Below are comments from our systematic strategy signals report for week of April 29, 2019.
Trend-following and momentum rotation strategies gained about 1% each while SPY mean-reversion gained about 1.5%. Mean-reversion in Dow 30 stocks managed a small gain of 0.3% despite the index losing 0.1%. Heavy losses in MMM and INTC caused a divergence in weekly returns between DJIA and S&P 500.
Dow 30 dollar neutral equity long/short was hit by a long position in MMM but due to the nature of the strategy losses were minimized: gains from long MSFT and MRK minimized the impact of losses from long MMM and short DIS. Despite the negative performance the strategy is still in the black year-to-date. Note that dollar neutral equity long/short strategies usually underperform in bull markets because it is hard to identify good short signals to profit from.
The S&P 500 index is up 17.3% year-to-date after a strong rally. Total return is up nearly 18%. It is highly unlikely that any systematic strategy will manage to come even close to index performance, assuming the market stays on an uptrend, and half of the performance of the total return may be considered great achievement. However, if for some reason a market correction will occur this year, then it is possible that some strategies will outperform. The sell-offs in MMM and INTC this week with losses of -12.4% and -10.4%, respectively, are indication of the fragility of this market. This is one reason that long/short, despite the dismal performance in uptrends, should be part of every serious portfolio that is looking primarily to preserve capital in case of turmoil and then to generate returns.
Obviously, the strategies we are considering here are not for the typical speculator, the kind you run across in social media, who has dreams of quick wealth accumulation from reckless trading activity. The majority of these speculators go broke like in a casino game. Some win and this survival bias due to luck motivate more to try.
Systematic trading with well-defined risk criteria, such as position size, is for serious traders and investors who know that wealth is accumulated in the long run. We provide this service for educational purposes only because it is a good way to maintain discipline and quality of analysis besides the small profit that goes to cover operational cost. We do not promise high returns and as a result our audience is small, educated but also dedicated.
If you have any questions or comments, happy to connect on Twitter: @priceactionlab