The weekly systematic trading updates include a market recap, open positions, new signals, and the performance of eight trading strategies. A Market Signals or All in One subscription is required to access the full report.
Announcement: In the last report we included weekly signals of a long/short trend-following strategy for 12 commodity ETFs. This strategy and the long/short strategy for factor ETFs introduced previously are in a testing phase for addition to the ensemble next year. The trend-following strategy is using our PSI5 algo for generating divergent signals in the weekly timeframe.
Report Contents
1. Market Recap and Comments.
2. Ensemble Performance.
3. Positions and Strategy Performance.
4. Signal Summary for Next Week.
1. Market Recap and Comments (October 10 – October 14, 2022)
It was another week in the markets, with all assets falling and the US dollar gaining. Stocks (SPY) ended the week with a 14% loss amid rising volatility. Commodities (DBC) fell 3.2%. Gold (GLD) lost 3.1%. High-yield corporate bonds (HYG) were down 0.8%, while long-duration bonds (TLT) shed 2.8%. Year-to-date, DBC is up 21.1%. TLT is down the most, with a loss of 32.4%. The US Dollar index (UUP) is up 18.8% year-to-date.
The S&P 500 index is down 25.3% from its all-time highs. In the first three days of the week, the index fell 1.7%, then gained 2.6% on Thursday amid wide swings, and on Friday it lost 2.4% to finish the week down 1.6%.
This is an excerpt from last week’s report:
Most of the technical and macro analysis is irrelevant and noisy. Like broken clocks, most of these “analysts” wait for when they will be right. Then they generate even more noise. Strategies attempt to filter the noise and get the signal. This is not always possible, but it is the only sensible way of dealing with the markets.
High volatility impacts the profitability of discretionary traders due to a higher frequency of activated stop-losses. Strategies are by no means a panacea for dealing with uncertainty and randomness but do not suffer from cognitive biases. Discretionary trading during periods of high volatility is indistinguishable from casino gambling for most market participants. Any edge due to skill can disappear due to volatility drag. The goal is to have strategies with the most robust edges in the market and keep those with a fragile edge out.
The only active strategy (optionally) from the group of six, the Dow-30 long/short, gained 1.1% this week, and it is up 7.7% year-to-date. We may add two more long-short strategies for next year, one for factor ETFs and the other for commodity ETFs. Both of these strategies are currently being tested, and their performance and positions are included in these reports.
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. | -4.2% |
| 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. | -1.6% |
| YTD return of the S&P 500 Index (no dividends). | -24.8% |
| YTD return of 60/40 portfolio in SPY/AGG (annual rebalancing). | -20.6% |
| YTD return of MRETFLS long-short mean-reversion algo (performance for SPY, QQQ, and TLT). | +8.9% |
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. | +1.1% |
| YTD return of the Dow 30 long-short strategy. | +7.7% |
Strategy performance, positions, and the new signals report follow below.
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3. Positions and Strategy Performance as of the close of Friday, October 14, 2022.
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