Calm before the Storm?
As the FED delivered its anticipated rate hike during the last week of the month (the eighths since December 2015), the month of September was in many respects a relatively quiet month for most markets.
As "usual" the US stock markets made a new all-time high, and as "usual" European markets struggled to keep up with this trend. US Bond yields moved up and for the first time in a long time, yields in Europe did not make new lows and saw a bit of upward pressure before recovering a fraction yesterday. The US Dollar seem stuck in a range, but did get a lift in the last couple of days of September.
Where we saw real energy...well was in fact in Energies, with the whole complex moving higher...even Natural Gas which broke above the past 12 months high.
Elsewhere in the commodity sector, Grains continued its downtrend until mid-month when some relief came into the price action and markets started to move higher. In Softs, we saw Cocoa and Cotton finish the month at their lows whilst Coffee and Sugar managed to move off their lows towards month-end.
Gold was somewhat range bound during September, whist its cousin Silver, moved higher. In Base Metals, Copper had a big move up (against its down trend) mid-month and Meats also saw higher prices in September.
Now, let’s look at where the Trend Barometer finished the month;
The Trend Barometer finish right at its Neutral level of 45...up from 36 last month.
And it looks like many CTAs will finish the month +/- 1 or 2% for the month of September...which is not unusual when you have a neutral rating on the Trend Barometer.
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 by 8, from 14 to 22 during the month, including 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.
The strongest trends were seen in the Yen and Palladium, but clearly the Energy sector is where the overall sector tends are most consistent.
In the chart below, I have grouped the markets into 10 sectors. Since last month, the number of sectors exhibiting an overall trending state rose from 0 to 2 out of 10 sectors... which is still pretty low.
No surprise that Energy was one of the 2 sectors to being in an overall trending state, the other one being Soft commodities. This would suggest that fully diversified managers may have done better in September compared to more financials "heavy" managers.
As the fall is setting in and we enter the last quarter of 2018, it will be interesting to see if will get a repeat of what happened in 2017, where stronger trends really came out of nowhere. Time will tell.
No doubt that some markets seem a bit stretched at the moment and that the chatter about an upcoming Bear market in stocks is becoming louder and louder...but as trend followers build their portfolios to the mantra of "Knowing what you don't know"...it will be interesting to see how the year will end. It has clearly been a difficult year for most trend following strategies...but by no means as bad as some of the press will have it sound like.
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.