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Trend Following - Week in Review - January 31, 2025

Trend Following - Week in Review - January 31, 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.

"A Shifting Market Tone"

The final week of January 2025 saw a shift in market sentiment, as volatility surged and the bullish momentum in equities faded. While some trend-following strategies faced challenges, others—particularly those with limited bond exposure—managed to capitalize on key market moves. The TTU Trend Barometer declined to 41%, signalling a weakening trend environment overall, yet strong outliers in commodities provided opportunities for systematic traders who remained adaptive.

The SG Trend Index, as of January 30, 2025, registered -0.52% MTD and YTD, down from -0.21% last week. The continued negative performance reflects the difficulty trend-followers are facing in capturing sustained moves amid market transitions.

The contrast between last week’s bullish sentiment and this week’s trend deterioration highlights the choppy conditions, requiring traders to remain adaptive in their approaches.

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

Source: Finwiz.com

As we conclude the final week of January 2025, asset classes have exhibited varied performances, reflecting shifting market dynamics. This period was characterized by a notable increase in volatility, a pullback in equities, and significant movements in commodities. Below is a detailed breakdown of asset class performance compared to the previous week:

Equities: -0.65% (Previous week: +2.01%)

Equity markets experienced a decline, halting the upward momentum observed in prior weeks. This downturn was influenced by investor concerns over newly announced tariffs by the U.S. administration, including a 25% tariff on imports from Canada and Mexico, and a 10% tariff on Chinese goods. These trade tensions have heightened market uncertainty, leading to a reassessment of risk.

Energy: -2.16% (Previous week: +0.66%)

The energy sector saw a significant decline, with crude oil prices retreating. Factors contributing to this decrease include concerns over global economic growth due to escalating trade tensions and a buildup in crude inventories. Additionally, warmer winter weather patterns have reduced demand for heating oil, further pressuring prices.

Metals: +3.33% (Previous week: -0.44%)

Metals experienced a robust rebound, with precious metals like gold and silver leading the gains. The rise in gold prices, reaching around $2,846 an ounce, was driven by investors seeking safe-haven assets amid market volatility and concerns over potential economic slowdowns resulting from new tariffs.

Grains: -0.75% (Previous week: +2.69%)

Grain markets faced a modest decline after prior gains. Improved weather conditions in key agricultural regions alleviated some supply concerns, leading to a stabilization of prices. However, ongoing global trade uncertainties continue to pose risks to this sector.

Meats: +0.65% (Previous week: +0.86%)

The meats sector maintained its positive trajectory, supported by steady consumer demand and easing concerns over feed costs. The resilience in this sector reflects stable market fundamentals despite broader economic uncertainties.

Soft Commodities: +1.15% (Previous week: +1.49%)

Soft commodities continued their upward trend, with notable gains in coffee and sugar prices. Supply chain disruptions and adverse weather conditions in major producing regions have sustained these price increases.

Currencies: -0.70% (Previous week: +1.21%)

The U.S. dollar weakened against a basket of major currencies. This depreciation is attributed to market reactions to the newly imposed tariffs and the potential for slower economic growth. Investors are closely monitoring central bank responses to these developments.

Volatility Index (VIX Futures): +6.52% (Previous week: -5.86%)

The VIX, a measure of market volatility, spiked significantly, reflecting increased investor anxiety. The resurgence in volatility is primarily due to uncertainties surrounding international trade policies and their potential impact on global economic stability.

Bonds: +0.48% (Previous week: 0.00%)

Bond markets experienced modest gains as investors sought refuge from equity market volatility. Yields on government bonds declined slightly, indicating increased demand for safer assets amid the prevailing economic uncertainties.

This week's market movements underscore a shift towards risk aversion, with investors gravitating towards safe-haven assets such as precious metals and government bonds. The imposition of new tariffs has introduced fresh uncertainties, leading to heightened volatility and a re-evaluation of risk across various asset classes.end-followers navigating these evolving conditions.

Top 10 Bear and Bull Price Moves

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

Source: Finwiz.com

What’s Moving Up

Coffee: +8.73%

Coffee surged 8.73% this week, maintaining its strong bullish trend and solidifying its position as a strong outlier for trend-followers.

