Welcome to “This Week in Trend”, where each week, we cover key movements and trends in the futures markets, offering insights on commodities and indices shaping the economy. From price surges to notable declines, we provide an overview of the factors driving these changes. Stay informed about the latest developments and navigate the market with confidence. Join us weekly to explore the dynamic world of futures trading and the trends that matter most.
” October's Turbulence Worsens for Trend Followers: Whipsaws Abound”
This week has continued the difficult trend-following environment from the previous one, as geopolitical tensions and macroeconomic factors remain at the forefront, unsettling the markets. Ongoing volatility in the Middle East and persistent uncertainty surrounding U.S. monetary policy have left traders struggling to find their footing. The elevated risk of energy supply disruptions and the shifting interest rate outlook have further amplified market turbulence, impacting both energy and broader asset classes.
The SG Trend Index is now down -4.61% month-to-date (MTD) as of 10 October 2024, a substantial deterioration from last week's -2.53%, with the year-to-date (YTD) performance slipping to -2.44%, compared to -0.31% YTD just one week ago. This downward trend underscores the challenges facing trend-following strategies, as erratic movements and a lack of sustained trends persist.
However, the market's unpredictability may lead to significant dispersion in performance, as some trend followers might still be able to find pockets of opportunity amidst the volatility, while others languish due to false breakouts and whipsawing markets.
The TTU Trend Barometer is now at 20, a slight improvement from last week's abysmal reading of 16, signifying the continuation of a very unfavourable trending environment. As conditions remain noisy and volatile, it becomes increasingly challenging to identify profitable opportunities, and performance across funds is likely to vary widely depending on positioning and strategy.
The Top Traders Unplugged (TTU) Trend Barometer is a proprietary tool that measures the percentage of markets with medium to strong trends. Just as a thermometer reading of 0 degrees Celsius equates to freezing, when the TTU Trend Barometer reads a value that is less than 40%, market trendiness begins to get “colder” or weaken. Likewise, when the TTU Trend Barometer gets above 55%, the environment gets “hotter” (better).
Weekly Asset Class Snapshot
This week’s market landscape remained challenging for trend followers, with volatility continuing to drive significant reversals and uneven performances across key asset classes. Heightened geopolitical tensions, notably in the Middle East, and macroeconomic uncertainty around U.S. interest rates left traders scrambling to adjust their positions. As a result, systematic trend-following strategies encountered major obstacles, with few clear trends to capitalize on.
Volatility Index (VIX) climbed by +5.18%, indicating ongoing nervousness among investors. The surge reflects heightened concerns about geopolitical instability and ambiguous monetary policy, creating a more volatile environment where asset prices experience sharp swings. This increase in market anxiety has injected additional risks into other asset classes, further complicating the landscape for trend followers who are accustomed to capitalizing on sustained market movements.
In the Grains sector, prices fell by -1.82%, reflecting improved supply conditions in key growing regions. The easing of earlier concerns over potential shortages has pushed grain prices lower, making it difficult for trend followers to benefit from continued price gains. The bearish move highlights the impact of seasonal and supply-side factors on commodities markets, where weather conditions and harvest forecasts can trigger sharp price movements.
Bonds also faced pressure this week, with the sector declining -0.68%. Rising U.S. bond yields, driven by stronger-than-expected economic data and concerns about prolonged interest rate hikes, have weighed on bond prices. The bond market has been reacting negatively to indications that the U.S. Federal Reserve might keep rates higher for longer, adding strain to trend-following models that had been positioned for more stable rates. This shift has led to losses for traders who were anticipating a more dovish policy outlook.
In contrast, Meats posted a modest gain of +0.71%, while Soft Commodities climbed +0.97%, providing some relief for traders who had positioned themselves favourably in these markets. The gains were largely driven by seasonal demand patterns and some isolated supply disruptions, which contributed to price increases. However, these pockets of opportunity were few and far between, given the broader volatility in the commodities space.
