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. 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: -0.9%
The equity of the equally-weighted strategy ensemble fell 0.9% this week.
Year-to-date performance (Backtests, no leverage)
| YTD Return | YTD Maximum Drawdown | |
| Strategy ensemble | +7.9% | -2.5% |
| Invesco RSP ETF | +6.5% | -6.0% |
| SPDR SPY ETF | +12.8% | -5.7% |
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 return basis.
2. Market Recap and Comments (July 29–August2, 2024)
The markets have faced several adverse developments over the last three weeks:
- There was an unsuccessful attempt at political assassination in the USA.
- A massive IT failure caused internet connectivity chaos.
- In the Middle East, the risk of the war spreading increased significantly.
- Economic data pointed to increasing unemployment and a slowdown.
These developments spooked investors, and it was only natural that “safer” assets, US Treasury bonds and gold, rallied. Equities, commodities, and the US dollar fell. There is no need for fancy analysis or convoluted arguments about what happened in the last two weeks. When there is turmoil, economic, geopolitical, or otherwise, investors move funds from “riskier” to “safer” assets. Fancy macroeconomic analysis cannot predict the magnitude of the moves, which is what matters most.
Many macroeconomic analysts make predictions, but few, and in our opinion, none, can beat even simple strategies over time. Yet, these modern astrologists enjoy a large following due to human nature: investors avoid taking responsibility for their actions, and when these astrologers are wrong, they get the blame, but when they are right, the investors get the credit.
Following a “furu” over a long period of time has negative statistical expectation, as their predictions are random due to the high complexity of the market. Strategies are not panaceas, but a successful ensemble may offer higher odds of realizing reasonable risk-adjusted returns over time.
Our signals have well-defined entries and exits. This is rare to see in popular newsletters by modern astrologers. Even worse, some publish multiple forecasts and always highlight the accurate ones. On the other hand, it appears that many investors like modern astrology. This is one reason there is hope for those who follow systematic strategies. After all, no one can profit without someone else losing.
The US dollar (UUP) ended the week down 0.9%, anticipating a slowing economy and rate cuts later this year. Commodities (DBC) fell 1.5%. Gold (GLD) gained 2.1% on the back of a falling US dollar and rising geopolitical uncertainty.
Large-cap stocks (SPY) dropped 2.1%. International stocks (VEU) lost 2.6%. The TLT ETF surged 6% due to a rare combination of slowing economic data and escalating geopolitical risks.
3. Positions and strategy performance: Friday, August 2, 2024
For a third week in a row, most strategies fell except for Dow-30 dollar neutral long/short, which gained 0.1% and continued delivering a small but valuable convexity, and the TFD3M strategy, which gained 1.1% due to a surging TLT ETF. Despite multiple positions hitting a stop-loss, the Dow-30 mean-reversion strategy managed to trim losses to less than 1% and is still the best-performing strategy year-to-date.
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Charting and backtesting program: Amibroker. Data provider: Norgate Data
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