia’s monthly CPI for August came in line with expectations and rose by 5.2% YoY. The details were marginally hawkish, with core-services inflation rising sharply thanks to a strong labour market and ongoing wage growth. Although today’s CPI number raises hawkish risks for the RBA next week, the market believes the Bank will remain on hold but hike once more in December.

The aggressive steepening in curves has prompted some unusual block trades in Asia, which is rare according to the brokers I spoke to. Block trades are pretty large trades that are usually above a minimum threshold set by the exchange and traded “away” from the open market but must be disclosed. It would appear that there was a large volume in 5s vs. 20s traded, causing a small flattening back of that spread, which was trading at the recent August highs.

US 5-20s

Given where the momentum model was directing us, none of the moves should really be surprising. The model was short equities and short bonds, as highlighted in ATW and Friday’s charts. Quite a few reversals, however, were flashing. This is not unusual when you have pretty aggressive moves. Let’s have a look and take count on where things stand and what’s likely to come next.