Trend Following - Week in Review - February 14, 2025

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.

"Navigating Market Divergence: Trend Followers Face a Tough but Improving Landscape"

This week, trend-followers continued to face a challenging environment, as trend conditions remained weak, making sustained price moves difficult to capture. However, there were signs of improvement, with some markets beginning to exhibit more structured trends. While volatility declined sharply, equities and energy provided pockets of opportunity. As always, patience and discipline remain key in these uncertain conditions.

• TTU Trend Barometer:
  • This week: 27% (Last week: 32%)
  • 10-day rate of change: Declining further

The further drop in trend strength suggests markets remain fragmented, with few sustained trends emerging. Historically, such readings indicate an environment where false breakouts are common, requiring traders to be extra vigilant.

• SG Trend Index Performance:
  • MTD: +0.75% (vs. -0.98% last week)
  • YTD: +0.90% (vs. -0.83% last week)

A move into positive territory signals that systematic trend-followers are beginning to find traction in select markets, even as broader conditions remain mixed.

While this week remained difficult for trend-followers, the shift in certain asset classes suggests that new opportunities may be on the horizon. Staying the course and managing risk effectively will be critical in the weeks ahead.

The Top Traders Unplugged (TTU) Trend Barometer is a proprietary tool that measures the percentage of markets with medium to strong trends. Similar to a thermometer, where 0 degrees Celsius equates to freezing, a TTU Trend Barometer reading below 40% indicates a “cold” environment for trend-following, while readings above 55% signal a “hotter,” more favourable trend environment.

Weekly Asset Class Snapshot

Source: Finwiz.com

As we conclude the second week of February 2025, asset classes have exhibited varied performances, reflecting evolving market conditions. This period was marked by a rebound in equities and precious metals, while energy and soft commodities faced headwinds. The trend environment remains challenging for systematic traders, as market direction continues to be ambiguous, and volatility persists.

Below is a detailed breakdown of asset class performance compared to the previous week:

Energy: -0.80% (Previous week: +1.58%)

The energy sector experienced a modest decline, influenced by:

• An unexpected increase in U.S. crude inventories for the third consecutive week.
• Discussions of potential peace talks, which could lead to increased global oil supplies.
• Concerns over global economic growth dampening demand forecasts.

These factors combined to exert downward pressure on energy prices.

Metals: +1.20% (Previous week: -0.62%)

Precious metals advanced, driven by:

• Continued demand for safe-haven assets amid economic uncertainties.
• A weaker U.S. dollar, enhancing the appeal of dollar-denominated commodities.
• Industrial demand supporting metals like silver, which is approaching a 10-year peak.

Gold remained on track for its seventh consecutive weekly gain, reflecting sustained investor interest.

Grains: -0.50% (Previous week: +1.02%)

Grain markets faced a slight downturn due to:

• Favourable weather conditions in key producing regions, improving crop prospects.
• Adjustments in global trade flows, with some countries increasing exports.
• Profit-taking by traders after recent gains.

Despite the decline, underlying fundamentals suggest potential for future price support.

Meats: -1.20% (Previous week: -1.55%)

The meats sector continued its downward trajectory, impacted by:

• Ongoing concerns over consumer demand, particularly in light of rising prices.
• Increased competition from alternative protein sources gaining market share.
• Higher feed costs squeezing producer margins, leading to supply adjustments.

The sector remains under pressure as market participants reassess demand dynamics.

Soft Commodities: -2.50% (Previous week: -2.02%)

Soft commodities experienced further weakness, with notable declines in:

• Coffee prices, despite a recent rally, faced headwinds from increased trading costs and market volatility.
• Cocoa prices retreated due to demand destruction attributed to high prices and profit-taking by investors.

The sector's volatility continues to present challenges for traders seeking stable trends.

