Observations on Signal Sigma Strategies weekly positioning and transactions

As you know, Tuesday is the day when all of our strategies rebalance their asset class holding weights. In this article we will cover changes to target allocations, as well as necessary scenarios in order to trigger trades.

This week, not a lot has changed in our overall portfolio positioning.

At this point, our strategies are forced to exclude 2 major asset classes from the general allocation. Both equities (SPY) and treasuries (TLT) are considered un-investible due to their technical setups.

TLT, the proxy for treasuries has been in a pronounced downtrend for the past two years, and currently sitting below the median regression line. It has recently broken down below its lower technical channel as well (Z-Score -1.33). Although technically very oversold and due for a bounce, TLT is considered un-investible at this point.

SPY, the proxy for equities, did not manage to rally above the Z-Score -1 level (lower technical channel) and, due to the fact that it has been in an uptrend for the past two years and has been unable to reach new highs for a record amount of time (82 trading days since last all time high) - has also been excluded. Given the FOMC meeting ahead this week and continued “bearish” sentiment, equities might as well stage a rebound and get into “investible” territory again. But that is an increasingly higher bar to pass. For now, this allocation change (flat risk exposure) seems to be here to stay. We shall explore both GLD and DBC, the main alternatives to a stock-bond portfolio in coming articles.

Enterprise Strategy

Enterprise enters the trading week with a 100% CASH position. It is looking to deploy opportunistically into Gold and Commodities, up to 142% of total portfolio value.

Since this model only trades 4 asset class ETFs, we use it to judge overall portfolio positioning. Right now, in order to successfully buy into GLD, we need a convincing bounce off technical support in order for a push higher. This would happen either on market “fear”, or with comments out of the FOMC meeting that would devalue the US Dollar.

DBC is quite extended at this point, and NOT oversold. A potential trend trigger might occur this week on a positive MACD crossover that would confirm the recent strength of commodities as an investible asset class.

Nostromo Strategy

Similar to Enterprise, Nostromo is entering the week with a 100% CASH position.

Instead of GLD, it is trying to buy into GDX (gold miners), as these companies have shown more relative strength.

On the commodities front, out of all factor ETFs, Nostromo’s preference shifts to physical gold.

Essentially, this strategy is looking to “buy the dip” in whatever factor is outperforming its benchmark in the current environment.

Both GDX and BAR are in a short-term oversold condition, within an ongoing breakout. It is our suspicion that weak performance on the equities front will leave investors with few options to park their money.

Gold might as well become the preferred reserve asset in an inflationary downturn. I also expect it to perform well given any comments that would depreciate the US Dollar on Wednesday.

Horizon Strategy

Horizon is our most aggressive model. It is always looking to gain exposure before the other models have a chance to trigger trades.

Horizon has already been allocated toward physical gold and gold miners. This week, it is "doubling down" on this type of exposure and using the recent weak price action in the yellow metal to increase exposure.

I do believe there is a fundamental case to own gold right now, although maybe not to this extent. Horizon is therefore exploiting a very probable weakness in the USD, and playing the bounce in Gold Miners as a more sustainable version of the high-risk high-beta beaten down "growth" names.

Trades:

• BAR - ADD 1.02 % to existing position

• GDX - ADD 44.67% to existing position

Andrei Sota