Market recap, open positions, new signals, and performance of six trading strategies. Tactical asset allocation, mean reversion, cross-sectional momentum, and equity long-short with weekly and monthly updating. Access the full report with a Market Signals or All-in-One subscription.
Contents
1. Market Recap and Comments
2. Performance of the Ensemble and Benchmarks
3. Positions and Performance of Strategies
4. Signal Summary for Next Week
1. Market Recap and Comments (April 8–April 12, 2024)
The US dollar and gold rallied amid rising geopolitical tensions and persisting inflationary pressures, but heavy sales of the precious metal on Friday limited gains. All other assets fell this week.
Large-cap stocks (SPY) lost 1.5%. The equal-weight S&P 500 ETF (RSP) finished the week down 2.7%, with market breadth deteriorating further. International stocks (VEU) fell 2.1%.
The TLT ETF fell 2.1% with rising volatility. The DBC ETF ended with a loss of 0.1% after rising as much as 1.7% on Friday. Prior to heavy selling on Friday, Gold (GLD) was gaining 2.4% for the week, but it ended the week up 0.8%. The US dollar (UUP) rallied 1.8%.
Gold, commodities, and the US dollar are overbought (strong momentum). Last week, I wrote:
The strong momentum of commodities (DBC) and gold (GLD) has led to overbought conditions in the daily timeframe. The duration distribution of overbought conditions is typically highly leptokurtic, meaning there are extreme tail events. This means that the risk of trying to fade strong momentum is always high, although the probability of even more extended overbought conditions is very low.
This week was brutal for systematic trading in general, but the flat performance of long-short equities provided minimal convexity and limited ensemble losses. All in all, we believe that a flat performance this week for long-short was surprising given the volatility in the markets. The distribution of losses in the other five strategies was nearly uniform, and this week’s average loss was slightly lower than that of the SPY ETF and half that of the RSP ETF.
Rising geopolitical risks from two major wars, one in Europe and the other in the Middle East, justify no overoptimism about any asset class. Avoiding extreme optimism and pessimism while focusing on a robust process for dealing with uncertainty is, in our opinion, the only way to effectively deal with these markets.
2. Performance of the ensemble and benchmarks
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Charting and backtesting program: Amibroker. Data provider: Norgate Data
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