Trend Following - Week in Review - July 12, 2024

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.

The Wind is Picking Up and the Sails are Billowing

Trend Barometer

After the sweltering, windless month of June left our trading vessels adrift in the doldrums, the tides of July are still finding their rhythm. The albatrosses are cautiously circling, suggesting winds are slowly beginning to stir and clouds are tentatively gathering on the horizon.

This week, our trusty Trend Barometer has inched up from 34 to a moderately weak 36, indicating that while we’re not yet in smooth sailing waters, the outlook is gradually improving. The SG Trend Index is up 1.87% for the month as of July 11, 2024, maintaining the year-to-date performance of 10.72% on an upward trajectory. We remain hopeful that the stagnant waters are behind us. “Prepare the ship, bosun and batten down the hatches. There is a slight blow about!”

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, the movements in asset classes are as follows:

• Bonds experienced a modest increase of 0.55%, reflecting market reactions to changing interest rate expectations and economic data.
• Energy sector prices fell slightly by 1.55%, influenced by fluctuations in supply and demand dynamics.
• Metals saw a significant decrease of 2.50%, driven by various industrial sector demands and supply chain constraints.
• Soft Commodities increased by 2.73%, driven by movements in key commodities like coffee and sugar.
• Indices posted a modest increase of 0.89%, influenced by varied economic data and earnings reports.
• Currency Markets showed a minor increase of 0.39%, with fluctuations in major currency pairs.
• Grains experienced a notable decrease of 4.34%, driven by strong market dynamics and supply constraints.
• Meats had a slight decrease of 1.19%, reflecting changes in supply and demand.

Top 10 Bear and Bull Price Moves

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

What’s Moving Up

Coffee Prices Surge by 8.8%

Coffee prices surged by 8.8% this week, continuing a bullish trend that has been in place since October 2023. This trend is driven by several key factors affecting both supply and demand in the global coffee market.

Reasons for the Uptrend Since October 2023:

1. Adverse Weather Conditions:
   • Brazil: As the world’s largest coffee producer, Brazil faced significant weather-related challenges, including droughts followed by frost. These extreme weather events severely impacted coffee crop yields, reducing the overall supply of coffee beans. According to Conab, Brazil's crop forecasting agency, the country experienced a 40% reduction in its Arabica coffee harvest compared to previous years.
   • Colombia: Heavy rains in Colombia, the second-largest exporter of Arabica coffee, also contributed to supply disruptions, further tightening the market.
2. Supply Chain Issues:
   • Global Logistics: The coffee supply chain has been disrupted by various factors, including port congestion, a shortage of personnel, and rising energy costs. These logistical issues have exacerbated supply constraints, leading to higher prices.
   • Certified Stocks: There has been a significant decrease in certified coffee stocks, with a 16.2% drop in New York and a 5.4% drop in London, further tightening the market.
3. Strong Global Demand:
   • Despite supply challenges, global demand for coffee remains robust, particularly in major coffee-consuming countries. This sustained demand, combined with supply constraints, has driven prices upward.
   • Consumer Preferences: The demand for premium and specialty coffee continues to rise, particularly in markets like the United States and Europe, contributing to higher overall coffee prices.
4. Economic Factors:
   • Currency Fluctuations: The depreciation of the Brazilian Real against the US Dollar has made Brazilian coffee exports more expensive, adding to the upward pressure on global coffee prices.
   • Inflation: Rising inflation rates have also impacted commodity prices, including coffee, as production and transportation costs increase.

This Week's Price Surge Within the Existing Uptrend:

This week's 8.8% surge in coffee prices aligns with the ongoing bullish trend. The primary drivers for this week's surge include:

1. Recent Adverse Weather: Continued adverse weather conditions in key producing regions like Brazil and Colombia have further tightened the supply, pushing prices higher.
2. Logistical Disruptions: Ongoing logistical challenges, such as transportation delays and supply chain disruptions, continue to affect the market, contributing to the price surge.
3. Strong Demand: The sustained global demand for coffee, particularly in emerging markets and among specialty coffee consumers, supports the ongoing price increase.

Reception by Trend Followers:

1. Validation of Positions: Trend followers, who typically capitalize on sustained market movements, would likely have been long on coffee due to the uptrend since October 2023. The recent price surge validates their positions, reinforcing confidence in the continuation of the trend.
2. Reassessment and Reinforcement: The consistent price increase might prompt trend followers to reassess and potentially increase their positions. The ongoing uptrend and recent surge suggest a robust market, encouraging further investment.
3. Market Volatility: While the coffee market remains volatile, the overall upward trajectory provides opportunities for trend followers. Staying vigilant and adaptable is crucial, as external factors such as weather conditions and supply chain issues continue to influence price movements.