The Energy sector saw a minor decline of -0.42%, as traders continued to grapple with conflicting signals. While energy prices were initially buoyed by concerns over Middle Eastern supply disruptions, recent bearish pressures from global recession fears have kept the sector volatile. This erratic behaviour in energy markets, especially after last week’s sharp reversals in Brent Crude and WTI Crude, has made it particularly challenging for trend followers who had anticipated further price declines.
The Metals sector remained mixed, with a modest gain of +0.56%. Industrial metals like Copper saw relatively steady demand, supported by sustained activity in the construction and manufacturing sectors. However, Palladium continued its sharp decline, dropping -6.86% due to weakening demand from the automotive industry, which has been transitioning away from internal combustion engines and experiencing weaker-than-expected sales growth.
Meanwhile, Currencies saw little movement, down just -0.44% on average. Most major currency pairs remained range-bound, reflecting broader uncertainty about global economic growth and central bank policies. The market’s focus on U.S. interest rate policy has led to uneven performance in currency markets, with trend followers struggling to capitalize on any strong directional moves.
Overall, this week has been particularly difficult for trend followers. Although some volatility-based strategies may have found opportunities to profit, the broader market environment remains unfriendly to systematic traders who rely on clear, sustained trends. With the TTU Trend Barometer now at 20, one of the weakest readings in recent history, the trending environment continues to deteriorate, offering few reliable signals for profitable trades. The erratic movements across asset classes are likely to lead to further dispersion in performance among funds, highlighting the need for robust risk management in these volatile conditions.
Top 10 Bear and Bull Price Moves
Here's a detailed analysis of the key market movers for the week.
What’s Moving Up
- Cocoa: +9.78%
Cocoa prices surged by 9.78% this week, continuing a volatile journey marked by sharp price swings in recent months. The market has been heavily influenced by supply-side concerns, particularly with weather disruptions in key growing regions like West Africa. These disruptions have tightened supply expectations, pushing prices upward. However, the broader trend for cocoa is less clear. The weekly price chart shows a parabolic rise earlier in the year, followed by a sharp correction, indicating a highly unstable market environment.
For trend followers, this kind of price movement creates significant challenges. Those who were able to capture the initial upward momentum earlier in the year likely saw strong gains, but the rapid correction afterward would have led to losses for traders who held on too long, expecting the trend to continue.
The market's recent bounce back has been difficult to navigate, particularly for medium-term trend followers who may have gone short following the correction, only to be caught out by this week’s sharp rally.
The chart reflects what can be described as a “yo-yo environment,” where price action swings back and forth, making it difficult to determine the next clear trend. This kind of volatility is particularly problematic for systematic traders who rely on stable and sustained price direction. Deciphering where the market will head next is a significant challenge, and with the current lack of clear trend direction, many trend followers are likely finding it tough to generate consistent profits in cocoa at this time. The erratic behaviour and sudden reversals are making the cocoa market particularly tricky for trend-following strategies to navigate.
- Palladium: +6.86%
Palladium prices rose by 6.86% this week, marking a significant rebound after a prolonged downtrend that has dominated much of the past year. However, despite this week's rally, the overall trend for palladium remains clearly bearish, as the metal has been on a consistent decline since peaking in early 2022. The attached weekly chart shows a series of lower highs and lower lows, highlighting the difficulty in finding sustained upward momentum in this market.
For trend followers, this week's price action would have been unfavourable. Many medium- to long-term trend-following strategies would have positioned themselves short, capitalizing on the sustained downward trend over the past year. The sharp rise this week, while notable, appears to be more of a correction within a broader bearish trend, which likely caught many traders off guard. Palladium's volatility, as seen in the chart, has created multiple instances of short-lived rallies during a long-term decline, making it difficult for systematic traders to adjust in real time to these sudden upward moves.
The broader context for palladium is tied to weakening demand from the automotive sector, particularly as the industry transitions away from internal combustion engines, which rely on palladium for catalytic converters. With long-term fundamentals leaning toward lower demand, trend followers who bet on a continued decline may have been frustrated by this week's reversal. While the short-term gain in price suggests a temporary rebound, the overall trend remains negative, and many systematic traders would have faced losses as the price quickly rose against their short positions.