Currencies: -0.29% (Previous week: +0.55%)

The U.S. dollar weakened this week, influenced by:

• Anticipation of a more dovish stance from the Federal Reserve in response to economic data.
• Improved economic outlooks in other regions, prompting shifts in currency valuations.
• Ongoing trade negotiations affecting investor sentiment.

The dollar's decline provided support to commodities priced in USD.

Volatility Index (VIX Futures): -0.21% (Previous week: +0.24%)

The VIX edged lower, indicating a slight reduction in market volatility. However, uncertainties persist, and traders remain cautious.

Bonds: +0.34% (Previous week: +0.38%)

Bond markets continued their upward trend as investors sought safe-haven assets amid equity market fluctuations. Yields on government bonds decreased slightly, reflecting sustained demand for fixed-income securities.

Conclusion

This week's market movements highlight the ongoing complexities and uncertainties facing trend-followers:

• Equities rebounded, offering potential opportunities, while energy and soft commodities faced challenges.
• Precious metals continued their ascent, driven by safe-haven demand and currency dynamics.
• Volatility remains a central theme, necessitating adaptive strategies and disciplined risk management.

As markets navigate these crosscurrents, systematic traders must remain vigilant, patient, and prepared to adjust their approaches in response to evolving conditions. The path forward may be uncertain, but with careful analysis and strategic flexibility, traders can position themselves to capitalize on emerging trends.

Top 10 Bear and Bull Price Moves

Here's a detailed analysis of the key market movers for the week.

What’s Moving Up

Natural Gas: +12.6%

Natural gas prices experienced a notable increase of 12.6% this week, marking a retracement back into the bullish trend.

Causal Factors:

1. Increased Demand Due to Cold Weather: The end of January saw a surge in natural gas consumption, driven by cold weather that heightened the need for space heating. This led to above-average withdrawals from natural gas storage, contributing to the price rise.
2. Supply Constraints: Despite a recent increase in the number of active natural gas rigs in the U.S., overall production has not kept pace with the heightened demand. This imbalance between supply and demand has exerted upward pressure on prices.
3. Geopolitical Factors: The U.S. administration's recent actions to boost natural gas exports and expand offshore drilling have influenced market dynamics, potentially affecting future supply and pricing.

Trend-Following Perspective:

• Short-Term Trend Followers: The recent 12.6% price surge offers favourable conditions for short-term trend followers who have capitalized on the bullish momentum.
• Medium- to Long-Term Trend Followers: This upward movement may prompt medium- to long-term trend followers to consider initiating or increasing long positions, contingent upon confirmation of sustained bullish momentum.

The combination of increased demand due to cold weather, supply constraints, and geopolitical factors has contributed to the recent rise in natural gas prices. Trend followers should closely monitor these developments to inform their trading strategies. standout performer for systematic strategies in the coming weeks.

Sugar: +5.37%

Sugar prices experienced a notable increase of 5.37% this week, a movement that may be unfavourable for trend-followers who have likely been positioned short. The sugar market has exhibited high volatility, leading many trend-followers to step aside and await stronger confirmation of the trend direction before committing to new positions.

Causal Factors:

1. Early Closure of Indian Sugar Mills: More than three dozen sugar mills in India's key cane-producing states have ceased operations earlier than usual due to low cane availability caused by adverse weather conditions. This premature shutdown suggests that India's sugar production will be lower than initially estimated, contributing to a rise in local sugar prices and impacting global supply.
2. Challenges in Fulfilling Export Quotas: India is facing difficulties in meeting its sugar export quota of one million metric tons this season. Factors such as mill closures and poor harvest conditions have slowed the pace of exports, leading to increased local sugar prices and reduced competitiveness in the global market.
3. Increased Import Plans by Indonesia: Indonesia plans to import approximately 200,000 metric tons of raw sugar to bolster government food reserves in response to rising domestic white sugar prices ahead of Ramadan. This move indicates tightening supplies in the region, contributing to upward pressure on global sugar prices.

