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Systematic Trading Update – December 5, 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. 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  28 – December 2, 2022)

Stocks and bonds were up on the week on conflicting signals about Fed interest rate policy and expectations of a continuing recovery.

Stocks (SPY) gained 1.1%. Commodities (DBC) were up 1.3%. Gold (GLD) rose 2.5% on the back of a falling U.S. dollar. High-yield corporate bonds (HYG) added 1.2%, while long-duration bonds (TLT) surged 4.3%. Year-to-date, the DBC ETF is up 20.7%. The TLT ETF is down the most, with a loss of 26.3%. The US Dollar Index (UUP) is up 10.1% year-to-date.

The S&P 500 index is down 15.1% from its all-time highs. The realized volatility, as measured by the 21-day annualized standard deviation of daily returns, fell this week from 26.2% to 25.4%, and the implied volatility, as measured by VIX, fell from 20.1% to 19.1%. Relatively elevated volatility is an indication that risks remain high.

Cross-sectional momentum had solid gains this week. The DOWW long/short had also gains for the second week in a row. All in all, it was a good week, with an average gain of about 1.1% for the active strategies.

Exposure to equities will slightly increase next week due to additional mean-reversion trades from the MRDOWW strategy and cross-sectional momentum.

Below is an excerpt from last week’s report:

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.

The stock and bond markets appear determined to close higher in December if there is no change in fundamentals. We have also seen a temporary decoupling from fundamentals in the past. It is an investor gamble that on several occasions in the past has been profitable, but on a few occasions, it has caused devastating losses.

2. Ensemble Performance

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