Cattle & Politics...an unusual coalition
We have often seen in politics that unusual combinations of parties join forces to save the day. But April created a rare coalition to save what looked to be a difficult month for many CTA's.
Live Cattle and a French Election, that produced a surprise winner, turned out to be a strong duo for trend following traders...which subsequent led to a potent recovery in the Trend Barometer and performance overall in the last week of the month.
its is very rare that we see a Trend Strength of 100...but Live Cattle achieved this at the end of April
...but it wasn't the only market showing signs of real strength
Firstly, let’s look at where the trend Barometer finished the month;
Now even though the overall Trend Barometer finished exactly at the break-even point of 45...which supports the early indications of flat to sightly negative performance of all CTA indices - we did actually see readings above 50 in the last few days of the months, which correlates well with the strong recovery in performance following the French Election.
The next chart below shows a snapshot of a 44-market portfolio with markets listed in “groups” of market sectors;
The number of markets recorded in a trending state increased from 10 to 16 during the month. The improvement was pretty broad based with markets in a number of different sectors showing signs of better trending conditions...however two groups of markets were clearly absent, namely Energy and Base Metals
In the chart below, I have grouped the markets into 10 sectors. Since last month, the number of sectors exhibiting an overall trending state increased to 3 out of 10 sectors, thanks so the broad based improvement.
The Equity sector maintained it's slot and was joined by Meats (thanks to Live Cattle) and Softs (led by Sugar and Coffee and to lesser degree Cocoa)
...could this be the beginning of a summer of good opportunities and sustained trends? or will the Sell in May and Go a Way prevail?....only time will tell but for well diversified investors, it won't matter too much because of the long term uncorrelated relationship between traditional assets and Diversified Trend Following strategies
The last chart shows the evolution in the Trend Barometer since January 2015.
Despite the Trend Barometer closing below it's break-even point in the first 3 months of the year...April continued the overall improvement in the environment that had been evident in the latter part of Q1.
No doubt that many markets are affected by the high level of uncertainty in many parts of the Globe. And intuition may suggest that it is best to listen to the so-called "experts" and their forecasts, because clearly a rule based approach are not able to anticipate what will happen in North Korea, a French Election followed by the snap Election in the UK.
But my money will still be on following the unemotional approach of trend following, which has survived and prospered through over 40 years of wars, rumors of wars, elections, scandals, rising interest rates, falling interest rates, droughts, floods and market bobbles and crashes!
The question is....what are YOU going to do?
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
I hope you found the information useful as part of your own evaluation of the trend following part of your investment portfolio. I will continue to do my best to keep you up-to-date with regards to the environment for diversified trend following strategies and would love to discuss any of this information with you. Just reach out to me.