Trend-Following Perspective:

• Short-Term Trend-Followers: The recent 5.37% price surge may have caught short-term trend-followers off guard, especially those holding short positions. The high volatility and sudden price movements suggest that many short-term traders might choose to remain on the sidelines until a clearer trend direction emerges.
• Medium- to Long-Term Trend-Followers: Given the current volatility and lack of a sustained trend, medium- to long-term trend-followers may exercise caution. The recent price increase, driven by supply disruptions and export challenges, may not yet constitute a reliable trend. Traders in this category are likely awaiting more definitive signals before adjusting their positions, focusing on fundamental factors such as production forecasts and global demand indicators.

The sugar market's recent price increase reflects a complex interplay of supply constraints, export challenges, and regional demand shifts. Trend-followers are advised to monitor these developments closely and employ disciplined risk management strategies, considering the high volatility and potential for abrupt market reversals.ce levels for an extended period. Despite this week’s strong gain, the chart does not yet confirm a sustained breakout, but it’s inching closer to critical resistance levels. Price remains trapped in choppy action, making it challenging for breakout traders.

DAX: +3.29%

The DAX index experienced a robust increase of 3.29% this week, continuing its upward trajectory and marking a significant gain for trend-followers with existing long positions.

Causal Factors:

1. Geopolitical Developments:
   • Prospective Ceasefire in Ukraine: Recent communications between U.S. President Trump and Russian President Putin have raised hopes for a potential ceasefire in Ukraine. This optimism has bolstered European stock markets, with the DAX reaching record highs.
2. Economic Indicators:
   • European Market Outperformance: In 2025, European stocks have notably outperformed U.S. markets. The STOXX Europe 600 index has risen by 9.1%, and Germany's DAX by 13.6%, compared to the S&P 500's 4% increase. Factors contributing to this trend include lower valuations, potential European Central Bank rate cuts, and improved economic indicators.
3. Market Dynamics:
   • Investor Sentiment: The absence of negative news and short covering by investors have propelled the DAX's performance. Despite potential risks, such as tariff concerns, the market has maintained its upward momentum.

Trend-Following Perspective:

• Short-Term Trend-Followers: The recent surge presents an opportunity to capitalize on the bullish momentum. However, caution is advised due to potential market corrections following rapid gains.
• Medium- to Long-Term Trend-Followers: The sustained upward trend reinforces confidence in maintaining long positions. Continuous monitoring of geopolitical developments and economic indicators is essential to assess the trend's durability.

In summary, the DAX's 3.29% increase this week is underpinned by positive geopolitical developments, favourable economic indicators, and strong investor sentiment. Trend-followers should remain vigilant, balancing the pursuit of gains with prudent risk management.volatility fades, it suggests that the market is digesting risks without major dislocations.

Wheat: +3.22%

Wheat prices rose by 3.22% this week, marking an unexpected rally that may have been unfavourable for trend-followers who have been positioned short. This sudden shift in price direction has been driven by fundamental market factors, including shifting global supply and demand dynamics.

Causal Factors:

1. Global Import Demand Weakness:
   • Major wheat-importing countries have reduced their purchases due to slower economic growth, a strong U.S. dollar, and higher domestic cereal production.
   • China, for example, is expected to reduce its wheat imports by 37%, as domestic production has increased by 2.6% this season.
2. Speculative Market Activity:
   • Money managers have reduced their bearish positions in Chicago Board of Trade (CBOT) wheat futures, which has contributed to short-covering and price increases.
   • This shift in positioning has driven up wheat prices despite broader concerns over demand.
3. Supply Issues in Key Exporting Regions:
   • Russian wheat exports, a key factor in global supply, face significant risks due to farmers shifting to more profitable crops.
   • Russian wheat harvests are projected to decline, tightening global supply and adding upward pressure to prices.

