Portfolio Rebalance / May 12 2022
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, we have waited to publish the report, as changes could have occurred post FOMC announcement.
Pre-announcement, strategies were forced to deleverage, on account of stop-losses being hit on Monday’s rout.
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 is deemed to be 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.
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. DBC should be bought on the dip.
Enterprise Strategy
Enterprise has 44% commodities exposure, after getting stopped out of GLD on Monday’s rout. It is still looking to add Gold opportunisticaly.
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 from Fed speakers that would imply US Dollar devaluation.
DBC allocation is at target and will not be modified.
Cash (USD) is at all-time highs and should turn lower at some point.
Nostromo Strategy
Nostromo currently sitting in a 100% CASH position, after getting stopped out of both levered plays on Gold on Monday.
GDX is no longer showing relative strength to GLD, so it has been excluded from portfolio targeting.
On the commodities front, out of all factor ETFs, Nostromo’s preference is physical gold.
A software bug affected Nostromo this week as it closed out the GDX position twice, and resulted in a short being created. We will address this in a future update.
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. This week, it is lowering exposure a bit, and becoming less leveraged.
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 short term weakness in the USD.
Cash is shorted, at -36.84% of allocation.
Andrei Sota