Risk-Weighted Index: Bullish Outlook, Watch Break Of Triangle
Ivan Delgado | Aug 30, 2018 12:31AM ET
The risk-weighted index I personally monitor is comprised of the following assets (9 components in total), all equally weighted. S&P 500, Japanese Yen, Swiss Franc, DAX 30, MSCI EM, US 30-yr Bond Yield, US Corp Bonds (Junk), DXY, Gold.
By studying the market structure of this index, it provides a barometer of the ebbs and flows in risk and it has direct implications on what type of capital flows one may expect. For instance, the index has been an accurate predictor to gauge the direction in a sensitive-risk currency as the Japanese Yen, so it’s no wonder how the rise in the index ever since the bottom on Aug 15th has led to a steady depreciation of the currency, with the pain exacerbated this week, after what I called“the trifecta effect “ earlier this week.
A break higher in the risk index is set to reignite further weakness in the Japanese Yen crosses. The current formation of a narrowing triangle supports the ‘risk on’ environment heading int Thursday. Note, if a breakout in the triangle occurs, a 100% fib proj offers significant leeway for a runaway in risk on currencies and further pain for the Yen and tentatively the USD.The 100-hourly MA has been accurately commanding the risk appetite rally as depicted by the magenta line, therefore, expect the risk environment to remain constructive short term while above.
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