Trend-Following Perspective:

• Short-Term Trend-Followers:
  • The sudden upward movement may have triggered stop-losses for short positions.
  • Many short-term traders may be looking for confirmation before switching to long positions.
• Medium- to Long-Term Trend-Followers:
  • This move may be seen as a short-term correction within a broader downtrend.
  • Trend-followers will likely wait for sustained bullish momentum before adjusting positions.

Wheat's 3.22% increase was largely driven by a combination of speculative positioning, shifts in global import demand, and tightening supply conditions in key exporting countries like Russia. While this move may have disrupted short positions, it is unclear whether a sustained uptrend is forming. Trend-followers will need to remain patient, monitoring global supply and demand conditions before making major adjustments.ssified as a bear market rally rather than a full reversal.follow-through, this move is likely to be viewed as noise rather than a change in direction.

Lumber: +3.21%

Lumber experienced a 3.21% increase this week, reflecting ongoing volatility in the market.

Causal Factors:

1. Supply Chain Disruptions:
   • Tariff Implications: The U.S. government has announced plans to implement tariffs on Canadian softwood lumber starting March 4, 2025. This has led to concerns over supply constraints, as approximately 70% of softwood lumber used in U.S. homebuilding is imported from Canada and Mexico.
   • Sawmill Curtailments: Major Canadian producers have reduced operations due to weak demand and rising duties. For instance, Western Forest Products curtailed production by approximately 30 million board feet in late 2024.
2. Increased Demand:
   • Rebuilding Efforts: Recent wildfires in Southern California have destroyed over 12,000 structures, necessitating significant reconstruction. This is expected to increase demand for lumber, with estimates ranging from 10,000 to 20,000 truckloads required for rebuilding.

Trend-Following Perspective:

• Short-Term Trend-Followers: The recent price uptick may present opportunities; however, the market's inherent volatility and external factors, such as policy changes and natural disasters, necessitate cautious engagement.
• Medium- to Long-Term Trend-Followers: Given the market's unpredictability, many may opt to remain on the sidelines until a clearer, sustained trend emerges. Continuous monitoring of supply chain developments and demand fluctuations is essential to inform future positioning.

The 3.21% rise in lumber prices this week is influenced by supply chain challenges and increased demand from reconstruction efforts. Trend-followers should exercise prudence, balancing potential gains with the market's inherent volatility.

What’s Moving Down

Orange Juice: -18.73%
The orange juice market experienced a significant decline of 18.73% this week, marking a notable shift in its recent price trajectory.

Causal Factors:

1. Supply Constraints:
   • Brazilian Production Decline: Brazil, the world's largest orange juice exporter, has faced a substantial reduction in output. The 2024-2025 harvest is projected to yield 232 million boxes, a 24% decrease from the prior year, due to adverse weather conditions and the pervasive impact of citrus greening disease.
   • Florida's Production Challenges: In the U.S., Florida's orange production has been severely affected, with a 62% drop in the 2022-2023 season, exacerbated by Hurricane Ian and ongoing disease issues.
2. Demand Dynamics:
   • Consumer Behaviour Shifts: Rising prices have led to a 15% to 25% decline in orange juice consumption in major global markets, including the U.S. and the European Union, as consumers turn to alternative beverages.

Trend-Following Perspective:

• Short-Term Trend-Followers: The sharp decline presents potential opportunities to capitalize on bearish momentum. However, caution is warranted due to the volatility arising from supply disruptions and fluctuating demand.
• Medium- to Long-Term Trend-Followers: The sustained challenges in production and shifting consumer preferences suggest a potential for continued downward trends. Vigilant monitoring of supply chain developments and consumer behaviour is essential to assess the longevity of this bearish movement.

The 18.73% decrease in orange juice prices this week is primarily driven by significant supply constraints and evolving demand patterns. Trend-followers should approach this market with a balanced strategy, considering both the immediate opportunities and the underlying factors influencing long-term trends.

