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Market Signals For June 17, 2024

Photo by Frans van Heerden

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. New equity highs. Access the full report with a Market Signals or All-in-One subscription.

Contents

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

1. Performance of the ensemble and benchmarks

Weekly return of the ensemble: +0.2%

The equity of the ensemble reached new highs this week.

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Year-to-date performance (Backtests, no leverage)

YTD Return YTD Maximum Drawdown
Strategy ensemble +7.4% -2.1%
Invesco RSP ETF +4.4% -6.0%
SPDR SPY ETF +14.5% -5.4%

On a risk-adjusted basis, the ensemble outperforms both the SPY ETF and its equal-weight counterpart, the RSP ETF. The ensemble also outperforms the latter on an absolute returns basis by a wide margin due to deteriorating market breadth this year.

2. Market Recap and Comments (June 10–June 14, 2024)

This week, there were significant stressors in the equity markets, and although the S&P 500 index gained 1.6%, breadth deteriorated, with the equal-weight S&P 500 index and the Dow Jones Industrial Average falling 0.6% and 0.5%, respectively.

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All assets gained the week except international stocks (VEU, -1.3%) and the equal weight S&P 500 (RSP, -0.5%). Gold (GLD) gained 2% for the week despite elevated volatility and a rising US dollar index (UUP, +0.8%).

Bonds (TLT) were up the most, by 3.5%, following favorable CPI and PPI reports that presumably indicated an acceleration of some “disinflation” process. We are clear in our stance: we refuse to engage in a short-term guessing game about market reactions and the actions of central banks and market participants. This is an exercise in futility, especially for short- and medium-term positioning in the markets.

The longer-term expectation of trying to guess market reactions to economic reports is zero, and if transaction costs are included, it is negative. In the long term, fundamentals matter, but in the short term, the noise is high. Therefore, we use an ensemble of strategies with the objective of generating reasonable risk-adjusted returns over time. Note that in many cases, one incorrect guess about market direction in discretionary trading based on fundamentals is all it takes to erase months of gains. When uncertainty increases, people frequently make those “bad guesses” out of greed, fear, or overconfidence in their own capacity to deal with complexity.

3. Positions and strategy performance: Friday, June 14, 2024

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

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