Global Macro CTA - Standard Deviation Price Tables

So, the "Momentum" players have apparently said "Yes" to a continuation of the recent equity rally and whats probably more significant on Friday........to a potential reversal down in Fixed Interest. But are they correct?

As watchers of this Blog may be already aware, I assign no fundamental economic interpretation to any price movements. I am solely concerned with the Rate of change of prices over various diversified time horizons and what I can predict from statistically analysed results of my Trading models.

We all know, however, that "Momentum" analysis on its own is a lagging indicator and typically on longer term charts often signal at the latter stage of a rally especially following a reversal of a previously persistent trend.

Over the years, I have found it VERY helpful to overlay a particular favourite contrarian indicator of mine namely "Divergence" whether it be up or down.

For the un-initiated, this indicator can identify potential Bull or Bear traps shown when Higher/Lower prices are no longer accompanied with Increasing/Decreasing Momentum.

Of course,  Divergence in the Short term can be the catalyst for invaluable market Mean Reversions and an opportunity to re-establish "longs" or "shorts" in the same directiion of the main trend at more advantageous average prices. For example, the DAX could fall 200 pts and yet the Medium momentum trend would still be "UP". So the importance is to attach "Risk" to any particular price by keeping in touch, not just whether momentum is positive or negative, but more imortantly have a measure of the "rate of change" of momentum and predict whether it will continue.

Outlined below, is the latest snapshot of a range of Exchange Traded derivative across the front month contracts in Fixed Interest, Equities. Forex and some Commodities. This of course is only a snapshot and in the real world my models are "adaptive" to real time prices. For an explanation of how these numbers are calculated please refer to earlier posts

Enjoy

Legend

Red - Price statistically Overbought and should experience some Reversion to Mean

Blue - Price statistically Oversold and should experience som Reversion to Mean

Black- Last Price at Posting

Yellow - Central Daily Moving Average Pivot. Close above indicate recent strength. Close below indicates recent weakness

Daily Trend- Positive / Negative / Neutral

St Dev - Rate of change of  Daily Trend momentum (Accelerating Up/ Down/ Contracting)

FOREX- Protecting Long EurUSD Profits NOW

All

As you know in Systematic Trading I firmly believe it is not my business to pick tops or bottoms.

Trend following models in any form, however, aspire to remain in the same trade for the longest amount of time as long as the trend is persistent. However we can readily accept that few trends are linear straight line affairs and diversification over timescales/time horizons provides a broader objective assessment of maximising P&L'

The EURUSD is circa 20 big figs higher that the recent 1.1890 June 6TH or so low in Q2 2010. The trend obseved by many Momentum followers remains "Up" and for Greenback weakness to continue to continue......or will it????

It is however always prudent to money manage any position. Not by undermining the original hypothesis for the long but at key pre determined objectives to be patient and accept that the rate of change of the trend may be changing.

Hence with current Spot at 1.3850  I suggest that to protect EURUSD long entry 1.2300,  I am now prepared to write 1.4000 DEC CALL Receiving 2.36 effectivly allowing me to partial exit 1.4236
The trend in the underlying may continue higher but I can assess the rate of change of momentum at a later stage and either decide whether to remain in the trend

Enjoy