The weekly systematic trading report includes open positions, new signals and year-to-date performance of seven trading strategies. The report also includes a commentary about the strategies and market. Access to article requires Market Signals or All in One subscription.
Market Recap and Comments
Stocks (SPY) finished the week up 2% after recovering from a loss of 2.2%. Commodities (DBC) fell as much as 4.4% but recovered to close with a 0.7% gain. Gold (GLD) lost 0.5% after a failed rally. Volatility in the bond market increased further with TLT ending the week up 0.2% after rising as much as 3%.
My market outlook from two weeks week still holds:
We expect increase in volatility in the next few weeks and then slow markets until near Labor Day on September 6. Passive investors are not willing to give up gains and will continue adding to positions until an unexpected event causes a decline in the stock market. The bond market is near a pivot area and future direction is uncertain. Commodities will probably consolidate with a small downward drift going forward and until the inflation picture becomes clearer.
Stocks were down on Monday with SPY dropping 1.5% but then rebounded on Tuesday and rose four days in a row to new all-time highs with the ETF up 2% by the close of Friday. This move surprised many shorts that were expecting a continuation of the down move on Monday, or at least some consolidation.
Last week I wrote:
The best case scenario is another short squeeze in the stock market but the probability is lower for next week. Bonds may consolidate along with commodities but in the latter case a downward drift could dominate action.
The stock market rally is mainly fueled by passive index funds and it will probably take more than fundamentals for a change in trend. Short-term direction in the bond and commodities markets is uncertain although the latter had an upward bias this week. Volatility may increase in the last five trading days of this month due to the rising uncertainty in commodities and fixed income markets.
I have been developing and using systematic trading strategies since the 90s. In my opinion only, discretionary trading should not exceed 5% -10% of portfolio equity and use of systematic trading is necessary to avoid random trades. There are some people who are very good with discretionary trading but in my opinion those are tiny fraction of the participants.
For example, when MRSPYW generated a long SPY signal after the close of the previous week, I was skeptical about the signal. As it turned out, this was the most profitable trade of this week for the strategies with a gain of 3.2%. On the other side of this signal were many short-term traders who though the market would go lower.
Strategy Performance Recap
The average weekly gain of the strategies was 1.5%.
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