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Systematic Trading Update – July 11, 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 subscription are required to access the report.

For more information on the strategies, see here.

Market Recap and Comments (July 5 – July 8, 2022)

Stocks (SPY) gained 1.9% on the holiday-shortened week. Commodities (DBC) dropped 2.6% but ended the week significantly off lows. Gold (GLD) was down 3.6%. High Yield Corporate Bonds (HYG) gained 1.2%, but long-duration bonds (TLT) plunged by 2.9%.  Year-to-date, DBC is up 25.5%. TLT is down the most, with a loss of 23.3%.

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. -1.3%
Average weekly performance of the five strategies (excluding long/short) -0.5%
Weekly change of S&P 500 index +1.9%
Average YTD return including the long-short before the pause. -4.2%
Average YTD return excluding the long-short. -5.1%
YTD return of the S&P 500 Index (no dividends) -18.2%
YTD return of 60/40 portfolio in SPY/AGG (annual rebalancing) -14.7%
YTD return of PSI5 mean-reversion algo (performance for SPY, QQQ, and IWM) -7.1%

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 volatility switch is shown below.

Weekly performance of Dow 30 long-short strategy. +1.1%
YTD return of the Dow 30 long-short strategy. +3.1%
Average weekly performance of the six strategies (including long-short) -0.2%
Average YTD return including the long-short strategy -3.8%

Next week, the allocation to strategies will be at 5.5%, while 94.5% of it will be in cash. Four strategies are out of the market, and the long/short strategy is in (optional) pause mode due to high volatility. Only one momentum strategy has open positions.

Last week I wrote:

The capital destruction due to economic conditions and high uncertainty continues. Forecasting short-term moves is an exercise in futility.

As a reminder, on June 9, the year-to-date return of DBC ETF was 46.9%. In 19 trading days to the close of July 8, the ETF plunged 14.6%. In the same 19-day period, GLD ETF dropped 6.8%, while SPY and TLT ETFs did not recover. The main beneficiary of capital destruction during this period has been cash (T-Bills) with the US dollar gaining 3.5%.

The predominant mode of operation of market participants so far this year has been “take the money and run.” Some traders, including CTAs, and primarily trend-followers, have realized and unrealized gains year-to-date but if the whipsaw continues there is a high probability the profits will evaporate or even turn into losses.

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

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