Industry Benchmark Performance
Unfortunately, Barclay’s is no longer providing Industry performance tables; therefore, we won’t be showing this section anymore. It may be best, because during a drawdown, some funds are redeemed and don’t show their results. That makes performance history unreliable.
Kaufman’sMost Popular Books (available on Amazon)
Trading Systems and Methods, 6th Edition. The complete guide to trading systems, with more than 250 programs and spreadsheets. The most important book for a system developer.
Kaufman Constructs Trading Systems. A step-by-step manual on how to develop, test, and trade an algorithmic system.
Learn To Trade. Written for both serious beginners and practiced traders, this book includes chart formations, trends, indicators, trading rules, risk, and portfolio management. You can find it in color on Amazon.
You can also find these books on our website, www.kaufmansignals.com.
Blogs and Recent Publications
Find Mr. Kaufman’s other recent publications and seminars at the end of this report. We post new interviews, seminars, and reference new articles by Mr. Kaufman each month.
April Performance in Brief
Another terrible month for the Trend systems, but well off historic lows. Because our program trades more volatile, high-beta stocks, we are down more than the S&P. On the other hand, we expect to recover faster!
But don’t be fooled. The Russell has declined 26% from its highs and the S&P 18%. The correlation between the S&P and Nasdaq has been 0.98 since the beginning of 2025. There is no place to hide and no reason to trade both.
We’ll look at that in detail in this month’s Close-Up Report, “Could This Be the Bottom?”. We took defensive action by introducing a new risk method and deleveraged by 50%. As of today, we have restored our exposure. We take that as a sign that the bottom is near, or we have already seen it.
We’ve also added markets to the Futures program and plan to add the micro gold and micro crude oil this week.
Major Equity ETFs
The index markets seem to be in a recovery, which we will cover more in our Close-Up report. It’s typical for the small caps, IWM, to trade lower because they are considered more speculative. You can also see that the Dow (DIA) has rallied less and dropped less. Investors tend towards the DOW during uncertain times (unless they liquidate) because they have larger capitalization.
Insert Major Index
CLOSE-UP: Could This Be the Bottom?
I’ve waited for the employment report on Friday because it could have been important. It was, in a sense, better than expected, up by 177,000 jobs. Given that we’re expecting lower sales due to tariffs, and lower employment due to Federal layoffs, it’s hard to explain.
This week we had GDP down -0.03 when it was expected up +0.02. That should have caused a sharp decline, but it did not. Instead, the market rallied from lows to close higher.
When the market rallies on bad news, traders believe it’s the end of the drawdown.
Yes, prices can still go down, but traders want to buy. It seems irrational, but it’s hard to fight the market.
Technically speaking, our trend programs reentered the market today after holding a 50% exposure for the past few weeks. The decision was fully algorithmic. Our conclusion is that, if not the bottom, it’s close.
What Didn’t Work
This has been a market of extremes. The 7 high-tech stocks have plummeted, while a variety of stocks are moving higher. As an example, NVDA (Chart 1), the once favorite, has taken a hit from waning enthusiasm about AI and additional competition. While competition will always happen, the greatest evolution in technology (i.e., AI) seems to run out of enthusiasm. There is also competition. You can’t keep your technology advantage forever.
Chart 1. Nvidia (NVDA) has had one of the worst losing streaks over the past 6 months.
More importantly, the S&P (SPY, the ETF, Chart 2) has recovered quickly from its early April lows. Having read the news, watched the tariffs being implemented, I find it difficult to understand, and I’m sure some of you have the same questions. But the market seems to know more than we do, without using AI. A 50% reversal from the lows and a likely break of the 575 resistance, would solidify a breakout.
Chart 2. The S&P ETF has recovered 50% from its lows.
Crude oil paints a different picture (Chart 3). Oil prices sink when the economy is bad and consumers are concerned. They don’t drive as much. Of course, lower prices could mean that OPEC countries are dumping oil, but I haven’t seen that. Then declining gas prices are contrary to the S&P rally. We need to decline which is most important.
Chart 3. Crude oil futures, declining prices over the past four months.
We normally expect interest rates to fall (futures to rise) to offset a declining economy. It is also the biggest position held by futures advisors and funds. Chart 4 shows that the past 6 months have had little change. While we normally look for rates to offset the S&P, that’s not happening. Indications by the Fed is that they will not be lowering rates anytime soon. They are still pondering inflation.
Chart 4. 10-year T-Notes futures, past 6 months.