Cocoa Prices Surge by 6.47%

Cocoa prices surged by 6.47% this week, continuing an enormously volatile trend that has been in place since late 2022. This trend, marked by significant ups and downs, reached a peak in April 2024 and has seen substantial fluctuations since. Long-term trend followers may still be holding onto their positions, while short-term and medium-term trend followers are likely watching with caution due to the extreme volatility.

Reasons for the Uptrend Since Late 2022:

1. Adverse Weather Conditions:
2. West Africa: As the world's largest cocoa-producing region, West Africa, particularly Côte d’Ivoire and Ghana, faced severe weather-related challenges. Ghana experienced heavy rainfall and devastating flooding that destroyed key growing regions. According to the International Cocoa Organization (ICCO), this led to a significant reduction in crop yields​.
3. Ghana: The country faced additional disruptions due to illegal gold mining on cocoa farmlands, which further impacted production levels. The Ghana Cocoa Board (COCOBOD) also reported early closure of the 2022/2023 season due to these challenges​​.
4. Supply Chain Issues:
5. Global Logistics: Cocoa supply chains have been disrupted by various factors, including port congestion and rising transportation costs. These logistical issues have exacerbated supply constraints, leading to higher prices​​.
6. Certified Stocks: A decrease in certified cocoa stocks has tightened the market, further pushing prices upward.
7. Strong Global Demand:
8. Despite supply challenges, global demand for cocoa remains robust. The demand is driven by steady consumption in major markets and increased purchasing by chocolate manufacturers to hedge against future supply disruptions​.
9. Consumer Preferences: The demand for premium chocolate products continues to rise, contributing to higher cocoa prices.
10. Economic Factors:
11. Currency Fluctuations: The depreciation of local currencies in major cocoa-producing countries against the US Dollar has made cocoa exports more expensive, adding to the upward pressure on global prices.
12. Inflation: Rising inflation rates have also impacted commodity prices, including cocoa, as production and transportation costs increase.

This Week's Price Surge Within the Existing Uptrend:

This week's 6.47% surge in cocoa prices aligns with the ongoing volatile trend. The primary drivers for this week's surge include:

• Recent Adverse Weather: Continued adverse weather conditions in key producing regions like Côte d’Ivoire and Ghana have further tightened the supply, pushing prices higher.
• Logistical Disruptions: Ongoing logistical challenges, such as transportation delays and supply chain disruptions, continue to affect the market, contributing to the price surge.
• Strong Demand: The sustained global demand for cocoa, particularly among chocolate manufacturers, supports the ongoing price increase.

Reception by Trend Followers:

1. Validation of Positions: Long-term trend followers, who typically capitalize on sustained market movements, are likely still holding their long positions due to the uptrend since late 2022. The recent price surge validates their positions, reinforcing confidence in the continuation of the trend.
2. Cautious Reassessment: Short-term and medium-term trend followers may be reassessing their positions due to the significant volatility. The ongoing uptrend and recent surge suggest a robust market, but the high volatility requires cautious monitoring.
3. Market Volatility: While the cocoa market remains extremely volatile, the overall upward trajectory provides opportunities for trend followers. Staying vigilant and adaptable is crucial, as external factors such as weather conditions and supply chain issues continue to influence price movements.

Russell 2000 Index Increases by 6.1%

The Russell 2000 Index increased by 6.1% this week, reflecting a notable move within its ongoing congestion phase. This trend is driven by several key factors affecting the small-cap market, offering insights into the dynamics of the broader economy.

Reasons for the Uptrend:

1. Investor Sentiment:
   • Interest Rates: The Federal Reserve's signals about potentially cutting interest rates have created a positive sentiment in the market. Investors are anticipating a more favourable borrowing environment, which tends to boost small-cap stocks.
   • Artificial Intelligence: Exploding investor interest in the potential economic impacts of artificial intelligence has driven significant gains in several Russell 2000 components​.
2. Valuation Adjustments:
   • Discounted Stocks: Many stocks in the Russell 2000 are trading at significant discounts compared to larger indices like the S&P 500. This valuation gap has attracted investors looking for bargains with the potential for outsized returns​.
3. Sector Performance:
   • Biotech and Tech Stocks: Specific sectors within the Russell 2000, such as biotechnology and technology, have shown strong performance. Companies like Super Micro Computer and Viking Therapeutics have posted substantial gains, contributing to the overall index increase​.

