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Market Trends for February 2016

Coco-Bonds spooked the markets...but not CTAs

It is fair to say that investors had plenty of things to worry about in February and we were reminded about the days from 2008, where you were not quite sure if your bank was in trouble. This time around, we learned of a new instrument...Coco-Bonds! Clearly the banks have not stopped innovation when it comes to instruments that only few (usually themselves) truly understand.

The increased volatility almost make CTAs look like the well-behaved boys in the class-room who mind their own business and where you hardly notice them! back to the Trend Barometer which on a closing basis did not move a great deal, but importantly spend most of the month above the break-even level.

Firstly, let’s look at where the trend Barometer finished the month;
2016-03-01_8-57-11 - TB with Heading

The next chart below shows a snapshot of a 44-market portfolio with markets listed in “groups” of market sectors; 

As most investors would have noticed the fear of a BREXIT had a big impact on the British Pound, which had a nice down trend (Red dot indicates "down" trend) but also markets like Cotton (CT) and Natural Gas (NG) saw downward pressure along with other agricultural markets (although to a lesser extent).

On the upside, the fixed income markets continued their march to new highs but had companionship from the Yen (JY), Gold (GC) and Aluminum (AA).

2016-03-01_8-28-35 - Markets with Heading

In the chart below, I have grouped the markets into 10 sectors. 7 out of 10 Sectors finish the month in a trend Neutral, but still we had enough trends to post positive performance for trend following strategies;

2016-03-01_8-27-39 - Sector with Heading

The last chart shows the evolution in the Trend Barometer since January 2015.

It is interesting to see how the "lows" in the Trend Barometer has moved up in the last 3 months and that we have seen a couple of healthy spikes above 70, confirming the good start to the year for trend following strategies.

Clearly some of the big Sectors like Energy and Stocks are finding it hard to decide if they should resume their down-trend or if we have seen the lows for a while, and it is encouraging to see how well CTAs have dealt with the bounces in both sectors during the month of February.

2016-03-01_TB Evolution


I hope you found the information useful for the way you evaluate the trend following part of your investment universe. Unless you tell me otherwise, I will 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.

P.S. if you want to follow the Trend Barometer on a daily basis, please click here and if you want to see the list of Market Symbols explanations, please click here.

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