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Systematic Trading Update – May 8, 2023 [Premium Signals]

Photo by Alesia Kozik

The weekly systematic trading reports include a market recap, open positions, new signals, and the performance of six trading strategies.

Report Contents

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

1. Market Recap and Comments May 1- May 5, 2023)

The state of the US economy continues to be uncertain, with the numbers triggering widely diverging interpretations and forecasts. Some analysts think a recession is imminent this year, while others claim there will not be one. Some other analysts claim there will be a soft landing, while others insist the landing will be hard.

All analysts have something in common: they do not know anything with any degree of reasonable confidence. Some are better than others at analyzing information, and a few are very good. Most suffer from confirmation bias and wishful thinking. Since macroeconomic forecasting turns out to be an exercise in futility on average, we have decided to use strategies. There are also problems with this approach, and it is not a panacea by far, but it at least removes some of the biases if applied correctly, and provided that the strategies are robust, a good ensemble of them may provide superior risk-adjusted returns.

All in all, the choice to concentrate on strategies rather than following macroeconomy gurus is based on the fact that if their forecasts diverge so widely, the long-term expectation will be negative unless one is lucky to follow the right one at the right time. This requires a higher-level process of evaluating experts that is difficult to design and test due to a limited sample. Theoretically at least, one could use a machine learning algorithm to identify experts with higher odds of making good forecasts, but it is by far simpler to resort to strategies.

Stocks (SPY) initially fell 2.9% but rallied 1.9% on the last day of the week to finish with losses of 0.9%.

Commodities (DBC) fell for the third week in a row and initially were down nearly 5%, but rebounded in the last two days to trim losses to 1.8%. Gold (GLD) finished the week with a gain of 1.4% but was significantly off the highs. Long-duration bonds (TLT) lost 1.2%. The US dollar index (UUP) ended the week with a loss of 0.3%.

Stocks (SPY) are up 8.3% year to date. Gold (GLD) is up 10.5%. Commodities (DBC) are down 6.1% after rising 19.3% in 2022. The US dollar (UUP) is down 0.5% after a 9.5% gain last year. Bonds (TLT) are up 6.4% year-to-date after plunging by 31.2% in 2022. International stocks (VEU) have a bullish bias, with gains of 9.4% year-to-date after losses of 15.6% last year.

This was another good week for cross-sectional momentum and Dow 30 long/short. Commodities trend-following ended the week flat. All in all, the ensemble of the six strategies was down 0.5% for the week versus a 0.9% loss for the S&P 500 index. The performance was adversely affected mainly by the mean reversion strategy in Dow 30 stocks and, to a lesser degree, by the tactical allocation strategy. One of the six strategies has been flat since last month.

2. Ensemble Performance

Below is the weekly performance recap, including year-to-date performance and a comparison to the performance of the S&P 500, our PSI5TF futures trend-following strategy, and the DBMF ETF.

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Charting and backtesting program: Amibroker. Data provider: Norgate Data

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