On Monday, August 5, 2024, equities took a dive and managed futures ETFs plunged, but strategies that buy the dips were up for the day.
Due to a rare mix of economic uncertainty and geopolitical turmoil, equities took a dive on Monday, August 5, 2024. The SPY ETF fell 2.6% for the day but closed up 1.2% from the day’s opening price.
Same situation with QQQ: The ETF was down 3% for the day but closed up 2.5% from the opening price.
Large gap-down days, followed by rebounds, present opportunities for mean-reversion trading. Those usually occur in bear markets in the form of reflex rallies following a gap opening. We still do not know if stocks are in the early phases of a bear market.
Managed futures ETFs fell hard, mainly due to their long position in equity index futures.
We included the RSST ETF in the above list because it has a managed futures component. This ETF fell the most, down 4.9%, but it’s still up 6.1% for the year. The DBMF ETF fell 2.4%, but it is also up for the year by 5.6%.
The RSST ETF has the worst drawdown year-to-date, down 18.2% from its highs. The DBMF ETF is down 13.3% from its highs.
A long position in cocoa has helped our futures trend-following strategy increase its year-to-date return by approximately 26% (backtest). On Monday, August 5, 2024, three positions hit the stop-loss: two index futures and copper futures.
Backtest of futures trend-following strategy
There are now 11 open positions. Access to the signals of this strategy is free at this point.
All in all, these wild moves do happen, and the market returns to its regular mode: rinse and repeat. Trying to understand the causes, whether economic or geopolitical, is a futile exercise. Traders focus on price action, whether systematic or discretionary. Discipline plays a key role in achieving success. Fundamental analysis is a narrative to appease investors, shareholders, and politicians. Mixing fundamental analysis and trading may not be a beneficial idea, as price action reacts much faster than fundamentals. As shown in the trend-following strategy example above, volatility should determine the stop-loss rather than hazy assessments of monetary policy and fundamentals.
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Specific disclaimer: This report includes charts that may reference price levels. If market conditions change the price levels or any analysis based on them, we may not update the charts. All charts in this report are for informational purposes only. See the disclaimer for more information.
Disclaimer: No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.
Charting and backtesting program: Amibroker. Data provider: Norgate Data
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