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Systematic Trading Update – December 27, 2022 [Premium Signals]

Photo by Burak The Weekender

The weekly systematic trading updates include a market recap, open positions, new signals, and the performance of eight trading strategies. Access the full report with a Market Signals or All-in-One subscription.

Price Action Lab Blog Wishes You Happy Holidays!

In observance of Christmas, U.S. securities exchanges will be closed on Monday, December 26, 2022.



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 (December 19 – December 23, 2022)

Stocks fell for a third week in a row after reports the economy remains robust and the labor market is still tight to allow the Fed to continue hiking interest rates in 2023. The fight against inflation may take longer than expected.

The SPY ETF fell 0.1%. Commodities (DBC) gained 2.1% due to solid gains in crude oil, gasoline, gains, and softs. Gold (GLD) rose 0.3%. High-yield corporate bonds (HYG) were down 0.3%, while long-duration bonds (TLT) plunged 4.6%. Year-to-date, the DBC ETF is up 18.7%. The TLT ETF is down the most, with a loss of 29.4%. The US Dollar Index (UUP) is up 10.1% year-to-date.

The S&P 500 index is down 19.8% from all-time highs. The realized volatility, as measured by the 21-day annualized standard deviation of daily returns, rose to 20% from 19.3%, but the implied volatility, as measured by VIX, fell from 22.6% to 20.1%.

As already noted in previous reports, the main theme in the markets this year has been “capital destruction”. The third relief rally in the stock market that started on October 13 ended on December 13 in what appears for now at least to be another bull trap. The October 13 low may be tested next year if the market fails to stage another rebound.

The strong gains in commodities and the bond market plunge were another two unexpected events this week. Traders and investors will have to get used to higher uncertainty and volatility as the fight against inflation continues. Forecasts have low statistical significance and there are not too many options for dealing with markets in “capital destruction mode”. One of the options is following strategies, but there is no method to eliminate market risk.

Below is a list of changes to the strategy mix for next year.

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