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Trends Emerging Again

After the hit we took in October it has been very quiet in the markets. Sure, we have seen plenty of spectacular headlines and some large daily moves, but there has been a lack of clear trends and diversified futures managers are just idling along sideways. What we see now is a building up of positions again as more and more trends are starting to emerge. As always, this can end in two ways. Either we’ll get a nice run for a while if these new trends stick around, or there will be a painful reversal with plenty of stops. One this is sure though, with the increased risk building up in the strategy, we will see some action soon.

The main themes in the financial markets at the moment are short agriculturals and long US dollar. The non-agricultural commodities are starting to build up as well as this may turn into a more general short commodities/long dollar bet.

We also still hold a notable allocation to long rates futures, which may seem worrying to many people. Yields are getting close to zero and we are still long the bonds. How much farther can the prices go? Well, it’s not up to us to make that call. When they turn down, we’ll take our stops just like any other position. If we have learnt anything from the past crazy years of financial chaos is that anything can happen. Don’t forget that one of the most profitable trades of the year involved staying long the EuroSwiss futures after it had a negative yield. Just stick to the rules.

MarketDirectionSectorEntry Date
Rapeseed(Canola)ShortAgricultural Commodities2011-09-23
Rice-RoughShortAgricultural Commodities2011-11-10
LumberShortAgricultural Commodities2011-12-01
CornShortAgricultural Commodities2011-11-25
Sugar #11ShortAgricultural Commodities2011-11-25
WheatShortAgricultural Commodities2011-09-20
Soybean MealShortAgricultural Commodities2011-11-11
CoffeeShortAgricultural Commodities2011-12-13
SoybeansShortAgricultural Commodities2011-11-22
Cotton #2ShortAgricultural Commodities2011-11-08
Swedish Krona/U.S. DollarShortCurrencies2011-11-28
Swiss FrancShortCurrencies2011-11-28
EuroShortCurrencies2011-12-13
Norwegian KroneShortCurrencies2011-12-15
MSCI Taiwan IndexShortEquities2011-11-28
Natural Gas-Henry HubShortNon-Agricultural Commodities2011-07-08
PlatinumShortNon-Agricultural Commodities2011-12-15
SilverShortNon-Agricultural Commodities2011-12-15
Australian Govt Bond 6%(3Yr)LongRates2011-11-11
German BoblLongRates2011-12-15
Australian Govt Bond 6%(10Yr)LongRates2011-11-21
Canadian Govt Bond 10YrLongRates2011-11-24
Gilt-Long(8.75-13yr)LongRates2011-11-16
Euro Swiss FrancLongRates2011-12-08
T-Note-U.S. 5 YrLongRates2011-12-08
T-Note-U.S. 2 YrLongRates2011-12-08
T-Note-U.S. 10 Yr w/Prj AXLongRates2011-12-14
Euro German SchatzLongRates2011-11-10

The performance is flat on the year under quite a bit of volatility, showing that we are still in a very difficult period for trend followers. Of course, if you were in the buy-and-hold equity camp, you would be significantly in the red under even heavier volatility.