This Week's Price Surge Within the Existing Uptrend:

This week's 6.1% surge in the Russell 2000 Index is possibly signalling the resurgence of a bull trend from its prior congestion phase. The primary drivers for this week's surge include:

1. Positive Economic Indicators: Improved economic data and earnings reports from small-cap companies have bolstered investor confidence.
2. Sector-Specific Gains: The ongoing robust performance in sectors like biotechnology and technology has played a significant role in driving the index upward.
3. Market Anticipation: Continued anticipation of favourable monetary policies and economic conditions has supported the upward movement.

Reception by Trend Followers:

1. Breakout from Congestion: Trend followers would be interested in this week's bullish move, which may be signalling an entry towards the upside.
2. Cautious Optimism: While the recent gains are encouraging, trend followers remain cautious due to the potential for volatility. The mixed performance of individual stocks within the index underscores the need for careful selection and monitoring.
3. Market Volatility: The Russell 2000's inherent volatility requires trend followers to stay adaptable. Monitoring external factors such as interest rate changes and sector-specific developments is crucial for maintaining effective strategies.

Orange Juice Prices Surge by 4.45%

Orange juice prices surged by 4.45% this week, continuing a strong bullish trend that has been in place since early 2022. This trend, characterized by significant price increases and volatility, reached a high in March 2024. Although prices have retraced from their peak, recent weeks have seen a resurgence, marching back up towards previous highs. This trend has been a massive outlier for many medium to long-term trend followers and a significant contributor to trend-following portfolios.

Reasons for the Uptrend Since Early 2022:

1. Adverse Weather Conditions:
   • Florida: The 2022 hurricane season, including Hurricane Ian, caused extensive damage to Florida's citrus groves, severely impacting production. Additionally, ongoing issues with citrus greening disease have further reduced crop yields.
   • Brazil: Drought conditions followed by frosts in key producing regions have led to smaller harvests, exacerbating supply constraints. This has significantly impacted global supply as Brazil is one of the largest orange juice producers​​.
2. Supply Chain Issues:
   • Logistical Challenges: The orange juice supply chain has been disrupted by various factors, including port congestion and increased transportation costs. These logistical issues have exacerbated supply constraints, leading to higher prices​.
   • Reduced Stockpiles: There has been a decrease in carryover stock from previous harvests, tightening the market further.
3. Strong Global Demand:
   • Despite supply challenges, global demand for orange juice remains robust. Health trends and consumer preferences for natural and vitamin-rich beverages have kept demand strong.
   • Consumer Preferences: There is a growing preference for Not From Concentrate (NFC) juice over Frozen Concentrate Orange Juice (FCOJ), contributing to higher overall prices due to limited supply and higher production costs for NFC​.
4. Economic Factors:
   • Currency Fluctuations: The depreciation of local currencies in major orange juice-producing countries against the US Dollar has made exports more expensive, adding to the upward pressure on global prices.
   • Inflation: Rising inflation rates have also impacted commodity prices, including orange juice, as production and transportation costs increase.

This Week's Price Surge Within the Existing Uptrend:

This week's 4.45% surge in orange juice prices aligns with the ongoing bullish trend. The primary drivers for this week's surge include:

1. Recent Adverse Weather: Continued adverse weather conditions in key producing regions like Florida and Brazil have further tightened the supply, pushing prices higher.
2. Logistical Disruptions: Ongoing logistical challenges, such as transportation delays and supply chain disruptions, continue to affect the market, contributing to the price surge.
3. Strong Demand: The sustained global demand for orange juice, particularly among health-conscious consumers, supports the ongoing price increase.

Reception by Trend Followers:

1. Validation of Positions: Long-term trend followers, who typically capitalize on sustained market movements, are likely still holding their long positions due to the uptrend since early 2022. The recent price surge validates their positions, reinforcing confidence in the continuation of the trend.
2. Cautious Reassessment: Short-term and medium-term trend followers may be reassessing their positions due to the significant volatility. The ongoing uptrend and recent surge suggest a robust market, but the high volatility requires cautious monitoring.
3. Market Volatility: While the orange juice market remains extremely volatile, the overall upward trajectory provides opportunities for trend followers. Staying vigilant and adaptable is crucial, as external factors such as weather conditions and supply chain issues continue to influence price movements.