In this context, trend followers are likely struggling to navigate palladium's unpredictable movements. The market has been defined by sudden and erratic price shifts, which are often difficult for longer-term strategies to accommodate. This week’s rise may not signal a longer-term trend reversal, and trend followers could continue to face challenges in this volatile and uncertain environment.
- VIX Futures: +5.18%
VIX Futures rose by 5.18% this week, reflecting heightened concerns around future market volatility. As a gauge of anticipated future volatility, VIX Futures often surge during periods of uncertainty, and this week's rise is no exception. The increase in VIX Futures is likely tied to the ongoing geopolitical tensions, particularly in the Middle East, and uncertainty surrounding global economic conditions, especially the future path of U.S. interest rates.
While VIX Futures are not typically a primary asset traded by trend followers, they serve as an important signal for systematic traders, as higher volatility often impacts price behaviour across multiple markets. Rising VIX levels suggest that the market is anticipating increased turbulence, and this often coincides with more unpredictable and erratic price movements in other assets, such as equities, commodities, and bonds.
For trend-following strategies, increased volatility can be a double-edged sword. On one hand, it can lead to sharper, more pronounced price trends, offering opportunities for profit. On the other hand, higher volatility often results in whipsaws—false signals that disrupt established trends—making it more difficult to maintain consistent positioning. This week's rise in VIX likely indicates that many markets are entering a more volatile phase, where trends could break down or reverse quickly, adding complexity to trading decisions.
The VIX's role as a “fear gauge” also has implications for risk management. When VIX spikes, systematic traders are typically forced to adjust their models, reducing position sizes or tightening stop losses to manage the increased risk. While trend followers may not directly trade VIX Futures, its rise serves as a warning of potential headwinds in other markets, particularly for those relying on stable, long-term trends.
While VIX Futures may not directly affect trend followers' positions, the spike in volatility it signals poses additional challenges. Higher volatility increases the risk of false trend signals, making this a particularly tricky time for systematic traders to navigate the broader market landscape. The current environment, as indicated by VIX, is likely to become more turbulent, and traders will need to exercise caution to protect against sudden market reversals.
- Gasoline RBOB: +2.57%
Gasoline RBOB futures rose by 2.57% this week, continuing a pattern of volatility that has been a hallmark of the energy sector in recent months. The attached weekly chart shows a long-term cycle of peaks and troughs, with Gasoline RBOB prices coming off a multi-year high reached in mid-2022. Since then, the market has experienced significant fluctuations, with prices in a gradual downtrend, marked by periodic short-term rallies like the one seen this week.
For trend followers, this market poses challenges. The long-term trend has been primarily downward, and systematic traders who were short during this overall decline likely faced difficulties this week as Gasoline RBOB prices rose unexpectedly. Such upward moves can result in whipsaws, where short positions are prematurely exited due to stop losses being hit, only for the market to revert back to the broader downtrend afterward.
This week's 2.57% rise likely reflects a combination of seasonal factors and supply-side concerns. Refinery maintenance and geopolitical tensions, particularly in the Middle East, continue to inject uncertainty into energy markets. While this short-term rise provides opportunities for traders who anticipated a temporary reversal, the overall chart suggests that Gasoline RBOB remains in a range-bound, volatile environment. This lack of sustained directional movement makes it difficult for trend-following models to extract profits consistently.
Systematic traders who rely on long-term trends might have found this rally frustrating, as it doesn't signal a clear trend reversal but rather a bounce within a larger, declining trend. The price action suggests Gasoline RBOB is currently in a consolidation phase, and it remains uncertain whether this week's gain marks the beginning of a new upward trend or is simply another short-lived rally in a broader bearish context.
While this week’s 2.57% rise may have been favourable for short-term traders, it likely posed challenges for medium- to long-term trend followers who were positioned for continued declines. The overall lack of clear trend direction in Gasoline RBOB makes it a difficult market for trend-following strategies, as it continues to oscillate between gains and losses without forming a sustained trend.
