Seasonality is a well-known phenomenon in the commodity markets, with certain sectors exhibiting predictable patterns of performance during specific times of the year. These patterns often attract investors who aim to capitalize on anticipated price movements, creating a self-reinforcing cycle. But what if you could stay one step ahead of the crowd? By front-running these seasonal trends—buying sectors with expected positive performance (or shorting those with negative seasonality) before their favorable months begin—you can potentially gain a significant edge over traditional seasonality-based strategies. In this blog post, we explore how to construct and backtest a systematic strategy using commodity sector ETFs to exploit this seasonal front-running effect.

Do the quants possess a crystal ball? The recent research hints, that if we try to process the Twiter images, then we may get a small glimpse into the future. The Federal Open Market Committee (FOMC) meetings significantly influence financial markets, drawing global attention from traders and investors, especially regarding equity risk premia. Recent research indicates that combining sentiment analysis of Twitter images with text analysis can more accurately predict stock performance on FOMC days than text alone.

As interest in cryptocurrencies continues to surge, driven by each new price rally, crypto assets have solidified their position as one of the main asset classes in global markets. Unlike traditional assets, which primarily trade during standard working hours, cryptocurrencies trade 24/7, presenting a unique landscape of liquidity and volatility. This continuous trading environment has prompted us to investigate how Bitcoin, the flagship cryptocurrency, behaves across intraday and overnight periods. With Bitcoin’s growing availability to both retail and institutional investors through ETFs and other investment vehicles, we hypothesized that trading activity in these distinct timeframes could reveal patterns similar to those seen in traditional markets, where returns are often impacted by liquidity shifts during off-peak hours.

Our research will explore the intriguing phenomenon of the Pre-Holiday effect in commodities, particularly crude oil and gasoline. Historical data reveals a short-term price drift prior to major U.S. holidays, suggesting a trend in these markets. We hypothesize that this anomaly may be driven by increased demand for oil and its derivatives, such as gasoline, as people prepare for travel, often by car, during the holiday season. This seasonal behavior offers unique opportunities for market participants.

Momentum is one of the most researched market anomalies, well-known and widely accepted in both public and academic sectors. Its concept is straightforward: buy an asset when its price rises and sell it when it falls. The goal is to take advantage of these trends to achieve better returns than a simple buy-and-hold strategy. Unfortunately, over the last decades, we have been observers of the diminishing returns of the momentum strategies in all asset classes. In this article, we will present an intra-market correlation filter that can help significantly improve commodity momentum performance and return this strategy once again into the spotlight.

Over the past few years, significant shifts in the financial landscape have reshaped the dynamics of global markets, including the cryptocurrency sector. Events such as the ongoing war in Ukraine, rising inflation rates, the soft landing scenario in the US economy, and the recent Bitcoin halving have all profoundly impacted market sentiment and price movements. Given these developments, we decided to revisit and reassess trading strategies, specifically Trend-following and Mean-reversion in Bitcoin published in 2022, which utilized data from November 2015 to February 2022. This new study explores how these strategies would have performed from November 2015 to August 2024, taking recent changes into account. The study also examines market changes between February 2022 and August 2024, highlighting developments since previous research. Additionally, it evaluates the influence of seasonality on Bitcoin’s price action, similar to our previous article – The Seasonality of Bitcoin. By analyzing these factors, we aim to provide deeper insights into the evolving behavior of the world’s leading cryptocurrency and guide investors through the complexities of today’s market environment.