Causal Factors:

  1. Supply Constraints: Ongoing weather disruptions in Brazil and Colombia, two of the largest coffee-producing countries, have tightened supply. Drought conditions and unseasonal rains have impacted harvests, reducing expected yields.
  2. Rising Global Demand: Coffee consumption remains strong, with increasing demand from emerging markets and sustained post-pandemic recovery in retail and hospitality sectors.
  3. Speculative Buying & Momentum: Hedge funds and institutional traders continue to pile into coffee futures, capitalizing on the strong uptrend and pushing prices to new highs.
  4. Brazil’s Currency Strength: The Brazilian real (BRL) has strengthened, making exports more expensive and further supporting higher coffee prices.
  5. Breakout Confirmation: Coffee has broken out of prior resistance zones, triggering additional technical buying and reinforcing its position as an outlier.

Trend-Following Perspective:

For trend-followers, coffee continues to be a prime outlier, displaying strong upward momentum and minimal pullbacks. The chart reflects a long-term uptrend with a series of higher highs and higher lows, reinforcing trend continuity.

Those already positioned long have benefited significantly, while traders not yet in the move may be looking for entry points on any minor retracements. Given coffee's volatile history, risk management remains key as prices extend into new highs.

If this momentum sustains, coffee could remain a standout performer for systematic strategies in the coming weeks.

Platinum: +7.39%

Platinum surged 7.39% this week, showing a strong move within its ongoing congestion range. While still lacking a decisive breakout, trend-followers are closely monitoring for signs of trend emergence.

Causal Factors:

  1. Industrial Demand Rebound: Demand for platinum in automobile catalytic converters has increased, supported by recovering auto production after supply chain constraints eased.
  2. Precious Metal Rotation: As gold and silver prices climbed, platinum followed suit, benefitting from safe haven buying.
  3. Supply Concerns: Reports of mine supply disruptions in South Africa, the world's largest platinum producer, have raised concerns over availability, lending support to prices.
  4. Speculative Positioning: Hedge funds and institutional traders have increased their net long positions, anticipating further upside if platinum breaks resistance.
  5. Weaker U.S. Dollar: The dollar's recent pullback has bolstered commodity prices, providing a tailwind for platinum.

Trend-Following Perspective:

Platinum remains in a congestion phase, oscillating between support and resistance 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.

Source: Finwiz.com

VIX Futures: +6.52%

The Volatility Index (VIX) climbed 6.52% this week, marking a notable uptick in market uncertainty. While not typically traded by trend-followers, the VIX serves as an important sentiment gauge for broader market conditions.

Causal Factors:

  1. Increased Market Uncertainty: The rise in volatility aligns with escalating geopolitical tensions and concerns over the new U.S. tariffs, which have introduced fresh risks into global markets.
  2. Equity Market Pullback: A -0.65% decline in equities this week has contributed to the VIX's rise, as investors hedge against potential downside risks.
  3. Shifts in Monetary Policy Expectations: Concerns over a less accommodative stance from central banks have fueled cautious positioning.
  4. Institutional Hedging Activity: Large funds and institutions have increased option protection, reflecting growing concerns over market fragility.
  5. Reversal from Multi-Year Lows: The VIX has been historically low, and this spike could indicate a potential trend change in sentiment rather than just a short-term move.

Trend-Following Perspective:

While the VIX is not a typical market for trend-followers, its movement informs positioning across equity and risk assets. A continued rise in volatility could signal broader market stress, potentially leading to new trending opportunities in other assets.

From a systematic standpoint, if the VIX maintains this upward momentum, it could mean greater dispersion across asset classes, which may benefit trend strategies. Conversely, if volatility fades, it suggests that the market is digesting risks without major dislocations.

Source: Finwiz.com

Palladium: +5.97%

Palladium surged 5.97% this week, marking a notable counter-trend move within its long-term bearish trend. This rally likely posed challenges for trend-followers, who have been positioned short in line with the dominant downtrend.

Causal Factors:

  1. Supply Chain Disruptions: Reports of potential production cuts from key mining regions, particularly Russia and South Africa, have raised concerns over future supply availability.
  2. Short Covering Rally: Given Palladium's extended bear trend, this move may partially be fueled by short-covering activity, where traders close out existing bearish positions.
  3. Industrial Demand Speculation: The automotive sector, a key consumer of Palladium for catalytic converters, is showing signs of marginal demand recovery despite long-term shifts toward electric vehicles (EVs).
  4. Weaker U.S. Dollar Support: A modest pullback in the U.S. dollar has given commodity markets a short-term boost.
  5. Technical Bounce from Oversold Levels: The attached chart shows Palladium rebounding from a multi-month base, which could indicate short-term consolidation rather than a full-fledged trend reversal.