Orange Juice: +2.25%
Orange Juice futures rose by 2.25% this week, continuing a strong upward trend that has been in place for much of the past year. The weekly chart shows a clear long-term bullish trend, with prices steadily climbing since mid-2022, providing a stark contrast to the more volatile or downward-trending commodities markets we've seen in recent weeks. This sustained move higher has been driven by supply-side issues, particularly adverse weather conditions and disease affecting key orange-producing regions like Florida and Brazil, which have severely limited supply and pushed prices upward.
For trend followers, Orange Juice represents one of the few bright spots in an otherwise challenging market environment. The clear and sustained bullish trend seen in the chart would have provided consistent opportunities for systematic traders to capture gains, particularly for those operating on a medium- to long-term time horizon. The relatively smooth progression of higher highs and higher lows offers an ideal setup for trend-following strategies, which rely on catching these kinds of extended price movements.
This week's 2.25% rise fits within the broader bullish context, and trend followers who have been positioned long in Orange Juice are likely benefiting from the continued strength in this market. The market’s performance has been remarkably steady, with no significant corrections to interrupt the uptrend, which is often rare in commodity markets. This stability has allowed traders to ride the trend with fewer disruptions compared to other, more erratic markets.
As the price approaches record levels near 500, the question for trend followers now is whether this strong momentum can continue or if the market is due for a correction. However, given the persistent supply issues and continued tightness in the orange market, the fundamental backdrop remains supportive of higher prices, suggesting that Orange Juice could remain a favourable market for trend followers in the near term.
Orange Juice has been one of the few consistent opportunities for trend-following traders, with this week’s 2.25% rise reinforcing the long-term bullish trend. For systematic traders who caught this move early, it has been a strong performer, particularly in contrast to the more volatile and unpredictable markets that have been difficult to navigate.
What’s Moving Down
- Natural Gas: -7.92%
Natural Gas futures fell by -7.92% this week, continuing a long-term pattern of volatility and downward pressure. The attached weekly chart reveals a history of sharp peaks and deep troughs, with price surges followed by steep declines. Natural Gas prices hit multi-year highs in 2022 due to supply constraints and geopolitical tensions surrounding the Russia-Ukraine conflict, but since then, the market has experienced a significant reversal, falling sharply from those highs.
This week’s drop reflects ongoing supply and demand dynamics. Natural Gas markets are heavily influenced by seasonal factors, storage levels, and weather conditions. With relatively mild weather in key consumption regions and higher-than-expected storage levels, demand has weakened, leading to this substantial decline in prices. Additionally, global economic uncertainties, including lower industrial demand, have further weighed on prices.
For trend followers, the -7.92% decline likely posed a challenge. Natural Gas has been extremely volatile, and while long-term trend followers who positioned short after the 2022 peak have benefited from the broader downtrend, this market’s tendency to experience sudden reversals has made it difficult to maintain consistent positioning. Short-term price rallies have frequently interrupted the broader downward movement, resulting in potential whipsaws for traders who attempt to adjust positions too early.
This week’s sharp drop is part of a larger bearish trend, but the overall volatility in Natural Gas makes it a difficult market to navigate for systematic traders. The chart shows frequent price spikes followed by deep corrections, suggesting that this market does not follow smooth, sustained trends. The erratic price behaviour makes it particularly vulnerable to false breakouts, where traders get caught on the wrong side of a trade as the price briefly reverses before resuming the main trend direction.
While long-term trend followers may still be profiting from the broader decline in Natural Gas, this week's steep drop could have been challenging for traders navigating the short-term volatility. The market remains highly unpredictable, and its tendency to oscillate between extremes makes it a tough environment for trend-following strategies. Managing risk and avoiding getting caught in temporary reversals will be key for traders moving forward.
- Soybean Meal: -5.26%
Soybean Meal futures declined by -5.26% this week, continuing a broader downtrend that has been developing over the past several months. The attached weekly chart shows that, unlike some of the more volatile or range-bound markets, Soybean Meal has been following a relatively clear pattern of lower highs and lower lows, indicative of a sustained bearish trend. This kind of market movement is typically more favourable for trend followers, particularly those using medium- to long-term strategies.