Then the major problems for traders have been wildly fluctuating index markets, tech stocks taking the biggest hit, crude oil declining, and interest rates going nowhere. It doesn’t really paint a good picture.
What Did Work
Some of the investors looked for safety in gold. In the past, gold has been used to offset a falling U.S. dollar. But it’s been a while since that worked. And gold did nothing after its decline in 1980 until the beginning of the 2000s. It did jump to $2000/oz but then did little until recently.
To have bought gold as a hedge, you needed to believe that the U.S. dollar would decline. Chart 5 shows the dollar index (DX) over the past 6 months. It dropped from 110 to 99, about 10%.
Chart 5. The U.S. dollar index (DX) for the past 6 months.
On the other hand, gold futures (Chart 6) has gained from $2,600 to about $3,200 at the same time. That about 23%. Chart 7 shows how the S&P and gold have moved in opposite direction, just as the U.S. dollar has done the same. If you bought gold early, anticipating that the dollar would fall, you were rewarded.
Chart 6. Gold futures for the past 6 months.
Chart 7. SPY and gold futures from November 2024.
Buy gold based on fundamentals was right. The problem is for trend followers. Gold requires a long-term trend, and recognizing the uptrend can get you in late. While the “lag” in trends often turns out to be good, it didn’t work for gold.
For those investors looking to “be safe,” utilities are a good choice. While other markets declined, XLU, the utilities EFT (Chart 8) held steady. It may still be a good choice while the market is in flux.
Chart 8. The Utilities ETF XLU for the past 6 months.
Then there is China, trying to attract investors away from the U.S. We stopped trading Chinese stocks a few years ago because the government was manipulating the economy. In addition, we could not rely on the earnings. However, Chart 9 is much the same as our markets, declining about 20%.
Chart 9. The Hang Seng Index (Hong Kong), for the past 6 months.
Drawdowns
Most of us trade the S&P. I trade the ETF SPY. If you want to understand how this recent price move compares to the past, you might be surprised. Chart 10 shows the SPY drawdowns from 1998. The includes the period of the dot.com implosion, the financial crisis, and the last tariff “war” with China.
Chart 10. All SPY drawdowns from 1998.
The current drawdown seems much less than we may have imagined. Often we see the NVDA or TSLA drawdown as indicative of the whole market. So far, a drawdown of 20% is in line with other modest drawdowns. That’s not saying that it couldn’t get worse!
SPY versus QQQ
Just for the record, I calculated the correlation between SPY and QQQ since January 1, 2025. It was 0.98, essentially one and the same. The stocks that are most important in QQQ are also in SPY and they are the biggest movers. There was no point in showing both SPY and QQQ, and no point in trading both.
Is This the Bottom?
Probably. If not, it’s near the bottom. The market and politics are having a problem, but the market always anticipates the future. Right now, it is expecting a recovery.
What about the tariffs? What about layoff of Federal employees?
Friday’s employment report was better than expected, up by 177,000. It does seem inconsistent with what we hear on the news about Federal employee layoffs, and companies pulling back due to tariffs. But who can argue with the numbers?
Then there is volatility. The VIX index can help us understand if the market is reverting to “normal.” Chart 11 shows it peaked as the S&P bottomed and has steadily declined. It’s a good sign.
Chart 11. The VIX index for the past 6 months.
If you’ve lost money in the past two months, you’re not alone. But learning to accept losses is an important part of trading. But the market is still there, and the curtain goes up every morning.
Having done this for a long time, I have some observations:
- Our trend system has taken defensive action, selecting stocks that have low volatility and modest returns. Because it’s a trend-following system, it takes time to switch and time to switch back. That is always good and bad.
- We have reduced exposure but are now adding back positions.
- Not rushing is a good policy. There are many V-tops but not many V-bottoms. There may be a bounce off the bottom, but generally, it is best to expect the recovery to be slow.
- Patience is our best attribute.
A Standing Note on Short Sales
Note that the “All Signals” reports show short sales in stocks and ETFs, even though short positions are not executed in the equity portfolios. Our work over the years shows that downturns in the stock market are most often short-lived and it is difficult to capture with a longer-term trend. The upwards bias also works against shorter-term systems unless using futures, which allows leverage. Our decision has been to take only long positions in equities and control the risk by exiting many of the portfolios when there is extreme volatility and/or an indication of a severe downturn.
