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: -1.9%
The equity of the equally-weighted strategy ensemble fell 1.9% this week versus a drop of 4.2% for the S&P 500 index.
Year-to-date performance (Backtests, no leverage)
| YTD Return | YTD Maximum Drawdown | |
| Strategy ensemble | +10.4% | -2.5% |
| Invesco RSP ETF | +8.9% | -5.6% |
| SPDR SPY ETF | +14.4% | -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 3–September 6, 2024)
The dollar-neutral Dow-30 long-short strategy performed as expected, delivering the much-desired convexity this week with a gain of 0.8%. A higher return would be even more beneficial to the ensemble, but given the volatility and chop in the markets, the performance of the dollar-neutral long/short was satisfactory.
Consider this trivial example: if there are five strategies and each one falls 4% during a week, the average fall is naturally 4%. However, if there is an additional strategy that delivers a gain of 2%, then the ensemble falls 3%. During previous bear markets and large corrections, the long-short strategy offered weekly gains as high as 4%. Usually, during rapid crashes, short stocks make more than what long stocks lose.
The problem with using long-short as a convexity hedge is that during strong bull markets, and especially right after strong rebounds, the short stocks lose much more than what the long stocks gain, and the strategy becomes a drag on performance. However, this is an inevitable price to pay for having a hedge.
Due to the small convexity that the long-short strategy provided, the ensemble experienced a 1.9% loss this week, compared to a 4.2% loss for the S&P 500 index. In fact, the ensemble is targeting a beta of about 0.5, and the performance was slightly better than expected.
We persist in adhering to our strategies, disregarding the clamor on financial social media from those who mistakenly, in our opinion, believe they can forecast price movements using economic forecasts or chart analysis. In the last 14 years on social media, we have seen many of these people rise to the top and then suddenly disappear after a streak of incorrect predictions. Most people love forecasters when they’re right but “throw stones” when they’re wrong. This situation is regrettable, but it’s a reality of life and the market. Conservative strategies do not make promises of quick riches but have a higher probability of surviving.
3. Positions and strategy performance: Friday, September 6, 2024
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Charting and backtesting program: Amibroker. Data provider: Norgate Data
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