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Systematic Trading Update – June 27, 2022 [Premium Signals]

The weekly systematic trading updates include open positions, new signals, and the performance of six trading strategies. Market Signals or All in One subscriptions are required to access the report.

For more information on the strategies, see here.

Market Recap and Comments (June 21 – June 24, 2022)

The holiday-shortened week delivered a stock market rebound. Stocks (SPY) surged 6.6%. Commodities (DBC) dropped 3.3%. Gold (GLD) was down 0.7%. High Yield Corporate Bonds (HYG) gained 1.3%, but long duration bonds (TLT) were up only 0.4%.  Year-to-date, DBC is up 33.3%. TLT is down the most, with a loss of 23.5%.

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. -0.9%
Average weekly performance of the five strategies (excluding long/short) -0.4%
Weekly change of S&P 500 index +6.6
Average YTD return including the long-short before the pause. -3.5%
Average YTD return excluding the long-short. -4.2%
YTD return of the S&P 500 Index (no dividends) -17.9%
YTD return of 60/40 portfolio in SPY/AGG (annual rebalancing) -14.6%
YTD return of PSI5 mean-reversion algo (performance for SPY, QQQ, and IWM) -6.4%

The Dow 30 long-short strategy was paused on March 7, when the positions were closed due to the activation of a volatility switch. The strategy without the optional switch was up 3.5% by the close of Thursday with all long and short positions gaining, but due to the rally on Friday, it ended the week with a gain of 1.4%.

Weekly performance of Dow 30 long-short strategy. +1.4%
Average weekly performance of the six strategies (including long-short) -0.2%
Average YTD return including the long-short strategy -2.9%

Next week, the allocation to strategies will be at 14%, while 86% of it will be in cash. Three strategies are out of the market, and the long/short strategy is in (optional) pause mode due to high volatility. Only two momentum strategies have open positions.

Many traders believe the rebound in equities was a bear market rally. Some other traders believe the reversal in commodities was due to crowded trades and profit-taking. The truth is that no one knows what will happen next. Everyone is trying to promote their book. Analysts who think macroeconomics can explain short-term market moves are the most deluded. CTAs and other long-term traders had long determined that analyzing the markets was an exercise in futility and had developed strategies as far back as the 80s. Social media has given a platform to many people who lack this fundamental understanding and think they are smarter than the markets. Systematic traders profit from the delusions of these discretionary traders.

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

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