The Trend Asset Allocation Model is an asset allocation model that applies trend-following principles based on the inputs of global stock and commodity prices. This model has a shorter time horizon and tends to turn over about 4-6 times a year. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjaOi3mzGTW7B_BdZcxLsvVA4pc2mLAWKsrwTWc8KyPMLl7upywHzGYb2n8fBLUczY2Xy0pl5PAOQ1aEKTg8lZVNNd51c274ohhwNzKAW0aKBsLYPPhdFYz-iy_z_e11LenLw6TFpatliQOYfVb1nTcLcVB5dHfZBa3GzEnoiaW-WyN79Q6tyF9qW9iKdMt/w400-h291/Trend%20Model%20perf.png)
My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model becoming more bullish, or bearish?) and overbought/oversold extremes (don't buy if the trend is overbought, and vice versa). Subscribers receive real-time alerts of model changes, and a hypothetical trading record of the email alerts is updated weekly here. The hypothetical trading record of the trading model of the real-time alerts that began in March 2016 is shown below.
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMs_cfnMsLCc0Js4XdHAl1jV1Z_PJ00E3cHyVLbJoabozJx2aQU8tn50Eh2HVWTYVHc92pVKvtnaU60o7TGEplbaS1cJ6H2Zb8ywKVch2Nj7HTvp7IujN0uHaPkHX_3peV6vPjC_FDZ8MJC8X56szG52ttgVpQIA_KH4dVzdbPbS3VyHh8jLgT7iciq5lm/w400-h291/Inner%20Trader.png)
The latest signals of each model are as follows:
- Ultimate market timing model: Buy equities (Last changed from “sell” on 28-Jul-2023)*
- Trend Model signal: Neutral (Last changed from “bullish” on 26-Jul-2024)*
- Trading model: Bullish (Last changed from “neutral” on 25-Jul-2024)*
Update schedule: I generally update model readings on my site on weekends. I am also on X/Twitter at @humblestudent. Subscribers receive real-time alerts of trading model changes, and a hypothetical trading record of those email alerts is shown here.
Subscribers can access the latest signal in real time here. Watch the Yen
Even as equity markets turn risk-off, the real driver of risk appetite may be coming from cross-asset considerations and determined by hedge fund risk management policy. The combination of a hawkish shift in BOJ monetary policy and an easier tone to Fed policy has forced an unwind of the Yen carry trade. For the uninitiated, carry trades are where a investor borrows in a low yielding currency such as the Japanese Yen and invests the proceeds in a high yielding one. Since the yields spreads are relatively small, hedge funds take on carry trades with leverage, and lots of it. A carry trade unwind forces carry traders to flatten their positions. As the positions are taken on with leverage, a rush for the exits by leveraged traders is exporting cross-asset volatility to the rest of the hedge fund’s book, which forces a de-risking and deleverage of other asset classes. That’s how disorderly panic sell-offs happen.
Is the panic over? From a technical perspective, both the 10-year Treasury-JGB yield spread and the Japanese Yen are testing the support zones, which may serve to stabilize asset prices as the USDJPY consolidates in the support zone.
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgcSpKfqjYakYGMTYnLbBepLTMx1hyWfg4DO3QBZ18mj0zlv0I7U0O6_s2m3-fni_rTXH6s5Wk0IYJveU4R5FJya9UdkmBD7Zjrd5l3a2RIH2I_jr4OuEuhph_FnYc67D5DtnQwwpxeneen2vWuc8c62C5gP4i9eIQCZiiu8aOO7oiDJ46L52YTmjxnUZoO/w400-h283/JGB.png)