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Market Trends for November 2016

Trump Win makes sure that this time really is different...

It did not take long for the 45th President of the United States to have an impact on the world's financial and commodity markets. Expectations to new policies and spending plans sent markets on a roller coaster ride in the aftermath of the US election and as the month of November draws to a close, many participants will look back on the last few weeks as some of the most difficult to trade through...especially from a trend following perspective.

The illusion of safety is always more dangerous than the thread of uncertainty

But if there is one thing that history has taught us, is that having a disciplined plan for your trading each day, is the key to survival and prosperity in the long run, and this is why trend followers will not be shaken nor stirred by Mr Trump and what lies ahead. In fact, it may well turn out to be the beginning of significantly more divergent market behavior which usually leads to good opportunities for trend following strategies.

Firstly, let’s look at where the trend Barometer finished the month;
2016-12-01_tb-with-heading

At the end of play on November 30th, some improvement in the Trend Barometer should be noted, however since this improvement only started in the last week of November, I expect that most CTA indices may still end the month in negative territory, and thus a large part of the underlying managers.

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 13 to about 20 during November, and in particular in the Base Metals sector did we see some very strong trends. Therefore it is to be expected that CTA programs with a decent exposure to this sector (and perhaps less exposure to fixed income) would have done better than the average CTA program. Currencies also saw a reinforcement of the strong US$ trend that has been building up in recent weeks.

2016-11-30_markets-with-heading

In the chart below, I have grouped the markets into 10 sectors. Just 2 out of 10 Sectors finished the month in a trending state (Base Metals and Currencies)

There is no doubt that returns in the month of November will be largely determined by the performance in the days around the US election, and how quickly positions in US fixed income markets were turned from the long-term uptrend to a new downtrend. Slower systems would by nature have lost more during this move in fixed income, and as mentioned above, portfolios with a good allocation to base metal markets should also have benefited from some very strong moves based on the optimism surrounding the potential for much more infra-structure spending.

2016-11-30_sectors-with-heading

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

As mentioned above, the overall trend environment improved in the last week of November but finished completely neutral at a reading of 45.

2016 will no doubt be remembered as a year full of surprises and big market moves as a result of these surprises, which usually is not a good environment for strategies looking for market trends lasting for several months - however, the "damage" overall for many established managers is quite small and thus it proves that sometimes the best thing you can do, is to play good defense whilst the markets readies themselves for the next big trend

Let me finish by quoting legendary trend following trader Bill Dunn, who would often say The Best Time to Invest is at the Bottom of a Drawdown!...The Second Best Time is...TODAY.

2016-11_tb-evolution-since-2015

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.

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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