Stephanie and I were away for a four-day weekend this weekend for her birthday, so I am only just back at my desk now to do the weekly market update. As a result, it is going to be a quick one.

Here is the performance of the major markets over the last week:

The key highlights from my perspective are:

• Broad-based advance in US stocks covering all sectors (except Industrials that were essentially flat)
• Small Caps in the US actually did better than large caps with the Russell 3000 equal weight index up 2.4% and the S&P500 up 1.5%
• The advance in Aussie stocks was driven largely by the materials sector, so trend following systems with exposure to mining stocks are looking solid at the moment.
• Hong Kong and Chinese markets were the standout performers up 5.5% and 6.9% for the week respectively
• Taiwan stocks (which I have just started investigating) were up over 3% for the week which is enough to keep my motivation up to test some more of my existing systems on the Taiwan Stock Exchange

The correction in the Crypto markets COULD be over – we have seen strength in the market for a few days now and we have seen a higher low in both the mega caps and the crypto ex-mega caps indices (see below). Also my crypto systems have started taking on a few more positions – if this high low holds we could see a very decent rally as more traders pay attention and pile in… let’s see if it holds this week.

Trading Tip: The Power of Geographic Diversification

Diversifying across multiple markets is one of my cornerstone strategies for smoothing my equity curve, especially as markets transition between bull and bear phases at different times.

By spreading our portfolio across various global markets, we can capitalize on the unique economic cycles and drivers that influence each market differently. This approach not only mitigates the risk associated with a downturn in any single market but also enhances the potential for capturing gains from others that might be performing well. For instance, while the U.S. market might be experiencing a bear phase, Asian or European markets could be in a bull run, offering offsetting growth opportunities.

The concept of market diversification is not just about geographical spread but also involves a strategic mix of asset classes and sectors within those markets. Each market has its own ‘personality’, influenced by regional economic policies, currency strengths, and consumer behaviour, which can lead to different performance patterns. By employing a geographic diversified strategy, we’re not putting all our eggs in one basket but rather creating a mosaic of investment opportunities that work together to stabilize our portfolio’s performance over time.

Implementing this strategy requires careful analysis and a keen understanding of how different markets interact during normal market conditions as well as during periods of extreme market uncertainty and volatility such as the 2008 financial crisis and the 2020 Covid Crash. Backtesting our strategies over a long period through many market cycles (say 30-40 years of history) gives us valuable insights into correlations and potential diversification benefits. This is critical to help us allocate capital intelligently to maximise the diversification benefits and avoid complacency (assuming we have diversified away all risk).

This methodical approach not only safeguards our investments during volatile periods but also positions us to take advantage of growth opportunities in other markets. This strategic diversification is key to achieving a more stable and potentially profitable trading experience over the long term.

In truth we can never diversify away all risk, but having a solid geographic diversification strategy in your portfolio can make a huge difference.

How do you currently identify the optimal mix of markets to include in your trading portfolio to navigate the transitions between Bull and Bear markets effectively?

Member Wins

This week our member of the week is Nicole W. Nicole has been super helpful to other members and has also been asking fantastic questions and making great suggestions to enhance our community even more – brilliant effort Nicole!

Well done and keep up the fantastic progress!

News from EST

• I presented a webinar for Interactive Brokers this week called The Art (and Science) of Building a Diversified Trading Portfolio. You can watch the recording here.
• Next Monday at 7pm AEST I will be presenting to the ATAA Quant Trading Special Interest Group. The presentation is called “Beyond the backtest – Better Optimization and Robustness Testing”. This is free to attend for ATAA members so look out for that one
• Finally, on June 18th, I am presenting again for Interactive Brokers on “The Power of Backtesting: From Theory to Practice (How to Validate You Actually Have an Edge)” You can register for this free training here.

On the Home Front

Stephanie and I had an awesome long weekend to celebrate her birthday – we had a number of fantastic meals, several wine tastings, walked in the vineyards, went hot air ballooning, slept in and read books. It was AWESOME. If you haven’t been in a hot air balloon, I highly recommend it – great experience!

I will be announcing a new training event this week, so be on the lookout for that, and make sure you register early so you don’t miss out on being able to attend it live with me FREE.

Have a great week.

Remember – You’re only one trading system away!

Adrian Reid

Founder – Enlightened Stock Trading