VIX: -7.18%

The Cboe Volatility Index (VIX) experienced a decline of 7.18% this week, reflecting a decrease in anticipated market volatility.

Causal Factors:

1. Market Stability:
   • Positive Economic Indicators: Recent economic data has shown signs of growth and stability, contributing to increased investor confidence and reduced demand for protective options.
   • Easing Geopolitical Tensions: Resolutions or improvements in global trade discussions have alleviated concerns, leading to a calmer market environment.
2. Investor Behaviour:
   • Reduced Hedging Activity: With a more optimistic outlook, investors are engaging less in hedging strategies, leading to a decline in the VIX.
   • Increased Risk Appetite: The pursuit of higher returns has prompted investors to reallocate funds into equities, further stabilizing the market.

Trend-Following Perspective:

• Market Sentiment Indicator: While VIX futures are not typically traded by trend-followers, the index serves as a crucial gauge of market sentiment. A declining VIX suggests reduced volatility, indicating a stable or bullish environment for U.S. equities.
• Strategy Implications: Trend-followers may interpret the lower VIX as a signal to maintain or increase long positions in equities, anticipating continued upward trends. However, awareness of potential complacency is essential, as historically low volatility can precede sudden market shifts.

In summary, the 7.18% decrease in the VIX reflects a more stable market climate, influenced by positive economic developments and investor sentiment. For trend-followers, this environment may present opportunities in equity markets, but cautious monitoring of underlying factors remains prudent.

Oats: -2.71%

Oats experienced a decline of 2.71% this week, aligning with the prevailing bearish trend observed over the past month. This downward movement has been advantageous for trend-followers maintaining short positions.

Causal Factors:

1. Increased Global Production:
   • Higher Output Forecasts: Recent projections indicate an increase in global oats production, particularly from Kazakhstan, contributing to a surplus in supply.
2. Decreased Demand:
   • Slowing Trade Volumes: The global trade of oats and oat products has seen a significant slowdown, with trading volumes declining by 5% to 12% across various regions. This reduction is more pronounced in breakfast cereals and snack bars, while oat milk demand remains relatively steady.
3. Price Volatility:
   • Market Fluctuations: The oats market has exhibited high volatility, with prices declining from approximately 370 to 333 over the past month.

Trend-Following Perspective:

• Short-Term Trend-Followers: The consistent downward trajectory offers profitable opportunities for those holding short positions. However, the market's volatility necessitates vigilant risk management to navigate potential price fluctuations.
• Medium- to Long-Term Trend-Followers: The sustained bearish trend may prompt traders to maintain or initiate short positions. Continuous monitoring of supply forecasts and demand indicators is essential to anticipate potential trend reversals.

The 2.71% decrease in oats prices this week is primarily driven by increased global production and reduced demand, leading to a bearish market environment. Trend-followers have benefited from this decline but should remain attentive to market dynamics to manage risks effectively. The recent pullback may also serve as a natural phase of digestion before trend continuation.

Soybean Meal: -1.99%

Soybean meal prices declined by 1.99% this week, aligning with the prevailing bearish trend and benefiting trend-followers holding short positions.

Causal Factors:

1. Global Supply Dynamics:
   • Record Brazilian Production: Brazil is projected to achieve a record soybean harvest of 171.7 million metric tons in 2025, leading to increased crushing activities and a subsequent rise in soybean meal production.
   • Elevated Crushing Rates: The anticipated demand for soybean oil, particularly for biodiesel, has prompted Brazilian crushers to process more soybeans, resulting in an oversupply of soybean meal and exerting downward pressure on prices.
2. Demand Considerations:
   • Stable Domestic Consumption: Despite the increased supply, domestic demand for soybean meal has remained relatively steady, leading to surplus stocks.
   • Export Competition: The global market faces heightened competition, especially from South American producers, challenging U.S. soybean meal exports and influencing price dynamics.

