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Systematic Trading Update – November 14, 2022 [Premium Signals]

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.

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Report Contents

1. Market Recap and Comments.
2. Ensemble Performance.
3. Positions and Performance.
4. Signal Summary for Next Week.

1. Market Recap and Comments (November 7 – November 11, 2022)

Stocks (SPY) surged 5.2% amid the expectation of a top in inflation. Commodities (DBC) fell 1.6%. Gold (GLD) rallied 5.2% on the back of a retreating U.S Dollar. High-yield corporate bonds (HYG) gained 2.1%, while long-duration bonds (TLT) were up 3.9%. Year-to-date, the DBC ETF is up 25.8%. The TLT ETF is down the most, with a loss of 32.7%. The US Dollar index (UUP) is up 11.8% year-to-date.

The S&P 500 index is down 16.8% from its all-time highs after the rally this week. Last week I wrote:

We expect volatility to rise in the next week and more whipsaw in all major markets.

The realized volatility (21-day annualized) surged, from 26.2% to 30%. As measured by VIX, the implied volatility fell from 24.6% to 22.5%. Investors expect this rally to continue, and calls for new highs in the S&P 500 have already surfaced. However, as we have insisted many times, no one knows whether this rally is a bear market rebound or signals a bottom formation. The samples are tiny, and any statistical analysis is impossible.

As a result of the strong rebound, two of the short positions in the DOWW long/short strategy were stopped. This is inevitable in strong rallies due to short-covering. The DOWW long/short provided convexity when needed, but it could become a drag in the current regime, although the strategy is up year-to-date. We are thinking of removing this strategy next year. The new ETFLSW strategy can also provide convexity due to signals in commodity ETFs. The exposure to stocks will decrease, and this is desirable. We still get exposure to stocks from other strategies, including mean-reversion.

2. Ensemble Performance

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