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Systematic Trading Update – August 8, 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.

Reminder: Recently, we introduced the factor ETF long/short strategy, FACTLSW. This strategy will become part of the ensemble next year.

For more information on the strategies, click here. Premium Content is 10% off for blog readers and Twitter followers with coupon code NOW10.

Market Recap and Comments (August 1 – August 5, 2022)

Stocks (SPY) gained 0.4% as the summer rally momentum stalled. Commodities (DBC) plunged 4.7%. Gold (GLD) was up 0.7%. High Yield Corporate Bonds (HYG) added 0.2%, while long-duration bonds (TLT) fell 0.6%. Year-to-date, DBC is up 19.7%. TLT is down the most, with a loss of 20.5%. There are no overbought or oversold conditions.

Last week I wrote:

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

In addition, there is often a disconnect between statements made by officials and their actions. The game has several levels of complexity, and the ramifications are not only financial but also political. Therefore, trying to forecast market direction by analyzing the news is an exercise in futility.

A little tweaking of algos may or may not be fine, but looking at chart indicators is not systematic trading. Systematic involves, among other things, precise entry and exit levels, announced in advance, as is done in these reports. In this way, followers can track performance. Claims of predicting market movements are random noise. In addition to the entry signal, the exit signal is also required to measure performance. Unfortunately, these behaviors are widespread, and many are fooled. For a signal service to have legitimacy, the following must be provided:

  • Timing of entries and exits.
  • The risk management rules.

If the above is not provided, as in these reports, then chances are high, any market analysis is random and wishful thinking.

Next week, the allocation to strategies will be at 13.6%. Three 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) -0.5%
Average weekly performance of the six strategies (including long-short) -0.5%
Average YTD return of the strategies including the long-short. -3.3%
Average YTD return of the strategies including the long-short before the pause. -4.2%
Average YTD return of the strategies excluding the long-short. -5.0%
Weekly change of S&P 500 index +0.4%
YTD return of the S&P 500 Index (no dividends) -13.0%
YTD return of 60/40 portfolio in SPY/AGG (annual rebalancing) -10.9%
YTD return of PSI5 mean-reversion algo (performance for SPY, QQQ, and IWM) -3.3%

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. -0.5%
YTD return of the Dow 30 long-short strategy. +5.4%

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

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