Market Trends for November 2017

So far Q4 is living up to its reputation

  As the Year draws to a close, I'm reminded that the last calendar quarter is very often the best when it comes to trend following performance... AND...so far 2017 seem to follow this tradition! I can't really come up with a scientifically proven argument for why this is, but it sure is a nice pre-Christmas tradition. Only a couple of months ago, the news media was pointing to some trend following indices recording their worst rolling 12-month Sharpe Ratio, and as I wrote about in my "Shrek" inspired update on October 1...it really is during these periods, when the promise-land appear to "far far away" and nothing seem to work in the trend following world that you simple have to look back on the rich history of this strategy, to get the strength and courage to believe in it's ability to recover from such difficult times. Clearly this will not be the last time, when we all have to do this, but I encourage you to internalise this moment, where the best trend following firms again, are closing in on or already making New All-Time Highs! And this of course in a year that, so far, has not had any equity crash or other major financial crisis, as many pundits have been predicting for some time.

Understanding that trend following is NOT A HEDGE but rather a non-correlated strategy is SO important. When you do, you accept that just because equity markets go down that your trend follower will not always make money (although they often do)...but at the same time, that strong equity markets does not have to lead to trend followers loosing ground.

It's this conditional correlation that makes the strategy so unique and such a powerful tool to have in your allocation tool-box, which luckily more and more investors are discovering. Let's see where we finished the month...

Next, let’s look at where the trend Barometer finished the month;

The overall Trend Barometer weakened during the month of November  and finished at a reading of 43...what I would consider as a pretty neutral reading. Early indications are that all CTA indices will finish flat, as confirmed by 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 halved from 25 to 13 during the month. Strongest trends were recorded in short-term US interest rates (EuroDollar), but Equities as a group, continued to provide decent trends. Elsewhere, Brent Crude and CrudeOil saw positive trends at month-end as did Palladium and Wheat, which pretty much rounded up the trends in commodities...although Nat Gas also just finished within the definition of a trending state.

In the chart below, I have grouped the markets into 10 sectors. Since last month, the number of sectors exhibiting an overall trending state was cut from 3 to 1 out of 10 sectors, a low number which we have seen many times in 2017.

It probably comes as no surprise that Stocks was the lone-rider when it comes to Sectors trending at the end of November.

It actually makes me very optimistic about the future, as I do believe that we will experience periods where many more sectors will start to trend at the same time... When will this happen? I don't know! And I don't spend time worrying about it, because I know that when it does...the true trend followers of this world will be there to collect. The key thing is to appreciate that the real benefit from this strategy comes from being a long term investor. 10, 20 or even 30 years from now - we won't be spending time discussing the fact that trend following had a tough time in 2016 or 2017! At least that is my belief. This month we are back with the daily trend barometer chart for the past 5 months. After the most recent peak at the end of October, we did see a steady decline in to late November...and then a small recovery into month-end. Cleary a number of trends weakened during the month, with all of the uncertainty on the political front, not least in Europe, but it looks like most trend followers have weather this period well and some managers even putting in solid numbers for this penultimate month of the year.

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.