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. 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: +0.6%
This week, the equity of the equally weighted strategy ensemble increased by 0.6%, reaching new highs for the year.
Year-to-date performance (Backtests, no leverage)
| YTD Return | YTD Maximum Drawdown | |
| Strategy ensemble | +13.8% | -2.5% |
| Invesco RSP ETF | +13.4% | -5.6% |
| SPDR SPY ETF | +20.7% | -5.4% |
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. Recap and Comments (September 16–September 20, 2024)
All strategies gained this week, except for the Dow-30 long-short. The DMSR sector rotation strategy gained the most, +1.9%. The Dow-30 mean-reversion strategy’s weekly performance matched that of the S&P 500 index, up 1.4%, but with only three positions, thanks to a large gain in NKE. This is the best-performing strategy year-to-date with a gain of 26.3%.
The stock market gained due to a 50 basis point cut by the Fed, but the bond market declined, and gold also gained. Although these moves appear to contradict the need for a large rate cut, price action tends to defy linear thinking and simplistic rationalizations. The cross-section of a few economic indicators fails most of the time to explain price action due to the highly non-linear stochastic nature of the process.
Since we believe that it is highly unlikely that forecasts based on fundamentals generate a positive expectation over the long term, we rely on strategies. As we have noted several times in these reports, strategies do not guarantee success and can fail, but a suitably designed ensemble offers better odds of generating reasonable risk-adjusted returns over time before any leverage. Strategies must be simple to make sense, except for hedging, which often involves more.
3. Positions and strategy performance: Friday, September 20, 2024
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Charting and backtesting program: Amibroker. Data provider: Norgate Data
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