A few quick tips:
- My work here is to educate on short and long term signals – on which direction the market is generally headed based on academic indicators
- These signals can help develop an investment strategy – they are not the only elements you should factor into your thesis
- I will share my investment strategy for you to compare, but it should not be a playbook for your investments – consult with a financial advisor for that
- Two major catalysts I look for when trading equities are volatility and dollar strength
- The VIX (Volatility Index on the S&P 500)
- DXY (Dollar Strength Index)
- These two elements, on a broader scale, usually signal which direction equities are headed
- Today we’re focusing on the DXY
The Dollar Strength Index
- There is an inverse relationship between the strength of the dollar vs. S&P 500 price
- The DXY is almost exclusively driven by interest rates
- The Federal Reserve:
- The strength of the dollar goes UP each time the Fed RAISES interest rates
- The strength of the dollar goes DOWN each time the Fed LOWERS interest rates
- The DXY going UP is a signal that it’s better to hold cash (dry powder) than it is to hold equities
- If Jerome Powell and the Federal Reserve are adamant about lowering inflation, then we can be almost certain that the DXY will continue its parabolic run up
- September core inflation went up and overall inflation is still hovering above 8%
- We can safely assume there will be another interest rate hike in November anywhere between 75-100bps
- Which means the DXY will likely go UP
- Which means the S&P 500 will likely go DOWN into the first week of November
My Strategy
- I’m continuing to hold majority cash positions until the Fed switches to Quantitative Easing
- Either they stop raising rates entirely or they begin to decrease rates
- For me, asset prices are cheap now. I’m spread across commodities, tech, metals, and industrial stocks with 50% of my positions planned to go into the $SPY
- Dollar Cost Averaging is my strategy of choice
- I split my investment fund into 5 “rounds” (say I have $100k to invest, each round is $20k I will throw into the market at a specific time)
- Round No. 1: in the market right now at the price levels we’re seeing at this moment
- Round No. 2: will go in at the next major dip likely in the next couple weeks
- Rounds 3 through 4 will stay in cash positions until the Fed moves to QE or we hear more dovish rhetoric from Jerome Powell
- If there aren’t any major dips in the market, the remaining “Rounds” will ride the moves up and grow my money
- I split my investment fund into 5 “rounds” (say I have $100k to invest, each round is $20k I will throw into the market at a specific time)
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Your investment strategies could differ from mine based on your risk tolerances, research, and time horizon, so I encourage you to do your own research as information provided by The Rebel Economist or Breaking Metrics should never be considered financial advice.