Unnaturally Low Volatility

But For How Long?

While the equity markets catch a tailwind as investors feel more confident about rate cuts in the 1st half of 2024 and general seasonal dynamics, investors also seem to be underestimating the conditions that would necessitate rate cuts in the first place. Current sentiment may carry risk assets higher in the near-term thanks to unnaturally low volatility at the moment, but that also runs the risk of a sharp reversal with the right catalyst.

How To Interpret the Signals: Within each strategy, there is a risk-on and risk-off investment recommendation, with the risk-off option being the more conservative of the two. When a particular signal indicates that investors should be risk-off, for example, subscribers should consider investing in the risk-off option and avoiding the risk-on option. The opposite, therefore, would be true when the signal flips to risk-on. In each strategy, you’d always be invested in one option or the other.

Here’s how to read the scorecard for each strategy:

Some of the strategies will be more aggressive than others. The “Leverage For The Long Run” strategy, for example, uses the S&P 500 and 2x-leveraged S&P 500. The more conservative “Lumber/Gold Bond” strategy, however, uses intermediate-term Treasuries and the S&P 500. In every case, a risk-off signal indicates that you should be invested in the more conservative of the two options, while a risk-on signal indicates you should be invested in the more aggressive one.

For a full user's guide on how to interpret each of the signals and how to put them to work in your portfolio, please click HERE.

SHORT-TERM SIGNAL: UTILITIES/S&P 500 RATIO

Target Investor: Short-term traders with a higher risk tolerance interested in using an equity momentum strategy to anticipate changes in market risk tolerance.

Current Indicator: Risk-On

Strategy: Beta Rotation - Example: Invest in S&P 500 (SPY) over Utilities (XLU)

SHORT-TERM SIGNAL: LONG DURATION/INTERMEDIATE DURATION TREASURIES RATIO

Target Investor: Short-term traders with a higher risk tolerance who want to use the activity in the U.S. Treasury market to judge overall risk levels.

Current Indicator: Risk-On

Strategy: Tactical Risk Rotation - Example: Invest in S&P 500 (SPY) over Long-Duration Treasuries (VLGSX)

INTERMEDIATE-TERM SIGNAL: LUMBER/GOLD RATIO

Target Investor: Short- and long-term investors willing to trade more frequently using the classic cyclical vs. defensive asset comparison.