In partnership with:
CME Group
Eurex

Market Trends for January 2020

New decade starts with risk of War & Virus

 

I could hardly believe my eyes when I sat down to write this update, only to find that despite geopolitical tensions following the killing of a top Iranian General and the outbreak of the Coronavirus, the Trend Barometer had not changed from December 31 to January 31.

Of course, intra-month it did move around...but it seems like it's trying to suggest that the trends that were in place at the beginning of the year, may still be intact, despite the increase in volatility during the last 10 days of the month.

Global stock indices battled to stay above water in a month of flaring tensions and fears about economic weakness that could follow in the wake of this global health emergency.

As can be seen below, it certainly was a month with significant market moves in many markets, and surprising stagnation in traditional safe-haven markets like the Swiss Franc and the Yen.

Market moves this month:

2020-01-31 Monthly - Finviz Weekly Performance

Trend Barometer statistic this month

2020-01_TB with Heading

The Trend Barometer finished the month at precisely the same strong level of 68 that we saw last month, but yet again we are likely not too see that strong a performance in trend following performance, due to the corrections late in the month. But still a positive month though.

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 at the end of the month eased off to 23...down from 24 in the previous month, and if we include those ending right at the neutral reading (indicated by the "grey" shade right at the 30% level) we get up to 29, which leaves the Trend Barometer in a strong overall state. 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.

In the RED camp (down trends) this months, we mainly have Energy, Base Metals and a few other Commodity markets, with Heating Oil, SoyBeans and Lean Hogs struggling the most. Carrying the GREEN flag (up trends) at the end of the month, albeit at a more moderate strength, we see Palladium, Gold, Cocoa, Sugar and a couple of Currencies and Stock markets tracked by the Trend Barometer.

2020-01_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, stayed unchanged at 4 out of 10 sectors. This is towards the higher end of the scale we have seen for a long time and unsurprising these are all to the down-side.

2020-01_Sectors with Heading

Trend following’s relatively uninspiring performance in the 2010s appears to be a function of weaker or fewer trending opportunities in futures markets, rather than a structural drop in diversification between markets, which most likely is a temporary phenonomen due to the role of the Central Banks and their success in preventing a "boom and bust" economic environment. But as we get closer to the US election and all efforts are made to keep this gravy train running...who knows what happens when we have this behind us.

History teaches us, that betting against having a diversified portfolio, comes at a high cost. And there are NO REFUNDS!

If you want to check the current state of trend following, join me each weekend on The Systematic Investor Series, where we give you a raw and honest account of what it's like to be a rules based investor and share with you which trends are happening right now.

2020-01_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.