Excerpt from Coalescence Report 22th May - 29th May 2022
Excerpt from the Weekly Coalescence Sentiment Report: 22/05/2022 - 29/05/2022
This report covers the weekly market sentiment and positioning and any changes that have occurred which might present interesting configurations on different asset classes with a specific focus on currencies. The below shows the table of contents of the report:
The COT Report
Introduction to the COT Report
EUR Currency
CHF Currency
GBP Currency
JPY Currency
CAD Currency
Interesting Cross Ideas
Historical Track Record
The Chaos Impact Index
Introduction to the Chaos Impact Index
EUR Currency
CHF Currency
GBP Currency
JPY Currency
CAD Currency
Gold
The White Index
Introduction to the White Index
S&P500
Historical Track Record
Vision
Introduction to Vision
S&P500
Historical Track Record
The VIX
Introduction to the VIX
S&P500
Historical Track Record
The Weekly S&P500 Sentiment Indicator
Introduction to the Weekly S&P500 Sentiment Indicator
S&P500
The Millennium Forecast
Introduction to the Millennium Forecast
ISM PMI
Historical Track Record
Bitcoin Tactical Sentiment Index
Introduction to the Bitcoin Tactical Sentiment Index
Bitcoin
Historical Track Record
Featured Chart: University of Michigan’s Consumer Sentiment Index
Disclosure
1. The COT Report
As mentioned in the introductory post, the COT report shows the positioning of the market with respect to a few underlying assets and currencies. The COT strategies are as follows:
The COT1 strategy uses a normalization technique to detect imminent market shifts while minimizing lag as much as possible.
The COT2 strategy uses a statistical technique to detect sentiment extremes that are bound to reverse.
The COT3 strategy uses a deceleration filter to detect exhaustion in positioning trends.
The COT4 strategy uses a pattern recognition technique to detect imminent reversals in sentiment.
EUR Currency
Signals from the EUR currency can be used to understand the expected directional bias of the USDEUR pair or any other EUR pair.
The following signal chart shows the latest 250 data with the COT1 signals.
The charts use major proxies versus the USD: EUR is represented by USDEUR, CHF is represented by USDCHF, GBP is represented by USDGBP, JPY is represented by USDJPY, and CAD is represented by USDCAD.
The following signal chart shows the latest 250 data with the COT2 signals.
Green arrows point to a bullish sentiment signal while red arrows point to a bearish sentiment signal.
The following signal chart shows the latest 250 data with the COT3 signals.
The following signal chart shows the latest 250 data with the COT4 signals.
Commentary
It looks like the phase of stabilization predicted by COT2 is not working out well. It seems that the EUR currency is more likely to keep falling.
7. The Millennium Forecast
During the introductory post, you must have understood that the Millennium Forecast targets the long-term as opposed to other indicators.
The following Figure shows a window of the last number of observations of the ISM PMI with the signals generated by the Millennium Forecast. Refer to the commentary below to understand what to expect.
Remember that the two outputs of the Millennium Forecast are as follows:
Expansion: This label represents an economic non-linear expansion.
Contraction: This label represents an economic non-linear contraction.
Commentary
The Millennium Forecast is neutral at the moment with the last signal given in February 2020 for an expansion signal that at the moment has not yet been reversed which means that the algorithm does not forecast a contraction for the moment but also is not so keen on an expansion either.
However, given the current global circumstances, a fast (more reactive) algorithm has been applied which shows that a contraction signal has been given around the top in February 2021 with the previous expansion signal given at the same time as the standard algorithm which is February 2020. The hit ratio of the fast algorithm is 70.96% compared to 74.07% for the standard algorithm.
To summarize, the current state is tilted towards a contracting environment and the next expansion signal is unlikely to occur before at least 5-6 months.
Historical Track Record
As a reminder, the next table shows the historical non-binding track record of the model using the specific back-testing rules described in the introductory post.
Past results are not representative of future results.
8. Bitcoin Tactical Sentiment Index
The Bitcoin Tactical Sentiment Index is a daily sentiment-based indicator which uses insights from volatility, direct surveys, open interest, and patterns to calculate a normalized value that shows where the inflection points are likely to be.
The following signal chart shows the latest 500 observations with the signals.
Commentary
The Bitcoin Tactical Sentiment Index is neutral at the moment with the last signal given in Late January 2022 for an expected 5-day bullish move which showed to last even more.
The index is closer to a bullish signal that to a bearish signal at the moment but nothing is confirmed yet. As it is calculated on a daily basis, if a trigger occurs, an instant update would be sent in the form of a brief post detailing what to expect.
Historical Track Record
As a reminder, the next table shows the historical non-binding track record of the model using the specific back-testing rules described in the introductory post.
Past results are not representative of future results.
9. University of Michigan’s Consumer Sentiment Index
The University of Michigan consumer sentiment index measures the expectations of the consumers over the future of the economy. The survey is done through telephone and is considered as one of the best market sentiment indicators albeit some flaws.
This week, I wanted to highlight the fact that consumer sentiment is drastically falling and is approaching the lows of the financial crisis in 2008. Note that low values are correlated with recessions.
10. Disclosure
Every information contained in the report is solely for the purpose of showing another angle. Since it is not investment advice nor a trade recommendation, you must not use the conclusion of the report as the sole reason for your trading and investing activities. Make sure you know how to include the above elements in your trading framework in a way that does not change your methodology.
Data can have many representations and the information presented is but one side which may be incomplete. All back-testing and forward testing results reflect their own time period and not the future.
The information contained in the report are proprietary and only you must use it. If you have to share it, please state the source correctly by referring the page of Coalescence.