The recent decline is largely attributed to improved weather conditions in key producing regions, such as Brazil and Argentina, which have eased earlier supply concerns. With better-than-expected rainfall boosting crop prospects, the supply outlook has improved, leading to lower prices. Additionally, demand from key importers like China has softened in recent weeks, further contributing to the downward pressure on prices.
For trend followers, this week's -5.26% drop likely provided an opportunity to capitalize on the ongoing bearish momentum. Those who positioned short as the downtrend developed over the past several months would have benefited from this week’s continuation of lower prices. The chart suggests that Soybean Meal has been relatively predictable in its recent price behaviour, offering clear entry and exit points for systematic traders following the trend.
Compared to more erratic markets like Natural Gas or palladium, Soybean Meal’s recent performance has been more conducive to trend-following strategies. The price action shows fewer abrupt reversals and more consistent follow-through in the downward direction, making it easier for traders to capture gains. The broader context of ample supply and weakened demand further supports the bearish outlook, and trend followers who have been short in this market are likely seeing consistent returns.
In summary, Soybean Meal’s -5.26% decline this week was likely a favourable move for trend followers, as it aligns with the ongoing bearish trend. With clear technical signals and supportive fundamental factors, this market continues to provide opportunities for systematic traders who are positioned correctly. Compared to more volatile commodities, Soybean Meal has been relatively stable in its downward movement, offering a more straightforward environment for trend-following strategies.
- Sugar: -3.35%
Sugar futures fell by -3.35% this week, marking a continuation of the recent volatility in the soft commodities market. The weekly chart shows that Sugar has experienced a series of price swings, with sharp rallies followed by equally sharp declines. Over the past few months, the market has been choppy, fluctuating between gains and losses as it reacts to shifting supply and demand dynamics.
This week's decline comes as global sugar production forecasts improved, with key producing countries like Brazil reporting strong harvests. The market has also been adjusting to easing concerns over supply disruptions, as the weather in major growing regions has stabilized. Additionally, concerns over weakening demand in key importing regions have further pressured prices, contributing to the -3.35% drop.
For trend followers, this week's movement in Sugar likely posed challenges. The chart shows a market that has been range-bound for some time, making it difficult for traders to identify and capture sustained trends. While Sugar experienced a strong bullish rally earlier this year, the subsequent reversals and lack of follow-through have made it hard for systematic traders to maintain consistent positions. Those who were positioned long during the recent rally may have been caught off guard by this week’s decline, while traders looking for short opportunities may still be waiting for a clearer breakout to the downside.
The overall price action in Sugar suggests that the market is currently in a consolidation phase, where price movements are erratic and do not follow a clear directional trend. This kind of environment is tough for trend-following strategies, as it increases the likelihood of whipsaws—where trades are initiated based on a perceived trend, only for the market to reverse direction shortly after.
The -3.35% decline in Sugar this week may have frustrated trend followers, as the market remains choppy and difficult to trade with clear conviction. The lack of a well-established trend in recent weeks has likely resulted in inconsistent performance for systematic traders. Sugar remains a market to watch closely, but for now, its erratic movements make it a challenging asset for trend-following strategies.
- Soybeans: -3.16%
Soybeans futures declined by -3.16% this week, continuing the downward momentum that has been in place for several months. The attached weekly chart shows that Soybeans experienced a strong rally throughout 2021 and early 2022 but has since entered a prolonged downtrend. The market is now approaching key support levels, and the recent declines reflect improving supply conditions alongside weaker demand prospects.
The fundamental backdrop for Soybeans has shifted as weather conditions in key growing regions, such as Brazil and the U.S., have stabilized. Better-than-expected crop yields have eased earlier supply concerns, leading to downward pressure on prices. Meanwhile, demand from major importers like China has softened amid broader economic uncertainty, further weighing on the market.
For trend followers, this week's -3.16% decline likely offered an opportunity for those who had positioned short in alignment with the broader bearish trend. The clear pattern of lower highs and lower lows on the chart is indicative of a sustained downtrend, which would have been favourable for systematic traders who capitalize on long-term price movements. The market's behaviour over the past several months has offered a relatively consistent trend, making it easier for trend followers to manage positions and profit from the sustained bearish momentum.
