Market summary, open positions, new signals, and performance of six trading strategies with weekly rebalancing. Tactical asset allocation, mean-reversion, cross-sectional momentum, commodity trend-following, and equity long-short. Access the full report with a Market Signals or All-in-One subscription.
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Announcements
1. Next year, there will be one major change to the strategy ensemble: the ETFLSW commodity ETF strategy will be replaced by the DMSRM strategy. In addition, there will also be changes in the TFD3W strategy, and the new name will be TFD3M. In Section 3 below, we provide details for initializing the positions of the DMSRM strategy for next year.
2. Next week’s report will include a detailed summary of performance for the last two years.
3. Reminder: The Hybrid Asset Allocation monthly signals are free for all Market Signals and All in One subscribers.
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 (December 18–December 22, 2023)
Stocks gained for the eighth week in a row due to expectations of multiple rate cuts next year after favorable economic data. All assets gained on the back of a falling US dollar, except bonds, which ended the week nearly unchanged. Two weeks ago, I wrote:
There is a sense that investors’ optimism is not justified, and there will be a short-term correction for a more realistic alignment with fundamentals. However, the correction may not come until next year.
For the week, large-cap stocks (SPY) gained 0.9%, and the equal-weight S&P 500 ETF (RSP) rose 0.8%. International stocks (VEU) were up 1.5%. Long-duration bonds (TLT) fell 0.7% after surging 5.2% the week before.
Commodities (DBC) rose 0.3%, primarily due to gains in energy and precious metals. Gold (GLD) added 1.7% on the back of a falling US dollar index (UUP, -0.7%).
Since the start of 2022, the TLT ETF is down 29.6%, while international stocks (VEU) have lost 3.3%. The SPY ETF is up 2.9% in the same period. Commodities (DBC) and the US dollar index (UUP) are up 12.9% and 13.7%, respectively, since last year. Note that in the same period, gold (GLD) is up 11.3%.
The TLT ETF is down 37.9% from its all-time highs, while the SPY ETF is down only 0.3%. Stocks have recovered spectacularly from the 2022 correction, while bonds are still in a deep drawdown. Some fixed-income traders worry about supply and resurging inflation, while equity investors are optimistic due to expectations of rate cuts. The TLT ETF has gained 20% from its October 2023 lows, while the SPY ETF has surged 35% from its October 2022 lows. Usually, fixed-income traders are more sophisticated than equity investors, but this fact alone cannot serve as the premise of a forecast.
2. Ensemble Performance
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Charting and backtesting program: Amibroker. Data provider: Norgate Data
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