Market recap, open positions, new signals, and performance of six trading strategies. Tactical asset allocation, mean-reversion, cross-sectional momentum, and equity long-short. Access the full report with a Market Signals or All-in-One subscription.
Reminder: The monthly updates of the hybrid asset allocation and dynamic momentum signals are free for Market Signals subscribers. The next update will be on March 1, 2024. Click here for more details.
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 (February 5–February 9, 2024)
This week, the strategy ensemble gained 0.3%, with cross-sectional asset and sector momentum and also Dow-30 mean-reversion strategies more than making up for the losses of Dow-30 long-short.
The bond market came under pressure due to supply concerns and entrenched inflation worries. The TLT ETF dropped 2.3%. The DBC ETF rose 2.2% on the back of a rally in energy and soft commodity prices. Gold (GLD) fell 0.5% for the week, and the US dollar (UUP) was up 0.2%
Large-cap stocks (SPY) were up 1.4% on the week, and international stocks (VEU) gained 0.9%. The equal-weight S&P 500 ETF (RSP) was up only 0.5% due to another rally in mega-cap stocks.
Since January 2022, the SPY ETF has been up 8.9%, but with a maximum drawdown of 24.5%. Gold has outperformed large-cap stocks in the same period, with gains of 9.7%. Note that TLT is down 32.7% in the same period.
Due to deteriorating market breadth, there is speculation about a top formation in the US stock market. Although the risks have increased, breadth indicators are not very effective in timing market tops. Although the trade in mega-caps has gotten crowded, the market can remain in a crowded trade for longer than shorts can remain solvent. In addition, investors could miss a significant move by exiting early.
The alternatives to constantly trying to guess whether a market top is in place are known and limited: market timing, hedging, and diversification. In our opinion, in markets with extended periods of irrational exuberance, hedging with options is too expensive due to “theta burn.” Solid diversification and market timing, especially when efficiently combined, can offer the potential to limit losses when a top is formed. The era of free money may be coming to an end, and investing in the market will become more challenging in the future. See this article for more details.
2. Ensemble Performance
Access the full report with a Market Signals or All-in-One subscription. By subscribing, you have immediate access to hundreds of articles. Market Signals subscribers have immediate access to hybrid asset allocation and dynamic momentum monthly signals and more than two hundred articles in the Premium Education section, and All in One subscribers have access to all premium content (except daily mean-reversion signals.)
Charting and backtesting program: Amibroker. Data provider: Norgate Data
Disclaimer: The Premium and Weekly Signals are provided for informational purposes only and do not constitute investment advice. We do not warrant the accuracy, completeness, fitness, or timeliness for any particular purposes of the Premium and Weekly Signals. Under no circumstances should the premium or weekly signals be treated as financial advice. The author of this website is not a registered financial adviser. Before subscribing, please read our Disclaimer and Terms and Conditions.
Copyright notice: Any unauthorized copy, reproduction, distribution, publication, display, modification, or transmission of any part of this report is strictly prohibited without prior written permission.