30 January 2018 at 12:09 GMT
- VIX, Citi Macro Index signal risk warnings
- USDJPY vols, Nasdaq puts strong potential plays
- Trump's State of the Union a possible event risk
Are markets poised for a period of big swings? Photo: Shutterstock
By Steen Jakobsen
Objective: Risk warning on a potential break-up in volatility and downside in risk.
Action: We suggest buying USDJPY volatility downside as the “cleanest” way of playing the risk-off. Alternatively, you could buy downside NASDAQ puts.
We are entering a potential risk alert on volatility and macro risk as measured by the VIX and Citi’s Macro Risk Index.
The chart below is drawn using the “momentum model” of the 100-day Donchian line
Also, from a friend of mine... (GertH):
Furthermore, one of the best risk-on/risk-off models is that underpinning Citigroup’s Macro Risk Index. Note how the model has not been above 0.5% since the US Election in November 2016.
Source: Saxo Bank, Bloomberg
What is “odd” here, of course, are the compressed credit spreads and equity valuations.
We will keep you posted on the daily and monthly closes of these indices but for now a small warning is warranted We also see some event risk overnight from President Trump's State of the Union address despite the widely leaked content indicating a more conciliatory, Davos-like tone.
-- Edited by Michael McKenna