Trend-Following Perspective:

• Short-Term Trend-Followers: The recent price decline reinforces existing bearish positions, offering potential profit opportunities. However, traders should remain cautious of market volatility and potential supply chain disruptions.
• Medium- to Long-Term Trend-Followers: The sustained increase in global soybean meal production, particularly from Brazil, suggests a continuation of the bearish trend. Monitoring factors such as changes in biodiesel policies, global trade relations, and crop forecasts will be crucial for future positioning.

In summary, the 1.99% decrease in soybean meal prices this week is primarily attributed to record production levels in Brazil and stable demand, leading to an oversupply in the market. Trend-followers with bearish positions have benefited from this decline but should stay vigilant to evolving market conditions that may impact future trends.ain their positions until a structural shift or market catalyst emerges.

Soybeans: -1.21%

Soybean prices experienced a decline of 1.21% this week, favouring trend-followers with bearish positions.

Causal Factors:

1. Global Supply Dynamics:
   • Record Brazilian Production: Brazil is projected to harvest a record 171.7 million metric tons of soybeans in 2025, leading to increased global supply and exerting downward pressure on prices.
   • Argentine Production Challenges: Despite initial optimism, Argentina faces potential yield reductions due to the La Niña weather phenomenon, which could offset some global supply increases.
2. Trade Relations and Demand:
   • Shift in Chinese Purchases: Chinese buyers are favoring Brazilian soybeans over U.S. supplies, partly due to competitive pricing and concerns over potential U.S. tariffs under the new administration.
   • Domestic Stockpile Stability: The U.S. Department of Agriculture (USDA) maintained its forecast for domestic soybean stockpiles at 380 million bushels, slightly above trade expectations, contributing to price stabilization.

Trend-Following Perspective:

• Short-Term Trend-Followers: The recent price decline aligns with bearish strategies, offering potential profit opportunities. However, traders should remain cautious of market volatility and potential supply chain disruptions.
• Medium- to Long-Term Trend-Followers: The combination of increased Brazilian output and shifting trade dynamics suggests a continuation of the bearish trend. Monitoring factors such as South American weather patterns and international trade policies will be crucial for future positioning.

The 1.21% decrease in soybean prices this week is influenced by record production in Brazil, challenges in Argentine output, and evolving trade relationships, particularly with China. Trend-followers with bearish positions have benefited from this decline but should stay vigilant to changing market conditions that may impact future trends.ccurs.ne in adhering to trend-following rules, particularly during transitional market phases.

Conclusion: The Trend Follower's Test Continues

This week’s market movements underscore the continued complexity of navigating a choppy trend-following environment. While the TTU Trend Barometer edged lower to 27%, suggesting an ongoing fragmented market, the SG Trend Index showed signs of stabilization, hinting that trend-followers may be regaining traction in select markets.

Key Observations:

• Equities and Precious Metals provided strong bullish momentum, reinforcing long positions for trend-followers.
• Energy and Soft Commodities faced renewed headwinds, with sugar and cocoa exhibiting volatile price action.
• Volatility (VIX) dropped sharply, signalling a more stable market environment, which may impact trend-following strategies in equities.
• Agricultural markets, including Soybeans and Soybean Meal, continued their bearish trends, offering opportunities for short positions.

The week’s Top 10 Bull and Bear Movers showcased significant dispersion across asset classes, emphasizing the importance of risk management and adaptability in a low-trend-strength environment. Natural Gas, DAX, and Wheat led the gainers, while Orange Juice and VIX saw sharp declines.

As we look ahead, systematic traders must remain patient and disciplined, ensuring they are prepared to capitalize on emerging trends as market conditions evolve. While the broader trend environment remains challenging, there are early signs of opportunities emerging across key asset classes.

The road forward demands resilience, process adherence, and strategic flexibility—hallmarks of all successful trend-followers.

Until next week, stay focused, stay adaptive, and trust the process!

List of Resources used in the Week in Review

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