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Weekly Signals Update – October 4, 2021 [Premium Signals]

The weekly systematic trading report includes open positions, new signals and year-to-date performance of seven trading strategies. Access to article requires Market Signals or All in One subscription. 

Market Recap and Comments

Stocks (SPY) finished the week down 2.2% after dropping as much as 3.8%. Commodities (DBC) gained 2.7% and closed near the highs of the week. Gold (GLD) was up 0.8% after dropping as much as 1.4%. Bonds (TLT) recovered from a loss of 2.2% to end the week down 0.9%. DBC is up the most (+39.1%) year-to-date while GLD is down the most (-7.7%.)

The rally in commodities continued while bonds and stocks were down. All in One and Premium Insights subscribers see a recent article for a discussion about the pattern of falling bonds and stocks with rising commodities.

Volatility has increased due to uncertainty about tapering, interest rates, inflation and debt ceiling. TLT ETF 21-day annualized volatility was 14.6% on Friday, October 1, as compared to 9.6% on September 7. For SPY ETF, the same volatility measure is now at 13.2% versus 7.4% on September 3. This is 80% increase in volatility but from a low level. A comparable increase from these levels could equate to a large correction.

Investors are turning cautious but it appears some funds are selling lower volatility stocks while adding to their high beta positions. This is the reverse of what occurred before and during the dot com bear market. It could be a calculated move based on sound analysis but also due to wishful thinking. At some point we will know. They may be right that “this time is different.” However, if they are wrong, massive selling may start at some point.

I’ve been through two major bear markets (2000 – 2003, 2008) and many corrections: large, medium and small with varying durations. In my opinion, the biggest consolidation that’s coming isn’t in stock market because after all as long as the economy maintains its key advantages markets will recover at some point. The biggest consolidation will occur in the fund management industry. Maybe it’s about time and it’s their own actions that will trigger the events.

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