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.
1. Market Recap and Comments.
2. Ensemble Performance.
3. Positions and Strategy Performance.
4. Signal Summary for Next Week.
1. Market Recap and Comments (September 19 – September 23, 2022)
On Monday, September 19, 2022, stocks (SPY) opened 0.9% lower but rebounded to close with a gain of 0.8%. The rebound served as a bull trap, with stocks falling 5.3% in the following four days for a weekly loss of 4.6%. Commodities (DBC) fell 3.5% due to broad-based selling. Gold (GLD) lost 1.8%. High-yield corporate bonds (HYG) shed 2.8% and long-duration bonds (TLT) fell 1.3%. Year-to-date, DBC is up 15.5%. TLT is down the most, with a loss of 27.7%. The US Dollar index (UUP) is up 18.3% year-to-date.
The Dow-30 long/short strategy worked as it was supposed to and delivered a 1.4% gain for the week. All three long positions fell about 3.5% on average, but all short positions gained nearly 6.2% on average. This is a desirable performance for long/short, although the best performance is when one of the long positions also gains during a down market. The weekly Dow-30 long/short strategy is up 6.5% year-to-date. In addition, our daily MRETFLS long/short strategy in SPY, QQQ, and TLT ETFs is up 5.8% year-to-date (the signals are not included in these reports.) The long/short strategies are performing well due to a lack of strong relief rallies and a slow “pain trade” to lower levels.
As mentioned in previous reports, the reason for using strategies is to avoid making forecasts and being affected by cognitive biases. These biases are present in a large group of traders, analysts, and economists who attempt to forecast price action using all sorts of convoluted arguments based on technical and/or fundamental analysis. This gets embarrassing, but the uncontrollable urge of trying to be right blinds those people from realizing how foolish their behavior is. The financial, social, and mainstream media are full of broken clocks.
2. Ensemble Performance
Below is a weekly performance recap, including year-to-date performance and a comparison to popular benchmarks and the MRETFLS long-short mean-reversion strategy.
|Average weekly performance of the five strategies (excluding long/short)||0.0%|
|Average weekly performance of the six strategies (including long-short)||+0.2%|
|Average YTD return of the strategies including the long-short.||-4.4%|
|Average YTD return of the strategies including the long-short before the pause.||-5.4%|
|Average YTD return of the strategies excluding the long-short.||-6.5%|
|Weekly change of S&P 500 index.||-4.7%|
|YTD return of the S&P 500 Index (no dividends).||-22.5%|
|YTD return of 60/40 portfolio in SPY/AGG (annual rebalancing).||-18.4%|
|YTD return of MRETFLS long-short mean-reversion algo (performance for SPY, QQQ, and TLT).||+5.8%|
The Dow 30 long-short strategy has been on an optional pause since March 7, 2022, 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.||+1.4%|
|YTD return of the Dow 30 long-short strategy.||+6.5%|
Strategy performance, positions, and the new signals report follow below.
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