Market recap, open positions, new signals, and performance of six trading strategies. Tactical asset allocation, mean-reversion, cross-sectional momentum, and equity long-short. Access the full report with a Market Signals or All-in-One subscription.
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Contents
1. Market Recap and Comments
2. Ensemble Performance
3. Positions and Performance of Strategies
4. Signal Summary for Next Week
1. Market Recap and Comments (January 29–February 2, 2024)
It was a good week for the strategy ensemble, with all strategies up and a 1.1% average gain. Cross-sectional sector momentum and Dow-30 mean-reversion strategies outperformed, with gains of 2% and 1.5%, respectively.
The energy sector came under pressure this week due to expectations of a ceasefire agreement in the Middle East. The spot price of crude oil dropped 7.3%. The DBC ETF, which has a high correlation with crude oil, lost 3.5%. Gold gained 0.9% for the week, and international stocks (VEU) fell 0.1% on the back of a stronger dollar, with UUP ETF gaining 0.3%
Large-cap stocks (SPY) were up 1.4% on the week, and long-duration bonds (TLT) finished up 2.8% but were off the highs of Thursday. Due to a stronger-than-expected employment report on Friday, bonds fell and yields rose.
Since January 2022, the SPY ETF has been up 7.4%, but with a maximum drawdown of 24.5%. Gold and the US dollar have outperformed large-cap stocks in the same period, with gains of 10.3% and 8.6%, respectively. Note that the UUP ETF has surged 17% in the same period, for reasons explained in this article.
Long-only traders in US large-cap equities (SPY) who increased their timeframe to monthly, from intraday, daily, and weekly, have done well historically on average. One-day options and a myriad of new products have driven the signal-to-noise ratio near zero in faster timeframes. See this article for a simulation using monthly data.
This year, we introduced two new strategies that rebalance their signals in the monthly timeframe to replace two of the weekly strategies. We now have four strategies in the weekly timeframe and two in the monthly timeframe. We believe this was a good first step for timeframe diversification, in addition to market and strategy diversification. There are always challenges, and there is plenty of room for improvement. Markets are non-stationary, with regime changes, and an ensemble of strategies should adapt to new conditions. As of the close of this week, the DMSRM strategy is up 3.8% for the year, versus 2.8% for the ETFLSW strategy that it replaced. In addition, the TFD3M strategy is up 1.9% for the year, versus 0.9% for the TFD3W strategy that it replaced.
2. Ensemble Performance
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Charting and backtesting program: Amibroker. Data provider: Norgate Data
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