However, as Soybeans approach key support levels, there is some uncertainty about whether the downtrend will continue or if the market will stabilize and potentially reverse. For now, the fundamental drivers, including favourable weather conditions and weaker demand, suggest that the bearish trend could persist, offering continued opportunities for traders positioned short.
In summary, this week's -3.16% decline in Soybeans fits within the broader downtrend, which has been more favourable for trend-following strategies. The market has offered clearer directional moves compared to more volatile or range-bound commodities, and traders who have remained short are likely benefiting from the ongoing decline. However, with prices approaching key levels, trend followers will need to stay vigilant for any potential shifts in the market's trajectory.
- Soybeans: -3.16%
Soybeans futures declined by -3.16% this week, continuing the downward momentum that has been in place for several months. The attached weekly chart shows that Soybeans experienced a strong rally throughout 2021 and early 2022 but has since entered a prolonged downtrend. The market is now approaching key support levels, and the recent declines reflect improving supply conditions alongside weaker demand prospects.
The fundamental backdrop for Soybeans has shifted as weather conditions in key growing regions, such as Brazil and the U.S., have stabilized. Better-than-expected crop yields have eased earlier supply concerns, leading to downward pressure on prices. Meanwhile, demand from major importers like China has softened amid broader economic uncertainty, further weighing on the market.
For trend followers, this week's -3.16% decline likely offered an opportunity for those who had positioned short in alignment with the broader bearish trend. The clear pattern of lower highs and lower lows on the chart is indicative of a sustained downtrend, which would have been favourable for systematic traders who capitalize on long-term price movements. The market's behaviour over the past several months has offered a relatively consistent trend, making it easier for trend followers to manage positions and profit from the sustained bearish momentum.
However, as Soybeans approach key support levels, there is some uncertainty about whether the downtrend will continue or if the market will stabilize and potentially reverse. For now, the fundamental drivers, including favourable weather conditions and weaker demand, suggest that the bearish trend could persist, offering continued opportunities for traders positioned short.
In summary, this week's -3.16% decline in Soybeans fits within the broader downtrend, which has been more favourable for trend-following strategies. The market has offered clearer directional moves compared to more volatile or range-bound commodities, and traders who have remained short are likely benefiting from the ongoing decline. However, with prices approaching key levels, trend followers will need to stay vigilant for any potential shifts in the market's trajectory.
Conclusion
This week has proven to be another challenging one for trend followers, as the broader market landscape remains turbulent and uncertain. The erratic movements across a wide array of asset classes, driven by geopolitical tensions, ambiguous economic data, and unpredictable price reversals, have made it increasingly difficult to identify and capitalize on clear trends. While some markets, such as Orange Juice, offered isolated opportunities for those who were positioned correctly, many other assets experienced sudden swings, false breakouts, and whipsaws, creating an environment fraught with difficulty.
The SG Trend Index's significant drop to -4.61% month-to-date reflects the extent of the difficulties faced by systematic traders. With the TTU Trend Barometer lingering at a low 20, the trending environment remains extremely weak, further underscoring the challenge of navigating through this unpredictable market. Despite these headwinds, some traders may have been able to capture gains in select commodities like Orange Juice, which continues to exhibit strong bullish momentum, or capitalize on the bearish momentum in Soybean Meal and Oats.
However, the prevailing theme this week is dispersion. Performance among trend-following funds is likely to be widely varied, with some strategies finding pockets of opportunity while others struggle to manage risk amid choppy and directionless markets. As volatility continues to rise, signalled by the 5.18% gain in VIX Futures, the road ahead is likely to remain bumpy for traders who depend on clear, sustained trends.
Ultimately, this week’s market dynamics emphasize the importance of risk management and adaptability in a volatile environment. As the uncertainty in global markets persists, traders will need to remain agile, ready to adjust positions as new trends emerge or dissipate. Those who can navigate through the noise and maintain disciplined strategies may still find opportunities, but the unpredictable nature of this week’s market suggests that continued caution will be paramount in the weeks to come.
List of Resources used in the Week in Review
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