Trade Ideas

MacroVar models analyses thousands of financial markets and macroeconomic indicators to generate trade ideas for stocks, bonds, commodities and currencies.

Trade Idea Generation

The most important asset classes to monitor and their correlations are listed here. This is the core of how asset classes behave during risk on and risk off environments.

There are 2 market environments: Risk On periods during which funds flow from safe assets to risky assets and Risk Off periods where funds flow from risky assets to low-risk assets.

Risk Assets (Risk-On): Stocks, Cyclical Commodities, Cyclical Sectors / Industries, High Yield Bonds, Cyclical Currencies, Emerging Markets (Capital flows to emerging markets in search for higher yields, higher growth rates and hence profits)

Safe Assets (Risk-Off): US Treasuries, German Bunds, Defensive Sectors / Industries, US Dollar DXY, Swiss Franc, Japanese Yen, Gold

The most important asset correlation is between the US stocks and US Bonds. During risk on periods US stocks rise while US bonds are sold and vice-versa.

During Risk on Periods the markets behave as follows:

  • Global Risk
    • Equity Risk (VIX, VSTOXX): falling
    • Credit Risk (CDX IG, ITRAXX IG, BofA High Yield credit spreads): falling
    • MacroVar Risk Index: falling
    • MacroVar Risk On/Off monitor Ratios: falling
  • Stocks
    • Global Stocks rising (ideally this should occur with global bond market weakness)
    • US Stock Breadth rising
    • Emerging Market Stocks rising (often outperforming developed markets like US & EU)
    • Global Stock Breadth rising
  • Stock Sectors
    • Cyclical sectors outperform Defensive sectors
    • Sector breadth rising
  • Bonds (MacroVar monitors 2-year, 5-year and 10-year bonds)
    • Safe Bonds
      • US Treasuries falling (yields rising)
      • German Bunds falling (yields rising)
    • Risky Bonds
      • US High Yield Bonds rising (yields falling)
      • Europe
        • Club Med Bonds rising (yields falling)
      • Emerging Markets Bonds rising (yields falling)
    • Rates breadth rising (funds move out of bonds into stocks hence yield rates rise)
  • Yield Curve
    • Fed Funds futures above US 2-year bonds implying strong economic growth and FED hawkish stance
    • Eurodollar Futures rising
  • Currencies
    • US Dollar (DXY) falling
    • Safe Currencies (JPY, CHF) falling
    • Risky Currencies (AUD, NZD, CAD) rising
    • Currencies Breadth (vs the US Dollar) rising
  • Commodities
    • Energy (Crude Oil) rising
    • Metals (Copper) rising
    • Safe commodities (Gold) falling
    • Commodities Breadth rising
  • Macroeconomic Conditions
    • Global PMI trend and momentum rising
    • Global PMI breadth monitored strong

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