Mish’s Daily: Speaking of AI – A Look at our Alpha Rotation

1 year ago 375 views 5 min read

Michele “Mish” Schneider

Director of Trading and Education

MarketGauge.com

Mish’s Daily: Speaking of AI – A Look at our Alpha Rotation

Written by Michele ‘Mish’ Schneider

Those who read our Daily and follow us on the media know that we talk a lot about risk gauges.

The big focus for me personally is the relationship between the S&P 500 and the long bonds.

The other 2 I watch are the relationships between junk and long bonds, and the S&P 500 and gold.

All have flashed risk on for some time.

Our Alpha Rotation quantitative strategy that MarketGauge developed uses a combination of market internals, proprietary risk gauges and market phases to determine risk on or off.

If the math is aligned, we allocate to the major indices, U.S. treasures or cash.

We then use both non-leveraged and leveraged versions for our entries.

Furthermore, the model is built with initial risk parameters and profit targets. All automated.

The point of my showing you this today is to show you how the “math” has been smart. And the rally has been technical.

While the fundamental number crunching analysts hate this rally, the technical traders and retail investors have had a party.

Hence, should the risk gauges change, it stands to reason the now trailing stops will be hit.

It also stands to reason that the long bonds will show us the way.

Wednesday after the FOMC we said, “We love to watch the Long Bonds as they are a key factor in our risk gauges that help us see risk on/off.”

We asked, “What might the Long Bonds be telling us?”

The chart is fascinating.

TLTs ran right up to 2 major moving averages, the 50-DMA (blue) and the 200-DMA (green).

The Real Motion Indicator is now a bullish divergence pattern as the red dots cleared the 50-DMA.

All the while, the indices enjoyed the rally that continued Thursday-although small caps were dragged along more for the ride.

Keep your eyes on the long bonds.

Should TLTs clear and confirm over the moving averages, we might see a shift in the risk gauges.

However, to see a shift in risk, the S&P 500 would also have to either stop rallying and consolidate or begin to drop from current levels.

Of course, if the TLTs head lower and the S&P remains strong, risk on until further notice. And, we are documenting all of this so you can know what to look at and what to prepare for.

For more detailed trading information about our blended models, tools, and trader education courses, contact Rob Quinn, our Chief Strategy Consultant, to learn more.

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