PORTFOLIO METHODOLOGY IN BRIEF
Both equity and futures programs use the same basic portfolio technology. They all exploit the persistence of performance, that is, they seek those markets with good long-term and short-term returns on the specific system, rank them, then choose the best, subject to liquidity, an existing current signal, with limitations on how many can be chosen from each sector. If there are not enough stocks or futures markets that satisfy all the conditions, then the portfolio holds fewer assets. In general, these portfolios are high beta, showing higher returns and higher risk, but have had a history of consistently outperforming the broad market index in all traditional measures.
PERFORMANCE BY GROUP
NOTE that the charts show below represent performance “tracking,” that is, the oldest results since are simulated but the returns from 2013 are the systematic daily performance added day by day. Any changes to the strategies do not affect the past performance, unless noted. The system assumes 100% investment and stocks are executed on the open, futures on the close of the trading day following the signals. From time to time we make logic changes to the strategies and show how the new model performs.
Groups DE1 and WE1: Daily and Weekly Trend Program for Stocks, including Income Focus, DowHedge, Sector Rotation, and the New High-Risk Portfolio
The Trend program seeks long-term directional changes in markets and the portfolios choose stocks that have realized profitable performance over many years combined with good short-term returns. It will hold fewer stocks when they do not meet our condition and exit the entire portfolio when there is extreme risk or a significant downturn.
Equity Trend
Another monthly loss, and hopefully the last. The chart may look worse than it is because larger downturns occur at higher NAVs, unlike a log chart that shows equal percentages. Still, a loss is a loss. As we said in the Close-Up report, we expect this to be near the lows of the market.
We have also lifted our exposure hedge on Friday and now hold full positions.
Income Focus and Sector Rotation
The Fed doesn’t seem to be inclined to lower rates in the near future. Both the daily and weekly programs took modest losses in April, but future profits depend on lower interest rates.
Weekly Sector Rotation
After stable performance for all of last year, this program took the biggest loss in April, proving “there is no place to hide.” I’m going to say that it will start its recovery now. It’s a conservative program and investors will move back into it.
DowHedge Programs
Much like the other programs, the DowHedge lost 7% in April but its drawdown is less than the other markets. As we saw in the ETF results at the beginning of the report, the Dow rallied the least and has had the smallest drawdown of the index markets.
High-Risk Portfolios
Oddly enough, this program had the smallest drawdown in April, from 1% to 3%, but combined with March, the total drawdown is similar to other program. We do see some hope here. The recent rally seems to be favoring the Magnificent 7. The market is fickle.
Group DE2: Divergence Program for Stocks
The Divergence program looks for patterns where price and momentum diverge, then takes a position in anticipation of the pattern resolving itself in a predictable direction, often the way prices had moved before the period of uncertainty.
Smaller losses for this program, due mostly to the inability to find trades. That is something positive in a program that looks for patterns. April posted a marginal to 3% loss, totaling a loss of 5% to 7% for the year.
Group DE3: Timing Program for Stocks
The Timing program is a relative-value arbitrage, taking advantage of undervalued stocks relative to its index. It first finds the index that correlates best with a stock, then waits for an oversold indicator within an upwards trend. It exits when the stock price normalizes relative to the index, or the trend turns down. These portfolios are long-only because the upwards bias in stocks and that they are most often used in retirement accounts.
Although a declining market isn’t the place for a pullback strategy, the Timing Program had modest losses in April, 3% to 4% for a total loss of 12%. Again, this could be due to holding positions. That would still be good. A bull market would be better.
Futures Programs
Groups DF1: Daily Trend Programs for Futures
Futures allow both high leverage and true diversification. The larger portfolios, such as $1million, are diversified into both commodities and world index and interest rate markets, in addition to foreign exchange. Its performance is not expected to track the U.S. stock market and is a hedge in every sense because it is uncorrelated. As the portfolio becomes more diversified its returns are more stable.
The leverage available in futures markets allows us to manage the risk in the portfolio, something not possible to the same degree with stocks. This portfolio targets 14% volatility. Investors interested in lower leverage can simply scale down all positions equally in proportion to their volatility preference. Note that these portfolios do not trade Asian futures, which we believe are more difficult for U.S. investors to execute. The “US 250K” portfolio trades only U.S. futures.
We’ve added more markets to the Futures Program and plan to add micro contracts in gold and crude in the next week. Meanwhile, this program has taken smaller losses and shows a smaller drawdown that the equity program, although the $1M took the biggest loss.
Group DF2: Divergence Portfolio for Futures
You may wonder why I keep pursuing this program. It’s because it can profit from pauses in the trend. Unfortunately, these has not been enough of a trend to profit. Still, we’ll keep tracking it. Its time will come. Meanwhile, it had losses less than 5% in April, better than some other programs.
