This is Part 1 of 2 from the 42MACRO Recreation Series The CE - 42MACRO Equity Factor Table is a whole toolbox packaged in a single indicator. It aims to provide a probabilistic insight into the market realized GRID Macro Regime, use a multiplex of important Assets and Indices to form a high probability Implied Correlation expectation and allows to derive extra market insights by showing the most important aggregates and their performance over multiple timeframes... and what that might mean for the whole market direction, as well as the underlying asset.
WARNING By the nature of the macro regimes, the outcomes are more accurate over longer Chart Timeframes (Week to Months). However, it is also a valuable tool to form a proper, market realized, short to medium term bias. NOTE This Indicator is intended to be used alongside the 2nd part "CE - 42MACRO Yield and Macro" for a more wholistic approach and higher accuracy. Due to coding limitations they can not be merged into one Indicator.
Methodology: The Equity Factor Table tracks specifically chosen Assets to identify their performance and add the combined performances together to visualize 42MACRO's GRID Equity Model. For this it uses the below Assets, with more to come:
Calculates the trend for each Asset and uses the Correlation to obtain the Implied Trend for the underlying Asset
There are multiple functionalities to enhance Signal Speed and precision...
Reading a signal only over a certain threshold, otherwise being colored in gray to signal noise or unclear market behavior
Normalization of Signal
Double Normalization of Signal for more Speed... ideal for the Crypto Market
Using an additional Hull Moving Average to enhance Signal Speed
Additional simple Background coloring to get a Signal from the HMA
Barcoloring based on the Implied Correlation
3. Equity Factor Table
Shows market realized Asset performance
Provides the approximate realized GRID market regimes
Informs about "Risk ON" and "Risk OFF" market states
Now into the juicy stuff... Visuals: There is a variety of options to change visual settings of what is plotted and where + additional considerations. Everything that is relevant in the underlying logic which can improve comprehension can be visualized with these options. More to come
Market Correlation: The Market Correlation Table takes the Correlation of all the Assets to the Asset on the Chart, it furthermore uses the Normalized KAMA Oscillator by IkkeOmar to analyse the current trend of every single Asset. (To enhance the Signal you can apply the mentioned Indicator on the relevant Assets to find your target Asset movements that you intend to capture... and then change the length of the Indicator in here) It then Implies a Correlation based on the Trend and the Correlation to give a probabilistically adjusted expectation for the future Chart Asset Movement. This is strengthened by taking the average of all Implied Trends. Thus the Correlation Table provides valuable insights about probabilistically likely Movement of the Asset over the defined time duration, providing alpha for Traders and Investors alike.
Equity Factors: The table provides valuable information about the current market environment (whether it's risk on or risk off), the rough GRID models from 42MACRO and the actual market performance. This allows you to obtain a deeper understanding of how the market works and makes it simple to identify the actual market direction, makes it possible to derive overall market Health and shows market strength or weakness.
Utility: The Equity Factor Table is divided in 4 Sections which are the GRID regimes:
Economic Growth:
Goldilocks
Reflation
Economic Contraction:
Inflation
Deflation
Top 5 Equity Factors: Are the values green for a specific Column? If so then the market reflects the corresponding GRID behavior.
Bottom 5 Equity Factors: Are the values red for a specific Column? If so then the market reflects the corresponding GRID behavior.
So if we have Goldilocks as current regime we would see green values in the Top 5 Goldilocks Cells and red values in the Bottom 5 Goldilocks Cells. You will find that Reflation will look similar, as it is also a sign of Economic Growth. Same is the case for the two Contraction regimes.
This whole Indicator, as well as the second part, is based to a majority on 42MACRO's models. I only brought them into TV and added things on top of it.
If you have questions or need a more in-depth guide DM me. Will make a guide to all functionalities if necessity becomes apparent.
Hello I have few questions, sorry - can you please explain how the definition of GRID regimes differ between The Equity and the Fixed Income model, please? I am trying to compare the two but it seems they do not show same signals. - what does "Risk on" imply for fixed income? Does the model says "Go long Bonds"? In that sense the "Risk on/off" for equities and fixed income would represent conditions different, i.e. for each asset class? - have you plan of developing also the CACRI indicator or other tools used by DDale? Thank you very much
Celestial-Eye
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@Rokan_G, Hey Mate, The GRID's are derived from the underlying performance of the Assets and their relative behaviour. Let's take Goldilocks for example...
When VO, SPHD, EEM, IWM and QQQ have positive performance then they fulfill the conditions for the Top 5 equity factors that perform best in Goldilocks (based on growth and beta) To confirm this EWZ,EWU,IWF, SPY and DXJ underperform as the bottom Equity factors... due to the calculation being relative to each other they would have negative values here
This is the basic functionality... Now for the difference in Equity Factor and Fixed Income/Macro... It is mainly a difference in Assets, I intended to make that a single table but the limit in security requests kept me from doing that. Because the Fixed Income and Macro contains more information that is the more reliable, however, Equity Factors still reveals edges in performance and thus market and sentiment shifts.
Now in regards to Risk on and Risk off... that simply means is the market in a contractionary phase where you want to be exposed to Risk Assets (namely Goldilocks and Reflation) or do you want to stay in cash or just don't hold Risk Assets (Inflation and Deflation)... You could also go into defensive Assets in a Risk Off phase if you so desire.
Lastly, yes I do intend to work on CACRI and Cyclical Dispersion and whatever else I can find and bring into TV. Just currently I am quite busy and have some other things I develop, so for the time being I am not going to publish more (at least nothing public).
Hope that answered your questions, have a great day!