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Market Trends for June 2018

June felt a bit like the BREXIT negotiations

 

Like in any major negotiation, there will be good days and bad days...and over here in Europe...the BREXIT negotiations seem like a perfect example of this.

When I look at the performance of CTA's and perhaps trend followers in particular during the month of June, there certainly were a lot of these good days and not so good days. To a large extent they all fluctuated around the neutral "zero" level in terms of monthly performance.

But as the month was drawing to an end...the "bulls" got the upper hand and performance looks to be slightly up for June.

But as you will learn later...there was one star performer that made this happen.

Now, let’s look at where the trend Barometer finished the month;
2018-06_TB with Heading

The trend barometer did see some fluctuation during the month of June, not least caused by a big drop in trend strength of the energy markets mid-month...but as energy markets recovered, so did the overall trend environment to finish the first half of 2018 with an above average reading of 55.

This also confirms that June should overall be a positive month for trend followers, although the first 6 months of the year has been difficult and will see all CTA indices in the RED, except the Short Term Traders Index, which looks to finish just above the zero line.

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 jumped from 10 to 19 during the month, with another 5 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.

June finished with more markets trending down than up, in particular in the non-Energy Commodity sectors.  Metals seemed particularly weak with Gold and Platinum showing the strongest down-trend readings but also the whole grain-complex was heading south towards the end of June.

In addition to the up-trending Energy markets, where Crude Oil staged a remarkable rally from the lows mid-month turning it into the star performance for many CTAs, we also saw a couple of German bond markets moving higher whilst Currencies as measured against the US$ recorded down-trends at the end of play in June.

2018-06_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 managed to increase from 2 to 3 out of 10 sectors... all in down-trends as indicated above.

The strongest overall Sector trends were recorded in Precious Metals, followed by Grains and Currencies but Bonds and Energies were pretty close to breaking out of the neutral zone...which would have made a rare 5 out of 10 sectors trending. Perhaps this is a sign of what may come over the summer?...looking at the current drawdowns in the CTA industry...I would not be surprised if trends will start to pick up soon.

2018-06_Sectors with Heading

As we come to an end of the first half of 2018...it certainly has been a period where volatility has picked up and reminded us that it has not completely disappeared from the markets. And although the kind of volatility surprises we have seen so far (February and May) has not been helpful for those looking for medium to long-term trends, they have not been completely out of the ordinary. It's just that after 2017, we had almost forgotten that these events do happen.

As mentioned above, performance has been challenging for investors so far in 2018...but for those who have been following this space for a while, I believe they know that the performance of these strategies tend to be "mean reverting" and with the current drawdowns of the industry, I believe we may be close to seeing more opportunities for trend based strategies and that performance may well pick up as we head in to the second half of the year.

Of course only time will tell...but I hope you won't join the group of investors who usually end up selling this investment strategy right before they need it the most. Rather, this may turn out to be a very good entry or top-up point for investors looking for some true diversification and non-correlation within their portfolios.

 

2018-06_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.