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Market Trends for February 2019

China, Trump & North Korea...not much impact in February

 

Despite a packed program for the month of February, the market impact, from a trend following perspective, was relatively modest.

And one concrete indication of this, was the drop in the VIX index by more than 10%.

But we certainly had a few standard market moves. To the upside Gasoline and Palladium recorded strong price moves and to the downside we saw commodities such as Wheat, Lean Hogs and Coffee lead the charge. But the big sectors like Stocks and Bonds were relatively quiet.

Now, let’s look at where the Trend Barometer finished the month;
2019-02_TB with Heading

The Trend Barometer finished the shortest month of the year at a level of 41...slightly up from last month...but what I would consider as being close to a neutral level, when it comes to performance of the CTA industry. Early indications are moderately positive for the medium to long term trend followers, whilst the short term strategies continue to struggle in 2019, after a decent 2018.

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 crawled up to 18 during the month, when we include those ending right at the neutral reading (indicated by the "grey" shade right at the 30% level). Please note that for the individual markets a reading of 30 is considered neutral as opposed to the Trend Barometer itself, where this level is 45.

GREEN dots (UP trends) were dominant, but spread out across sectors, whilst the Grain sector really stood for those markets recording a down trend (RED dot) at the end of the month.

2019-02_Markets with Heading

In the chart below, I have grouped the markets into 10 sectors. Since last month, the number of sectors exhibiting an overall trending state declined from 3 to 2 out of 10 sectors... which reflects the lack of trends at the moment.

Not surprising it was Grains and Stocks (albeit barely making it) that were the sectors showing consistent trends at the end of the month.

2019-02_Sectors with Heading

I want to finish with a quote from my recent conversation (you can find it on the podcast) with three very large investors, totaling more than $300bn in AuM. Trend Webster, who is the senior investment officer at Strategic Investments for the State Board of Administration of Florida, had this comment during our conversation, which I think is a good reminder;

So, over the last ten years, you're right, they [CTAs] haven't performed all that well. Well, from 1966 to 1982 the Dow Jones Industrial Average, I think, went up one point. So, for sixteen years the Dow Industrials was flat, and you put dividends in there and few other indices, it's a little more than that. But, stocks for long periods of time have also been disappointing.

So, what you're really looking at is that at this time in 2009 you were at the nadir of the market. Literally, you were a month and a half away from bottoming in the worst financial crisis that we'd been in and the prior year's stocks were down 40% and managed futures were up 18%. So, you were measuring from a high. Today we're at a low or just coming out of a low for managed futures. So, what you're looking at is endpoint sensitivity.

So, you're right, but the truth is that in the real world that's the board you're looking at are what consultants are looking at, saying, "Oh my gosh, there's been no return over ten years." But, time will shift, and you either believe in this or don't. I happen to believe in it. I am hearing people throwing the towel in on these types of basic trend following strategies, that makes me kind of bullish on them.

On the chart below you can see how the last few days of February took a bit of the shine off trend followers performance, mainly driven by the increase in global interest rates (falling prices)...but the month still ended on a positive note for most trend following managers!

2019-02_TB - 6 months Evolution

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.