Portfolio Rebalance / September 7
Observations on Signal Sigma Strategies weekly positioning and transactions
Tuesday is the day when all of our strategies rebalance their asset class holding weights. This week features Horizon swapping treasuries for commodities (Gold), but otherwise our strategies are firmly planted in cash (USD). And with good measure. Take a look at what the strength of the U.S. Dollar means for other asset classes collectively:
The gap between the 2 year performance of the US Dollar (UUP - white) and a multi-asset class portfolio (SPY + TLT + GLD + DBC) keeps widening. It’s worth noting that the combined asset classes have almost reached the lower technical channel trendline (Z-Score -1 level). If the trendline would break, this would not signal good news for anybody bullish on anything. Except the Dollar, of course.
By allocating to Cash as an asset class, our strategies are implying continued upside for the Dollar, and downside for most other securities.
Enterprise Strategy
Enterprise, our most conservative model, is 100% allocated to cash.
Since this model only trades 4 asset class ETFs, we use it to judge overall portfolio positioning.
The strategy closed exposure to commodities in a timely way. It is looking to re-initiate exposure at better prices. DBC just broke through key support at $25 (the 200-day MA, coinciding with our S1 Support Level).
DBC could find support at $23.3, and from there, a bounce could conceivably trigger a BUY signal.
Cash reserves (USD) are at the maximum allocation.
Nostromo Strategy
Nostromo, our tactical allocation model is sitting in 100 % cash this week.
Similar to Enterprise, it is waiting for BUY signals on commodities, but instead of trading DBC, it would select BAR (Physical Gold) due to volatility considerations.
For more info about how Nostromo targets sectors or factors within a broader asset class, read this article. The first part sheds some light on the selection process going on in the background.
Horizon Strategy
Horizon, our most aggressive strategy, is forced to switch up asset classes again. Bonds took a beating last week, so they are no longer eligible for allocation.
Only commodities make the cut, with a 17% weight. Like Nostromo, Horizon prefers Gold, due to reduced volatility.
In the absence of forming a “Momentum” portfolio, this is the way Horizon is playing defense.
Takeaway:
If we average the Cash position of all 3 strategies, we get 94.34%. This stat alone should tell you a lot about our system’s approach. With the U.S. Dollar pushing historical deviations, it makes sense to wait until the situation normalizes.
In the Sigma Portfolio, we have raised cash last Friday by selling all physical commodities positions (DBC). However, we still hold 28% exposure to a selection of equities. While we can trade against our systems for a while, it is our target to slowly bring this portfolio in line with the others.
For the moment, that implies waiting for the right time to trim or hedge some of our positions. As long as SPY manages to hold support at our S3 Level (now 389.6), we are not in any hurry to make major changes.
As it stands, our portfolio is balanced to all but the most defensive sectors.
Andrei Sota
The Sigma Portfolio Correlation Table