Citi Risk Aversion Signal Turns Bearish for First Time in a Year

  • Global Risk Aversion Macro Index rises from three year low
  • Analysts warn signal may not work well amid subdued volatility

A potential equity trading signal based on global risk aversion turned bearish yesterday for the first time since the middle of last year, according to Citigroup Inc.

The 20-day moving average of the bank’s Global Risk Aversion Macro Index crossed above its 100-day moving average, generating a negative-risk signal, strategists including Jeremy Hale wrote in a note to clients. The index, a combination of risk measures across asset classes, has risen from a more than three-year low reached in July.

But while bearish signals have captured negative moves in the S&P 500 in the past, Citigroup cautioned that they tend to work well only in volatile markets.

“Since 2013, in a world of subdued volatility and frankly absent equity market corrections, signals have been sparser and the bearish signals especially failed to perform,” the strategists said.

The Chicago Board Options Exchange’s volatility index is having its most volatile month since last September, yet remains on track to record the smallest daily swings since 2009 over the full year.

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