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Systematic Trading Update – January 3, 2023 [Premium Signals]

Photo by Alesia Kozik

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.

In observance of New Year’s Day, U.S. securities exchanges will be closed on Monday, January 2, 2023.

Happy New Year! With this year coming to an end, we send our best wishes to you and your family. Thanks for choosing our service. Wishing to serve you again in this New Year.



Report Contents

1. Market Recap and Comments.
2. 2022 Performance Recap.
3. Ensemble Performance.
4. Positions and Performance.
5. Signal Summary for Next Week.

1. Market Recap and Comments (December 27 – December 30, 2022)

Stocks fell in the holiday-shortened week. The SPY ETF fell 0.1%. Commodities (DBC) gained 0.5%. High-yield corporate bonds (HYG) were down 1%, while long-duration bonds (TLT) plunged 2.5%.

For the year, the DBC ETF gained 19.3%. The TLT ETF ended the year down the most, with a loss of 31.2%. The US Dollar Index (UUP) finished the year with a 9.5% gain. The SPY ETF fell 18.2% in 2022. Gold (GLD) finished the year with a small loss of 0.8%.

“Capital destruction” has been the main theme in all markets throughout the year. The third relief rally in the stock market (SPY) for 2022 ended with a sharp reversal earlier this month, followed by a consolidation. The bond market (TLT) had also three relief rallies since the all-time highs of August 2020, with a maximum drawdown of 39%. Commodities (DBC) peaked in June of this year, and by the end of September had lost 23.2%. The US dollar (UUP) peaked by the end of September of this year, and it has since lost 8.5%.

All in all, 2022 posed a challenge to systematic strategies due to erratic price action and sharp reversals. Although trend-following CTAs had an excellent year overall, the performance has been impacted by a drawdown after October. For example, the DBMF ETF that tracks the ensemble performance of the top 20 CTAs is down 13% since October 20 of this year. The KMLM ETF made new all-time highs on October 10, but since has fallen 17.5%. The performance for the year of our PSI5TF futures trend-following strategy peaked at 37% on October 21 but has lost 9.2% to the end of the year with a final gain of 24.4%.

Despite any setbacks, strategies remain the only robust approach to markets. This year has offered more evidence that macro and technical analysis fail in dealing with short-term market fluctuations; the former is suitable for long-term analysis and the latter must be avoided. At the same time, systematic traders should not be fooled into making radical changes to their strategies that are driven by hindsight and data mining biases. We have made minimal changes to the strategy mix for next year mainly for better diversification purposes. Below is a list of changes to the strategy mix for next year.

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