Something is 'ridiculously wrong' with this trading signal - Michael Gayed on lumber/gold
Defensive sectors and assets, like gold, are starting to outperform, bringing down the lumber to gold ratio.
Michael Gayed, portfolio manager of Toroso Investments which manages the RORO ETF (NYSEArca: RORO), noted that historically, a stock market correction has coincided with a declining lumber to gold ratio, although a lower ratio has not always led to a market crash.
“You’ve got a lot of confirming factors that would suggest that consumer spending power is about to maybe take a hit. That would suggest housing will take a hit, or at least slow down,” Gayed told David Lin, anchor for Kitco News.
Gayed said that it is also important not to overstate “false positive” signals in the market place and assume that just because stock markets have continued to climb higher that nothing is fundamentally at risk.
“I do think we are living the eye of the storm here,” he said.
On market execution in anticipation of higher volatility, Gayed said that he does not recommend shorting the market, rather, holding a basket of defensive assets is more prudent.
“It’s very purposeful when I talk about treasuries and low beta as a way to execute on risk-off conditions because in the event that the risk-off does not result in a decline, at least you are not going on a decline in the same way,” he said.
For more information on Gayed’s market outlook and how he views market timing as a technique, watch the video above. Follow David Lin on Twitter @davidlin_TV (https://twitter.com/davidlin_TV).