The CI tries to identify whether a market is trending or consolidating by dividing the actual percentage the market has moved in the past number of days by the extreme range it has moved over the same number of days. The CI formula is as follows, where C is the closing price, t is the periods over which you want to calculate the CI, H is the highest high over the chosen time period, and L is the lowest low. We then smooth raw CI with a 3 day exponential moving average. The CI ranges between 100 and -100, with the largest values both positive and negative suggesting the strongest trending markets. Values between 20and -20 suggest congestion, i.e., range-bound prices. When the CI crosses above 20 from below, or below-20 from above, a trend is getting underway. When the CI crosses below 80 from above, or above-80 from below, a trend is ending and moving toward consolidation.
The CI is another way of characterizing momentum in markets.We look at momentum in other ways as well. For example, our CTA trend indicators combine a series of 3 standard moving average crossover signals and Donchian channel breakout signals for each G10 currency against its 9 exchange rate pairs. The indicator for each G10 currency is a weighted-average number of bullish signals across the 9 exchange rate pairs. For example, when looking at those 5 momentum systems for the USD against its nine G10 crosses, we find that, on average, almost none of them are bullish on the USD. However, as the history of the CTA trend indicator suggests, that is starting to change (seeExhibit12). Our CTA trend indicator also highlights 3 other currencies with extreme trend sponsorship: JPY, NOK, AUD. Similar to the USD, bearish trends prevail in the JPY against most of its nine G10 crosses (except the USD!). On the bullish side, trends in AUD and NOK are bullish against all but one G10 cross, on average.
True for now. My view is the battler will flame out in H2 and fall in 2022.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
