Monthly Signals Recap - May

Posted on 31st May 2020

Free quantitative tradable signals

LongShortSignal.com officially launched in early 2020, offering free quantitative tradable signals for stocks (S&P500), government bonds (US treasuries) and Bitcoin. Further signals will be offered to our subscribers in the future on other asset classes including corporate bonds, commodities and precious metals, real estate, stocks across emerging and developed markets and other cryptocurrencies. Our signals are updated daily, but on a regular basis, we also want to share with you some of our views on how the models have been performing and the signals they have been giving. 

Government Bonds (US treasury)

Our latest signal change here took place almost half a year ago, where the recommendation was to go long US treasuries. Our model runs on the basis of 20 year US treasuries but positions across the curve would have delivered pretty strong returns since then, with yields as of writing coming down more than 125bps. Our US treasury model incorporates signals over a medium-term timeframe from other markets like for instance stocks and has over the last few years proven to respond early to changing market dynamics. It for instance almost caught the shift at the end of 2018 and had been signalling long for most of the time since then. It also responds on a timely basis before the shifts in 2013 (taper tantrum) and the interbellum between Brexit and the Trump election victory in 2016. The signal continues to be a convincing long and at time of writing the year-to-date return on buy and hold as well as our own model (which has maintained the long signal on all days) is an impressive +24.7%.

Stocks (S&P500)

Our stocks signal had been long between October 2019 and February 2020, returning nearly +5% during that period. At the onset of the COVID-19 related sell-off, the signal was given to close out the long and enter into a short position. This position was kept open for 48 days which in hindsight was slightly too long as the most vicious rebound had already taken place by then. Nevertheless, due to the timely shift from long to short, we realized a +11.5% positive return during a time when markets sold off strongly. In April the model reopened its long position and captured a +10.5% return. On a year-to-date basis, our long/short signals have returned +11.4% on stocks while the market itself is down -5%.

Bitcoin

Of all our models, the signals on Bitcoin - not affected by politics, fiscal stimulus or central banks - remains the most volatile. We take care to tweak our models in such a way that they respond timely but only do so when they can maintain their signals with some degree of confidence over a longer period of time. For Bitcoin which has given approximately 10 signals so far this year, this proves a difficult task, in particular, because the risk of being on the sidelines too much with Bitcoin - or even shorting it - means missing out or getting hurt by one of its "moon" phases.

Nevertheless, we are not dissatisfied with the results and think that two or so trading signals a month for an asset like Bitcoin is not unreasonable. We captured approximately +20% of the +26% rally until early March, then stepped out for the long-only model until 20th March as Bitcoin sold off strongly. This meant we were still up 20% as Bitcoin itself sold off to -30% year-to-date initially, while our long/short signals model achieve heights of +88% before giving up quite a lot of that. Since then Bitcoin indicated another 3 long and 1 short signals and on a year-to-date basis our long/short signal portfolio today is up +96% vs. +35% on a buy and hold basis.

Model portfolio

Our model portfolio represents our "best ideas" and will in the future contain signals from all of our models. Currently, it's a simple grouping of 40% Bitcoin, 40% stocks and 20% US treasury on a long/short basis. The total year-to-date return is +48% which was achieved with a max. drawdown of -13% compared to -52% on Bitcoin and -34% on stocks.