CD Barometers - Interpretation and Strategies

Updated: Feb 20

There are many ways how to derive #action from the different #barometer #indications. Please note, its not just the actual value on the barometer that may be decisive for your action, its also the relative movement, direction of change etc.. Hence, depending on your investment / trading style it may be worth to look at all: values, change rates and directions of both barometers. For that purpose we also provide the historical data and happy to support in this process.


 

Bullish area on CD Micro and CD Macro

This in combination with seasonality is a fantastic #trading #environment. Pure #long #strategies in growth and value sectors will likely deliver stable results. A variety leveraged and un-leveraged strategies in #leap #options, single #stocks and #ETFs can be applied. Furthermore this period could also be a good time to build up #hedging #positions in #volatility #ETPs such as #VXX which are comparably cheap and come with a low decay factor due to a low VIX.


Bullish area on CD Micro and uncertain/bearish CD Macro

Depending on the direction which CD Macro is moving, this may suggest a #recovery from a difficult economic phase -> great entries long term "buy and hold" positions or ETF saving plans. In case CD Macro is moving towards increasing risk, this may be a good opportunity to "#sell #the #rip" and build up #short #positions in order to participate on further falling markets. #Long #VIX plays may be interesting as well as a build up of #hedging #positions.

Uncertain periods This is probably the most challenging and risky environment in trading. Usually is difficult to find an entry point for a mid or long term trade. Due to the leveraged volatility it may make sense to apply various neutral option strategies, market neutral strategies on equities such as stocks, ETFs..., hedging, moving to cash or focusing on alternative asset classes such as bonds, currencies and commodities. For pure stock traders this might suggest to move into defensive sectors such as utilities or mines.

Bearish sentiment on CD Micro and bullish CD Macro

Depending on #seasonality, the signal strength and change direction of CD Macro this phase might be great for "buy the dip" strategies, or, exits and repositioning to less risky or defensive assets (Gold, Silver, utilities, energy...). High VIX rates may be great opportunities for short VIX strategies and option selling in general.​ It is also a good time to watch the market for further bearish direction and adopt trading and saving plans to corresponding conditions.

Bearish sentiment on both CD Micro and CD Macro

Stressed market participants and a negative economic outlook is high risk and high opportunity at the same time. Risk affine traders may use this period to perform #short #trades in short term perspectives and/or build up long term "#buy #and #hold" positions in promising stocks (#bottom #phishing). For risk sensitive traders, this is a clear "cash" period and waiting for bottoming and change of direction.

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