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Open positions, new signals and year-to-date performance of sever trading strategies for week of June 14, 2021. A commentary is included. Access to article requires Market Signals subscription.
Weekly Recap and Comments
Performance of strategies was mixed on the week. Rotational strategies not invested in gold and trend-following gained while mean-reversion and long/short strategies were down. ETFNRW strategy outperforms S&P 500 year-to-date with 15.0% return.
Year-to-date, the average return of the strategies is +6.8% while the S&P 500 index is up +13.1%. The average return of the strategies excluding long/short is +9.1%.
Performance of ETFs used in the strategies
Commodities rebound continued for a third week in a row with DBC gaining 0.7% on the week. Bonds surprised bears with a rally and TLT gained 1.7%. Only gold (GLD) fell on the week (-0.8%).
ETF4RW generated a sell signal for GLD after ETFNRW exited IAU this week. There are no changes for DOWW strategy while the bias is 100% long.
Last week we wrote:
Often strategies generate non-intuitive signals, or signals that contradict prevailing narratives in financial media. For example, ETFNRW generated a signal to sell IAU and buy again HYG.
In fact, HYG gained and GLD fell. So this time the strategy made the right call although non-intuitive and not supported by the narrative in financial media. Strategies often surprise for the better but at times they are wrong too.
Equities will be entering overbought territory possibly during the week. A short-term correction may follow immediately or the market may stay overbought for a while. There is no way of knowing the outcome in advance and those who try usually end up victims of noise. As noise is increasing in the daily timeframe, having robust strategies in the weekly timeframe may provide an answer. The downside of operating in the weekly timeframe is the lag in responding to quick market declines. This may be handled with stop-losses in some cases but not always. In general, this is a difficult problem we are working on for some solutions.
Strategy positions and performance as of close of 06/11/2021
|Strategy||Position||Ticker||YTD (change for week)|
|ETF2RW||Long||Tickers not disclosed in the sample||+10.0% (+0.3%)|
|ETF4RW||Long||Tickers not disclosed in the sample||+4.6% (-0.2%)|
|ETFNRW||Long||Tickers not disclosed in the sample||+15.0% (+0.7%)|
|UNH, JPM, JNJ, MSFT, MCD,KO
Tickers not disclosed in the sample
| JPM, KO, AXP
Tickers not disclosed in the sample
|MRDOWW**||Long||HD, UNH, NKE, WMT, DIS, JNJ||+9.2% (-1.0%)|
Performance calculations above are as of close of 06/11/2021.
* DOWWN performance is not considered because the strategy signals are included for comparison purposes only. The strategy is dollar neutral with 3 long and 3 short positions versus DOWW that usually has a long or short bias.
** Performance calculations take into account a stop-loss of 10% for each position.
Signal summary for next week
All new signals are for the open of 06/14/2021
|Strategy||New Signals||Position size*|
|DOWW||SELL: No action
COVER: No action
BUY: No action
SHORT: No action
|DOWWN||SELL: JPM, KO, AXP
COVER: Tickers not disclosed in the sample
BUY: MCD, HD, UNH
SHORT: Tickers not disclosed in the sample
*The position size applies to each signal/security based on the capital allocated to each strategy and may change depending on market conditions. For example, in the case of MRDOWW strategy, each new position is sized based on 1/6 of available equity at the time the signal is generated. For ETF2RW, each position is sized based on 1/2 of available equity but when there is only one position it is sized based on 75% of available equity for that particular strategy.
** A 10% stop-loss is applied to each signal.
*** A 10% stop-loss is applied to each signal. The stop-loss is optional and does not affect much longer-term performance. Applying the stop-loss is recommended especially during high volatility periods.
New conflicting signals
See below for more details.
- The Weekly Signals are updated during the weekend and before the market open of the following week. For more details and past performance click here.
- Subscribers may decide which strategies to follow based on historical performance and personal criteria. It is not required to follow all strategies. For example, someone may be interested only in ETF rotation strategies and someone else in mean-reversion strategies. We have subscribers that are only interested in the Dow long/short strategy.
- The first time to consider the signals, the Sell and Cover signals are ignored because there are no open positions. Only new Buy and/or Short are taken into account. In the case of open positions, those may be considered depending on strategy nature. For example, since trend-following and rotational strategies can stay in positions for longer periods of time, their open positions may be considered. For shorter-term strategies, such as long/short or mean-reversion this is not done usually.
- Relative performance of signals depends on the date of first Buy and/or Short signal. There is no robust way of choosing when to first consider signals. Usually, some traders wait for a drawdown before considering signals of a strategy but this is risky as good performance may persist for much longer. In the longer-term the entry point is not important but in the short-term performance variations can be large due to timing of entry.
- About conflicting signals: Suppose one follows the long-only trend-following strategy in SPY and the mean-reversion strategy in SPY only and the former strategy generates a buy signal while the latter a sell signal, both for the open of next week. These signals theoretically translate to no action. However, doing nothing assumes equal allocation to both strategies and same equity levels. If the allocations and/or the equity levels are not the same as it is usually the case, net exposure must be increased or decreased accordingly after calculating the number of shares to buy and subtracting the number of shares to sell. For example, if one strategy must go long 100 SPY shares but the other must sell 120 shares, then 20 SPY shares must be sold. Things become a bit more involved in case allocations depend on volatility or on some other metric. In general, trading a group of strategies that generate signals for same securities requires doing some extra work on risk and money management. Reducing or increasing positions may be required when there are signals in same securities.
- YTD performance results are based on backtests and include $0.01 commission per share.
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