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: -0.3%
This week, the equity of the equally weighted strategy ensemble fell by 0.3%.
Year-to-date performance (Backtests, no leverage)
| YTD Return | YTD Maximum Drawdown | |
| Strategy ensemble | +13.8% | -2.5% |
| Invesco RSP ETF | +14.5% | -5.6% |
| SPDR SPY ETF | +21.7% | -5.4% |
On a risk-adjusted basis, the ensemble outperforms both the SPY ETF and its equal-weight counterpart, the RSP ETF.
2. Recap and Comments (September 30–October 4, 2024)
All strategies fell this week, except for the DMSRM sector rotation strategy, which gained 0.7%. The average loss of the six strategies was 0.3%.
We published a report containing the updates for the two monthly rebalanced strategies, TFD3M and DMSRM, on October 1, 2024.
Last week, we wrote:
We expect a volatile fourth quarter as we get close to elections. Despite a 50 basis point cut, gold continues to outperform stocks… At the same time, bonds are struggling to stay in positive territory… We do not believe that gold has fully priced in a rising geopolitical risk.
Gold (GLD) ended the week unchanged, but it outperforms stocks (SPY) by a wide margin year-to-date and since 2022. Bonds (TLT) plunged 2.8% during the week and fell in the red year-to-date. Commodities (DBC) surged 4.1%, and the US dollar index gained 2.1%.
The above developments are another proof that macro analysis has become largely irrelevant in these markets. Macro analysis suffers from the problem of induction and the fallacies of hasty generalization and confirmation bias, among several others. Do strategies offer better odds of success in the markets?
The answer depends on the strategies used, their correlation, diversification, and, if any, the presence of a hedge. Last week, we wrote:
Whether the strategy ensemble will be able to absorb any shocks from rising risks and volatility will mainly depend on the performance of the strategies that have positions in gold and bonds, as well as on the performance of the Dow-30 long-short strategy.
Strategies will generate losses under adverse conditions. A properly designed ensemble has higher odds of generating positive expectation in the long term with acceptable risk-adjusted returns. Any analysis with biases and fallacies has a higher likelihood of delivering a negative expectation.
Strategies require analytical work. Macro and chart analysis sound exciting due to fancy terminology and a false sense of understanding the markets. Most people opt for the latter.
3. Positions and strategy performance: Friday, October 4, 2024
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Charting and backtesting program: Amibroker. Data provider: Norgate Data
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