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 1–April 5, 2024)
Commodities rallied in response to strong gains in energy and precious metals. During the week, all other assets fell.
Large-cap stocks (SPY) lost 0.9%. The equal-weight S&P 500 ETF (RSP) finished the week with a loss of 1.8% as market breadth deteriorated. International stocks (VEU) fell 0.6%.
The TLT ETF plunged 3.1% after a failed mid-week rebound attempt. The DBC ETF rallied 3.4%. Gold (GLD) surged 4.6%, and the US dollar (UUP) was down 0.1%.
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.
The financial mainstream and social media are full of experts who are willing to share their insights about the economy and the market. Most of these experts have something in common: their success rate in forecasting market moves is no better than that of a fair coin. Those who are lucky usually claim success, but this is an artifact of the probability versus the resulting expectation. Those who understand that the stock market has a long-term upward bias always remain bullish to improve their success rate, but occasionally they suffer devastating losses. Then there are the permabears, who, after a large number of missed calls, hope to be able to claim they predicted a major market turning point. The mainstream media loves those hopeless types because they appeal to a frightened audience. Usually, the media elevates them to the status of a genius, despite their true nature being far from that.
The reality is that most people love to listen to a narrative, and if they believe it, they will convince themselves that its creator is a genius. Fewer are willing to work hard to develop and use a proper ensemble of strategies.
Last week, I wrote:
An ensemble that offers reasonable odds for generating acceptable risk-adjusted returns may sound boring, but in our opinion, it is the only way to avoid the traps of narrative creation.
2. Performance of the ensemble and benchmarks
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