Trading Strategies for Choppy Markets

 |  Includes: GS, MS, SPY, WFC
by: Stock Traders Daily

The equity markets faced a rocky second quarter that was unkind to buy and hold investors. The SPDR S&P 500 ETF (NYSEARCA:SPY) ended Q2 down 1.1% despite its strong closing week to the quarter. Traders who took traditional trading approaches with similar ETFs did not come out ahead. There was big money to be made during the quarter however.

An All-Weather Approach

Proactive strategies proved to be the most effective during Q2. For instance, an Equity Logic account managed by Tom Kee had a monster quarter. The long/short account was up a staggering 26.9%. “Our technical analysis was superb during the quarter,” Kee wrote in a report to clients. “We were able to take advantage of a market which has not increased or declined materially from the beginning to the end of the second quarter.”

With no signs of the markets calming or gains coming any easier, traders may need to embrace similar approaches for the foreseeable future. “Our observations suggest that without easing, the economy will weaken because it cannot stand on its own,” Kee wrote. “This natural state of economic weakness cannot be prevented; it can only be made worse.”

Stacking Up

Kee’s performance in Q2 measures up very well against funds run by some of the nation’s biggest and most powerful financial institutions. A small cap value fund with just under $3 billion in assets that is run by Goldman Sachs (NYSE:GS) remained virtually unchanged from the beginning of Q2.

It was not just small caps funds that struggled to find outsized gains in Q2. Mid caps funds faced similar adversity. With nearly 100 holdings, a mid cap growth fund run by Morgan Stanley (NYSE:MS) eked out a 1.9% gain on the quarter.

A growth fund with close to $5 billion in assets that is managed by Wells Fargo & Company (NYSE:WFC) ran into the same headwinds. It too was practically flat as some of its large cap tech plays found little room to run this past spring.

Each of these mutual funds outperformed the market, but only by narrow margins. The tight gap demonstrates how difficult profits can be to come by given the present market conditions. Kee’s approach underscores that trading with conviction during uncertain times can pay huge dividends.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.