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Systematic Trading Update – August 15, 2022 [Premium Signals]

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

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Market Recap and Comments (August 8 – August 12, 2022)

Stocks (SPY) gained 3.3% with the summer rally turning into a major relief rally. Commodities (DBC) surged 4.9%. Gold (GLD) was up 1.6%. High Yield Corporate Bonds (HYG) added 2.2%, while long-duration bonds (TLT) fell 0.8%. Year-to-date, DBC is up 25.6%. TLT is down the most, with a loss of 21.1%. Stocks are overbought.

The stock market rally is partly fueled by expectations of easing inflation. Since June 17, 2022, the S&P 500 has gained 16.7%, and the drawdown for the year has been reduced from -23.6% to -10.8%. Some market participants think the rebound will continue, few believe stocks will make new highs, and others believe the current rally is a bull trap.

In an environment of elevated uncertainty, diversification and risk management have a decisive impact on long-term performance. The ensemble of strategies increased the exposure to equities for next week, but we are still a long way from full exposure.

Next week, the allocation to strategies will be about 27.7%. Two strategies are out of the market, and the long/short strategy is in (optional) pause mode due to persisting high volatility.

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) +0.8%
Average weekly performance of the six strategies (including long-short) +0.7%
Average YTD return of the strategies including the long-short. -2.7%
Average YTD return of the strategies including the long-short before the pause. -3.5%
Average YTD return of the strategies excluding the long-short. -4.2%
Weekly change of S&P 500 index +3.3%
YTD return of the S&P 500 Index (no dividends) -10.2%
YTD return of 60/40 portfolio in SPY/AGG (annual rebalancing) -9.1%
YTD return of PSI5 mean-reversion algo (performance for SPY, QQQ, and IWM) -1.2%

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. -0.3%
YTD return of the Dow 30 long-short strategy. +5.1%

Strategy performance, positions, and the new signals report follow below.

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