Market On Open, Monday 20 October
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Much Ado About A Nothingburger
by Alex King, CEO, Cestrian Capital Research, Inc
Two weeks ago the world ended, according to equity markets. A 3% drop! Run for cover, people!
Last week nothing happened, according to equity markets.
Probably some stuff happened in the real world last week; but securities prices don’t really care about the real world, they are in large part a closed system where the most important thing driving tomorrow’s price is, er, today’s price. And the key driver of today’s price was, you guessed it, yesterday’s price.
The reason it is more effective to trade and invest using technical analysis (by which I mean price and volume analysis using visual charts and indicators) together with quantitative analysis (by which I mean a machine analyzing raw price and volume data together with inputs and spitting out an opinion) is that price is very often operating within this self-contained system. Yes, external events can impact price but since price is moved by the largest accounts, most of whom have a pretty good idea of what is about to hit the news (that’s their job!), news is usually lagging behind stock prices. Not always; but often enough.
Every day in this Market On Open note for our Inner Circle subscribers we lay out setups in the S&P500, Nasdaq-100, Dow Jones-30, US Government Bonds, the Vix, oil, tech, crypto and semiconductors. Every day. Then every week we run our live webinars to walk through how we see the key sectors and stocks and indices, talk live in real time with our members on topics they request and more. And not-quite-but-almost 24x7 we chat live in our Slack community about all the above and more besides. If you manage money, be it your own, your family’s, your clients’ or your limited partners - do you really not want to join us?
Alex King
Let The Machine Take The Strain
An update on how our simple long-only S&P500 algorithmic signal service is doing. As a reminder, this is about the easiest algorithmic service anyone could imagine. SignalFlow AI For $SPY prints a one or a zero right after the close each day. A one means the model thinks the market is likely flat or up the next day; a zero means the model thinks the market is likely down the next day. The model is designed to help investors avoid big drawdowns; in other words the intent is that the model flips to 0, risk off, before any big selloff in the S&P. And that if you traded according to model outputs, the idea is that you can step aside whilst the pain torments others, then get back in with your account relatively unharmed - thus preserving (1) capital and (2) emotional balance.
Here’s the cumulative performance of the algorithm vs. simply holding SPY over the same period. The service went live mid-2024; the data prior to that is backtested, the data after that is live trading ie. out in the wild, for real. You can see from a simple visual inspection the benefit of avoiding those material selloffs.
I myself run a pool of capital by following this algo. When it flips risk off, I take this pool of capital out of its S&P exposure. When it flips risk on, I put the capital back into the S&P. I like this a lot. It keeps my capital safe from material drawdowns and it takes the angst away from the decision to go to cash periodically.
You can learn more about this service here (if you’re an independent investor) and here (if you’re an investment professional). If you don’t know if you’re an investment professional or not, you can check our Ts & Cs here (look for section 1.5).
You can also read about the whole family of SignalFlow AI algorithm services here:
Alex King
OK, let’s do it. Here’s our daily market note, covering yields, bonds, equities, volatility, oil, crypto, and key sectors. Join our Inner Circle service if you’d like this note in your inbox every trading day.