For algorithmic traders, their performance is based on the quality and length of their data sets and their ability to adjust their models to real-time. Machine learning is an integral part of the business model. But during unprecedented events like the current global pandemic, there was little if any history to go by. As a result, even some of the best and largest algorithmic hedge funds have not only underperformed this year but many have posted deep drawdowns. Trading/investing environments are cyclical, and it has once again become a stock pickers market where active management outperforms. However, a stock pickers' environment exhibits a greater dispersion (scattering about an average) in returns and increased volatility. The benefits have not only been for the active money manager but also the day trader who has seen greater opportunities to take positions in stocks that are trending and have greater intraday ranges. As noted in our last blog (December 31, 2020) the 20-year cycle which tends to be quite powerful is pointing down for this year. So, as the environment changes from a supportive Fed & Fiscally buoyed market into the future we must be mindful of a potential bear or flat market. Trading and investing tactics will have to adjust. We saw early-stage commodity inflation in 2020 with basic materials and metals such as copper in uptrends since the Feb-March panic. On Monday, gold started the New Year with a 50-point gap to the upside. And on Tuesday Saudi Arabia stated they would curtail oil production by 1 million barrels a day. Although the energy group has rallied smartly since the beginning of November, the resurgence in the group and seasonality should still provide some trading opportunities.
Happy New Year to all
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