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.
1. Market Recap and Comments.
2. Ensemble Performance.
3. Positions and Performance.
4. Signal Summary for Next Week.
1. Market Recap and Comments (November 21- November 25, 2022)
In the holiday-shortened week, commodities and the US dollar fell. Stocks and bonds had a holiday rally.
Stocks (SPY) gained 1.6%. Commodities (DBC) fell 1.6%. Gold (GLD) was up 0.3% on the back of a retreating U.S. dollar. High-yield corporate bonds (HYG) rose 1.1%, while long-duration bonds (TLT) surged 3.3%. Year-to-date, the DBC ETF is up 19.2%. The TLT ETF is down the most, with a loss of 29.3%. The US Dollar Index (UUP) is up 11.5% year-to-date.
The S&P 500 index is down 15.5% from its all-time highs. The realized volatility, as measured by the 21-day annualized standard deviation of daily returns, fell this week from 27.5% to 26.2%, and the implied volatility, as measured by VIX, fell from 23.1% to 20.1%. The fall in volatility has been slower than some market participants were expecting, and it could be an indication that risks remain high.
Mean-reversion and cross-sectional momentum strategies had solid gains this week. The DOWW long/short also rebounded after last week’s loss. All in all, it was a good week, with an average gain of about 0.7% for the active strategies.
Next week, tactical asset allocation will join the group of active strategies. Exposure to equities is now about 22% but remains low due to higher market risks.
The next month, December, is the strongest historically, with an average return of 1.72% since 1943. There have been a few outliers, such as the 2018 loss of 9.2%. A statistical analysis of December returns and an estimate of the probability of a gain next month are included in the premium article published yesterday.
2. Ensemble Performance
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