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.

This week’s theme is: “Swapping Gold for Gold”. In case the trade alert email had you confused, our models are simply rebalancing Gold to the same weight. Some models had no prior exposure (Enterprise and Nostromo) so they are buying, while Horizon is reaching the same allocation by selling. The theme seems to be one of deleveraging to more moderate levels. In the manually adjusted Sigma Portfolio, we are setting a price target of 174 before we trim the GLD position. We have also added a 5% XLV position for trading purposes, as the “cash extremely overbought” thesis begins to play out.

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. This is not new, so we will instead focus on the setups for gold, and commodities, where investing is allowed according to our process.

GLD, the proxy for precious metals has gotten more oversold, and sitting just above key support levels. As long as the price holds up, we expect gold to act as a safe haven here, with a slight upward bias. As fear creeps into markets, gold will catch a bid. If the Fed lets up on rate hikes, gold should also catch a very nice bid. At this juncture, there’s much to like here. However, models are beginning to turn cautious on the yellow metal, as performance has lagged as of late. We have set a price target of 174 to reduce allocation to GLD in the Sigma Portfolio.

DBC, the proxy for commodities, had a furious run-up and could fall further due to profit taking. This is the reason our models are keeping allocations rather light for DBC. The momentum commodities are exhibiting cannot be denied, as oil is no longer the most spectacular driver. Food inflation is expected to go up, along with natural gas. Gasoline and diesel prices are hitting new highs. DBC should be bought on the dip.

Enterprise Strategy

Enterprise has 44% commodities exposure, and is adding 15% gold again on the bounce.

Since this model only trades 4 asset class ETFs, we use it to judge overall portfolio positioning.

DBC allocation is currently above target and will be sold on any sell signal. The strategy is aiming to take profits, given the explosive run-up.

Cash reserves (USD) are adequate to hedge volatility and chase emerging opportunities when they appear.

Nostromo Strategy

Nostromo currently sitting in a 85% CASH position, and is adding 15% to Gold on the bounce.

On the commodities front, out of all factor ETFs, Nostromo’s preference is physical gold (BAR).

The software bug affecting Nostromo has been resolved and the model is now running optimally.

Nostromo is still looking for more strength in gold, in order to continue the portfolio allocation.

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.

This week, Horizon is in a hurry to reduce leverage and add to cash. It has made some massive adjustments lower in overall Gold / Commodities allocation.

I believe the model is early to call for a return to the safety of the US Dollar. We are going to treat the move as the base case “plan” in Sigma Portfolio, but we are willing to give gold and commodities in general more wiggle room to the upside.

Cash is no longer shorted, at 59.04% of allocation.

Andrei Sota