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Systematic Trading Update – August 1, 2022 [Premium Signals]

The weekly systematic trading updates include open positions, new signals, and the performance of seven trading strategies. A Market Signals or All in One subscription is required to access the report.

Update: In the last report, we introduced the factor ETF long/short strategy, FACTLSW. This strategy will become part of the ensemble next year.

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Market Recap and Comments (July 25 – July 29, 2022)

Stocks (SPY) surged 4.3% as the summer rally gained momentum. Commodities (DBC) rebounded strongly to finish the week with a 4.9% gain. Gold (GLD) was up 2.1%. High Yield Corporate Bonds (HYG) gained 1.7%, while long-duration bonds (TLT) fell 0.9%. Year-to-date, DBC is up 25.6%. TLT is down the most, with a loss of 20%.

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 the five strategies (excluding long/short) +0.7%
Average YTD return including the long-short before the pause. -3.8%
Average YTD return excluding the long-short. -4.6%
Weekly change of S&P 500 index +4.3%
YTD return of the S&P 500 Index (no dividends) -13.3%
YTD return of 60/40 portfolio in SPY/AGG (annual rebalancing) -10.7%
YTD return of PSI5 mean-reversion algo (performance for SPY, QQQ, and IWM) -4.3%

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 performance of the strategy without the (optional) volatility switch is shown below.

Weekly performance of Dow 30 long-short strategy. +2.5%
YTD return of the Dow 30 long-short strategy. +5.9%
Average weekly performance of the six strategies (including long-short) +1.0%
Average YTD return including the long-short strategy -2.8%

Next week, the allocation to strategies will be at 22.2%. Three strategies are out of the market, and the long/short strategy is in (optional) pause mode due to persisting high volatility.

Since June 17, or in the last 29 trading days, the S&P 500 has recovered 12.9%. This translates to a daily average of +0.44% and just above +2-standard deviations of the 29-day average return at +0.38%. The rebound is getting stronger, but there is still a low probability that this is a relief rally and not another uptrend after a bottom on June 17. No one knows, and all indicators can generate false signals.

The worst mistake one can make in markets is trying to interpret economic conditions, macro charts, and statements made by officials in an effort to determine short-term direction. There is a great disconnect between speculators’ expectations, their actions, and economic conditions.

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

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