Blogs and Recent Publications
Perry’s books are all available on Amazon or through our website, www.kaufmansignals.com.
May 2025
You’ll find Perry’s article “Trading the Channel” more interesting than usual. Published in the May issue of Technical Analysis of Stocks & Commodities, it looks at various ways of construction a channel, and one very profitable one.
Perry also addressed a Spanish class where they are building algorithmic strategies. Called ROBOTRADER, it in ETSIT-UPM (Escuela Técnica Superior Ingenieros Telecomunicación- Universidad Politécnica Madrid). The presentation is about Diversfication (in English) and available on youtube.
April 2025
Perry did a studio interview with Jeff Baccaccio (“Rfactory”) in London in March. It is a fine production and a good interview. He has put it on youtube. I hope you enjoy it.
YouTube: https://youtu.be/jmR359jHYBQ?si=IHQ5bVLijGFM19qF
Another article in Technical Analysis of Stocks & Commodities for April, “Do Stops Really Work?” The conclusion even fooled Perry.
March 2025
Perry looks at an old standard in “Revisiting the 3-Day Trade,” which appeared in Technical Analysis of Stocks & Commodities in the March issue.
February 2025
Another article, “Chasing the Market” appeared in the February issue of Technical Analysis of Stocks & Commodities. It answers the question, “Can you make money entering the market after a big move?”
Perry enjoyed the “Fireside Chat” at the Society of Technical Analysts (STA) in London on Tuesday, February 11. It should be available for viewing on their website. He also taped another interview and we’ll let you know how to see it when it’s released.
He also posted “If you think the market will tank, here’s a plan” on SeekingAlpha. It has received lots of view and good comments, although it is advising deleveraging.
December 2024
“Overlooked Strategy Rules” appeared in the December issue of Technical Analysis of Stocks & Commodities. We tend to overlook certain rules that can make a big difference to results. This article looks at scaling in and scaling out of a position, delayed entries, correlations, and other simple but important rules.
October 2024
“Trading a Breakout System” was published in Technical Analysis of Stocks & Commodities. It looks at whether it’s better to enter on the bullish breakout, wait for confirmation, or buy ahead of the breakout. It’s a practical look at improving breakout results.
September 2024
Two articles posted by Perry, “The N-Day or the Swing Breakout,” (Technical Analysis of Stocks & Commodities) looking to see which is better. You would be surprised.
A look at deleveraging Artificial Intelligence stocks, a shorter version of the article posted in our “Close-Up” section. It appeared in Seeking Alpha earlier in September.
August 2024
“Theory Versus Reality” was published in the August issue of Technical Analysis of Stocks & Commodities. It discusses price shocks, diversification, predicting performance, and more.
July 2024
Perry posted a new article on Seeking Alpha, “Capturing Fund Flows.” It a good strategy for someone that wants to add some diversification. It only trades 3 days each month!
June 2024
Perry was interviewed on June 27th by Simon Mansell and Richard Brennan at QuantiveAlpha (Queensland, Australia), a website heavy into technical trading. It should be posted in a week or so.
“Trading Extreme Gaps and Extreme Closes” looks at daily patterns in stocks, published in the June edition of Technical Analysis.
Older Items of Interest
Perry did a studio interview with Jeff Baccaccio (“Rfactory”) in London in March 2025. It is a fine production and a good interview. He has put it on youtube. I hope you enjoy it.
YouTube: https://youtu.be/jmR359jHYBQ?si=IHQ5bVLijGFM19qF
On April 18th, 2023, Perry gave a webinar to the Society of Technical Analysts (London) on how to develop and test a successful trading system. Check their website for more details, https://www.technicalanalysts.com..
Perry’s webinar on risk, given to the U.K. Society of Technical Analysts, can be seen using the following link: https://vimeo.com/708691362/04c8fb70ea
For older articles please scan the websites for Technical Analysis of Stocks & Commodities, Modern Trader, Seeking Alpha, ProActive Advisor Magazine, and Forbes. You will also find recorded presentations given by Mr. Kaufman at BetterSystemTrader.com, TalkingTrading.com, FXCM.com, systemtrade.pl, the website for Alex Gerchik, Michael Covel’s website, TrendFollowing.com, and Talking Trading.com.
You will also find up to six months of back copies of our “Close-Up” reports on our website, www.kaufmansignals.com. You can address any questions to perry@kaufmansignalsdaily.com.
© April 2025, Etna Publishing, LLC. All Rights Reserved.