Trend-Following Perspective:

For trend-followers, this week’s sharp rally is an adverse move, as Palladium has been in a well-defined downtrend for over two years. Those positioned short may have seen a drawdown, but unless momentum shifts meaningfully, this move may still be classified 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.

Source: Finwiz.com

Lumber: +4.69%

Lumber gained 4.69% this week, but trend-followers are sitting on the sidelines for now. The current market environment is too choppy and unpredictable to establish a clear trend.

Causal Factors:

  • Housing Market Dynamics: Despite high mortgage rates, new home construction and infrastructure projects have kept demand stable.
  • Supply Chain Variability: Mill closures, and production shifts have created imbalances, leading to price swings.
  • Seasonal Effects: Winter typically reduces construction activity, limiting immediate demand.
  • Speculative Influence: Short-term traders have likely fueled volatile price action without sustaining a long-term direction.

Trend-Following Perspective:

Trend-followers are likely on the sidelines, waiting for a clear directional breakout. The current range-bound movement and frequent reversals make false breakouts more likely, reducing the tradability of this market.

Lumber remains a market to watch, not trade.ard trajectory, providing favourable conditions for trend-followers.

What’s Moving Down

Natural Gas: -10.96%

Natural Gas tumbled 10.96% this week, experiencing a strong gap down that may have adversely impacted shorter-term trend-following models that recently capitalized on the bullish breakout.

Causal Factors:

  1. Warmer-Than-Expected Weather: Forecasts for milder winter temperatures in key demand regions, particularly North America and Europe, have weakened heating demand.
  2. Supply Surplus: Storage levels remain above seasonal averages, easing concerns over shortages and pressuring prices lower.
  3. Profit-Taking After Breakout: The recent bullish momentum attracted speculative longs, and the abrupt reversal suggests profit-taking and possible forced liquidations.
  4. Increased LNG Exports Uncertainty: Uncertainty surrounding U.S. LNG export demand has added further downside pressure, with some reports of reduced European import activity.
  5. Technical Breakdown: The attached chart shows a decisive failure at key resistance levels, leading to a sharp downside move.

Trend-Following Perspective:

For shorter-term trend-followers, this reversal may have been adverse, as many were positioned long following the breakout. The sharp gap down increases the likelihood of stopouts or position unwinding.

For longer-term trend-followers, Natural Gas remains a volatile market prone to sharp trend shifts.

Source: Finwiz.com

Rough Rice: -5.42%

Rough Rice declined 5.42% this week, reinforcing its ongoing bearish trend. This move is likely favourable for trend-followers, who have been positioned short amid continued downside momentum.

Causal Factors:

  1. Improved Global Supply: Reports indicate strong harvests and better-than-expected production in key rice-producing countries, particularly India and Thailand.
  2. Weaker Export Demand: Global demand for U.S. rough rice exports has softened, with increased competition from Asian producers.
  3. Strength in the U.S. Dollar: A stronger dollar has made U.S. agricultural exports less competitive, putting additional pressure on prices.
  4. Bearish Technical Structure: The attached chart shows a clear downtrend, with price breaking below key support levels.
  5. Speculative Liquidation: Trend-following funds and other traders have likely added to short positions, further amplifying the move lower.

Trend-Following Perspective:

For systematic trend-followers, this move aligns with the broader bearish trend, making it a profitable trade for those positioned short. The sustained breakdown suggests further downside potential, though traders will be watching for oversold conditions or short-covering rallies.

Source: Finwiz.com

Cocoa: -5.19%

Cocoa declined 5.19% this week, as it remains in a short-term congestion phase following an explosive bullish trend. The pullback comes after an extended parabolic move, which had been one of the strongest outliers for trend-followers in recent months.

Causal Factors:

  1. Profit-Taking After a Massive Rally: With cocoa prices reaching historic highs, traders and funds appear to be locking in gains, leading to short-term selling pressure.
  2. Supply Chain Adjustments: Some relief in logistical constraints and export flow improvements from major producing regions has eased near-term supply concerns.
  3. Market Absorption Phase: The rally has entered a consolidation stage, where buyers and sellers are establishing a new equilibrium before the next directional move.
  4. Speculative Positioning Shift: Given the sharp prior uptrend, some short-term traders may be fading the move, while trend-followers remain positioned for potential continuation.
  5. Technical Consolidation: The attached chart shows a congestion zone forming, a common behaviour after extended trends.

