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Open positions, new signals and year-to-date performance of six trading strategies for week of February 3, 2020. A commentary is included. Access to article requires Market Signals subscription.

Weekly Recap

  • Average year-to-date return of the six strategies is +1.7%.
  • Equity long/short gained 2.4% on the week.
  • Trend-following performance fell due to SPY decline. 
  • Rotation strategies had mixed performance.
  • Dow 30 mean-reversion fell most on the week.

Comments

The average year-to-date return of all six strategies is +1.7%. The S&P 500 index year-to-date return is -0.2%.

Long/short equity (DOWW) was the best performing strategy this week with a gain of +2.4%. Year-to-date performance of this strategy is +6.3%. Note that usually long/short strategies outperform during times of high uncertainty and this could be a signal of a larger correction developing in equity markets.

ETF rotation strategies were mixed and trend-following fell. Dow mean-reversion fell the most on the week.

Last week we wrote:

Further rise in volatility is possible due to both fundamental and technical considerations.

We expect volatility to stay near current levels or even increase next week as uncertainty rises.

Positions as of close of 01/31/2020

Strategy Position Ticker Pos*
SPYLMAW Long SPY 100%
MRSPYW Long SPY 100%
ETF2RW Long TLT, SPY 50%
ETF4RW Long GLD, SPY 50%
DOWW Long PFE, MSFT, KO 16.67%
DOWW Short VZ, MMM, BA
16.67%
MRDOWW Long WMT, BA, CVX, AAPL, CAT, CSCO 16.67%**

*Pos is the position size for each signal/security based on the capital allocated to each strategy. 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 DOWW, each position is sized based on 1/6 of available equity.
** A 10% stop-loss is optional and does not affect much longer-term performance. 

Signal summary for next week 

All new signals are for the open of 02/03/2020. Performance calculations are as of close of 01/31/2020. 

Strategy New Signals YTD (change for week)
SPYLMAW No action -0.4 % (-2.2%)
MRSPYW No action +1.4% (-0.4%)
ETF2RW No action +3.0% (+0.3%)
ETF4RW No action +2.2% (-0.7%)
DOWW SELL: PFE, MSFT
COVER: VZ, MMM, BA
BUY: MRK, WBA
SHORT: HD, WMT, PFE
+6.3% (+2.4%)
MRDOWW SELL: WMT
BUY:  AXP
-2.5% (-2.3%)

Notes

  • The Weekly Signals are updated during the weekend and before the market Open of the following week. For more details about the strategies 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 a long time, their open positions are often 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. 
  • YTD performance results are based on backtests and include $0.01 commission per share.

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