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Systematic Trading Update – May 23, 2022 [Premium Signals]

Systematic Trading updates include open positions, new signals, and the performance of six trading strategies in the weekly timeframe. Market Signals or All in One subscription are required to access the report.

For more information on the strategies, see here.

Market Recap and Comments (May 16 – May 20, 2022)

Stocks (SPY) fell 3.0% despite a rebound from a bear market territory on the last day of the week. Commodities (DBC) fell 0.2%. Gold (GLD) gained 1.9%. Bonds (TLT) were up 2.2%. Year-to-date, DBC is up 34.6%. TLT is down the most, with a loss of 19.6% but there are signs of a possible short-term bottom.

Below is a weekly performance recap, including year-to-date performance, and a comparison to popular benchmarks and the PSI5 mean-reversion strategy.

Average weekly performance of strategies with open positions. -0.6%
Average weekly performance of the five strategies (excluding long/short) -0.4%
Weekly change of S&P 500 index -3.0%
YTD average return including the long/short before the pause. -4.2%
YTD average return excluding the long/short. -5.0%
YTD return of the S&P 500 Index (no dividends) -18.1%
YTD return of 60/40 portfolio in SPY/TLT (annual rebalancing) -18.4%
YTD return of PSI5 mean-reversion algo (performance for SPY) -2.6%

Comments about performance, positions, and the new signals report follow below.

The “pain trade” since the start of this year has caused problems with mean-reversion strategies. The S&P 500 has dropped slowly this year, with an average daily return of about -0.2%, and there have only been two potential exit levels in the daily timeframe after March 30. In the weekly timeframe, the index has been down seven weeks in a row with no offer of exit levels. The last time there was a 7-week losing streak in the S&P 500 was on March 21, 2001, and afterward, there was a relief rally. However, after the relief rally, the bear market resumed.

In addition, tail risk events in several large-cap stocks have impacted long/short performance. Due to high implied volatility, the weekly long/short strategy went flat in early March of this year, and in hindsight, this was a correct decision by the algo.

To further complicate matters, gold has been in an erratic mode since the highs of the week ending March 11, 2022. There are signs gold may rebound, along with signs that bonds are forming a bottom. No one knows what will happen in the next few weeks.

Next week, the allocation to strategies will be about 37%, while 63% will be in cash.

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