Trend-Following Perspective:

Cocoa remains a highly relevant market for trend-followers, despite the current short-term pause. The broader uptrend structure remains intact, and systematic traders will likely be watching for a resumption of momentum.

If price compression persists, trend-followers will assess whether a new breakout emerges or if further rotation signals a more prolonged cooling-off period. The recent pullback may also serve as a natural phase of digestion before trend continuation.

Source: Finwiz.com

Oats: -3.12%

Oats declined 3.12% this week, reinforcing its long-term bearish trend. This move is likely beneficial for medium- to long-term trend-followers, who have been positioned short in alignment with the broader downward trajectory.

Causal Factors:

  1. Weak Demand Outlook: Consumption levels have remained subdued, with shifting consumer preferences and alternative grain substitutes reducing overall demand.
  2. Stable Supply Conditions: Favourable weather patterns and consistent crop yields have kept supply steady, limiting upward price pressures.
  3. Lack of Speculative Interest: Unlike more volatile grain markets, oats have remained off the radar for speculative positioning, leading to a more gradual downtrend.
  4. Stronger Competition from Wheat and Corn: Larger global grain markets continue to outcompete oats, further reducing its relative demand in agricultural trade.
  5. Technical Continuation: The attached chart illustrates a well-defined bearish structure, with this week's move adding to the broader downward momentum.

Trend-Following Perspective:

For medium- to long-term trend-followers, oats continue to provide an orderly bearish trend, with this week's decline further confirming the downside momentum. Systematic strategies are likely holding short positions, as there are no significant reversal signals present.

If the current trend persists, traders will likely maintain their positions until a structural shift or market catalyst emerges.

Nikkei 225: -2.92%

The Nikkei 225 declined 2.92% this week, remaining in a congestion phase following a strong prior uptrend. This consolidation reflects indecision in market direction, with traders awaiting clearer signals.

Causal Factors:

  1. Profit-Taking After Strong Gains: The Nikkei has been in a steady uptrend, and this pullback likely represents a natural consolidation phase rather than a trend reversal.
  2. Global Market Uncertainty: Increased volatility in global equities has contributed to caution among investors, leading to more sideways price action in Japanese stocks.
  3. Monetary Policy Speculation: Traders are closely watching Bank of Japan policy developments, as any shift in interest rate guidance could impact equity valuations.
  4. Earnings Season Impact: Mixed corporate earnings results have contributed to short-term uncertainty, preventing a decisive breakout in either direction.
  5. Technical Pause: The attached chart shows a congestion zone, indicating that the market is in a holding pattern rather than a directional move.

Trend-Following Perspective:

For trend-followers, Nikkei remains a wait-and-see market until momentum re-emerges. While the broader long-term trend is still intact, the current congestion phase increases the risk of false breakouts.

Systematic traders will likely wait for a strong directional move before positioning further. If congestion persists, some models may reduce exposure until a clearer breakout occurs.ne in adhering to trend-following rules, particularly during transitional market phases.

Source: Finwiz.com

Conclusion

This week underscored the dynamic and often unpredictable nature of trend-following, as shifting sentiment and increased volatility created both challenges and opportunities. The decline in the TTU Trend Barometer and SG Trend Index highlights a more fragmented market environment, where fewer sustained trends make systematic strategies work harder to extract returns.

Equities, which had enjoyed a strong rally, lost momentum, while volatility surged, signalling heightened investor caution. Commodities remained a mixed bag—Coffee and Platinum surged, benefiting trend-followers, while Natural Gas and Rough Rice declined, aligning with bearish models. Meanwhile, the Nikkei 225 and Cocoa entered congestion phases, requiring patience from systematic traders waiting for clearer signals.

As trade tensions rise, monetary expectations shift, and geopolitical risks unfold, market conditions remain highly fluid, presenting both threats and opportunities for trend-followers. The increased volatility suggests that significant breakouts may be on the horizon, but false signals will be prevalent.

For trend-followers, patience and process discipline are paramount. With markets in transition, false breakouts remain a risk, but new trends could emerge as volatility reshapes market structures.

Next week will be key in determining whether recent moves signal deeper reversals or fleeting noise. Systematic traders must stay agile yet unwavering in their core principlescut losses, let profits run, and stay in sync with the market’s unfolding narrative.

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List of Resources used in the Week in Review

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