Has anyone ever made a honest attempt to apply this approach in a systemic fashion. For example, I model many of the economic indicators and have established some rules for the usages of each and their relative impact on the market. However, I have never really taken the time to try and see if any certain set of expectations applied to the models had a significant effect on any of the markets. I focus mainly on Treasuries, but would be interested about how this mentality affects other markets or markets in general.
If you're really "intrigued" by this, focus on how the bond market behaves leading up to major reports, auctions, FED meetings & window-dressing periods. Whatever happens afterward might appear to make more sense. Look into it!
When you say you model them, do you mean create trade models off them? If so, how has that worked? Especially lately, with the way the treasuries have been reacting to numbers. I don't actually trade off them, but I have (as I'm sure many other have also) noticed that they've been reacting somewhat irregularly (i.e. PPI coming out .5 above estimates and the market rallying), and I'm curious to find out the opinions of someone who models their trading off them. Also, do you take into account things like curve movement vs. outright movement? Or do you break down the numbers component-wise? Anyway, just think it's really interesting what you're doing. Looking forward to hearing about it. Tim
Tim, I use several different models. The easiest to get a clear picture is to simply find moving averages (ie 3 month, 6 month) and match the movements of the indicator against the market you are interested in trading. Believe it or not I have found that trading off reports is actually more technical than fundemental. Is usually the market movements that unfold after the report day that seem to be the most fundementally driven. Your example of PPI would be "relative". In general inflation measures are "lagging" indicators and depending on other factors a rally of an extraordinarily high PPI report could be a set of shorts covering large positions with the assistance of new long money flowing in on the knee jerk response to the report.