JPY Increases by 0.69%

The Japanese Yen (JPY) increased by 0.69% this week, which is a notable move within its significant downtrend that has been ongoing since early 2021. This asset has been a very popular short trade for medium to long-term trend followers due to its consistent depreciation against major currencies like the US Dollar. This week's uptick, while still within the overall volatility of the long-term downtrend, raises questions about whether the short trend is merely taking a breather or if a potential mean reversion is on the horizon.

Reasons for the Downtrend Since Early 2021:

1. Monetary Policy:
   • Bank of Japan (BOJ): The BOJ has maintained an ultra-loose monetary policy, including negative interest rates and aggressive quantitative easing, to stimulate the economy. This policy has weakened the yen compared to currencies from countries with higher interest rates​.
   • Global Interest Rate Differentials: As other central banks, particularly the US Federal Reserve, have increased interest rates to combat inflation, the yen has depreciated further due to the widening interest rate differentials​.
2. Economic Factors:
   • Inflation: Low inflation rates in Japan have kept the BOJ's policies accommodative, contributing to the yen's weakness.
   • Trade Balance: Japan has faced a trade deficit, exacerbated by rising energy import costs, which has also pressured the yen downward.
3. Market Sentiment:
   • Safe-Haven Status: While the yen is traditionally seen as a safe-haven currency, global economic stability and investor risk appetite have reduced its appeal. This has contributed to its prolonged depreciation.

This Week's Price Increase Within the Existing Downtrend:

This week's 0.69% increase in the yen is still within the context of its broader downtrend. The primary drivers for this week's move include:

1. Temporary Market Corrections: Short-term fluctuations and profit-taking by traders may have led to the slight appreciation of the yen.
2. Geopolitical Factors: Any geopolitical events or market uncertainties may have momentarily increased demand for the yen as a safe-haven asset.

Reception by Trend Followers:

1. Trend Continuation vs. Reversal: Long-term trend followers may view this week's uptick with caution, interpreting it as a temporary correction within the ongoing downtrend. However, some may also be vigilant for signs of a potential trend reversal.
2. Market Volatility: The yen's inherent volatility requires trend followers to stay adaptable and continuously monitor economic indicators and monetary policy changes. The slight increase this week is not significant enough to shift the overall bearish sentiment but warrants close observation​.

The Japanese yen's performance remains closely tied to the BOJ's monetary policy and global economic conditions. Traders and investors will continue to watch these factors to gauge the future direction of the yen.

What’s Moving Down

Canola Prices Decline by 6.62%

Canola prices declined by 6.62% this week, amplifying the significant downtrend that has been in place since May 2022. This trend is driven by several key factors affecting both supply and demand in the global canola market.

Reasons for the Downtrend Since May 2022:

1. Increased Global Supply:
   • Favourable Weather Conditions: Key canola-producing regions, particularly in Canada, experienced favourable weather conditions leading to higher yields. This increase in production has resulted in an oversupply, exerting downward pressure on prices.
   • Improved Harvests: Higher-than-expected harvests in 2022 and 2023 have contributed to the increased supply, causing prices to drop significantly​.
2. Weak Demand:
   • Reduced Biodiesel Production: Lower biodiesel production due to fluctuating crude oil prices has reduced the demand for canola oil, a primary feedstock for biodiesel, further depressing prices.
   • Economic Slowdown: The global economic slowdown has led to decreased industrial activity and consumer spending, impacting the demand for canola-based products.
3. Market Sentiment:
   • Speculative Activities: Speculative trading activities and market expectations of continued high yields have kept prices suppressed.

This Week's Price Decline Within the Existing Downtrend:

This week's 6.62% decline in canola prices aligns with the broader bearish trend observed since May 2022. The primary drivers for this week's decline include:

1. Supply Surplus: The global canola market remains oversupplied, with recent reports indicating higher-than-expected production levels continuing to weigh on prices.
2. Weak Export Demand: Major importing countries have reduced their purchases due to sufficient stockpiles and economic challenges, contributing to the price decline.

Reception by Trend Followers:

1. Validation of Short Positions: Trend followers who have been short on canola since the downtrend began in May 2022 would view this week's decline as a positive sign, validating their positions and strategy.
2. Reinforcement of Positions: The ongoing price decline may prompt trend followers to reinforce their short positions. The clear downward trend provides confidence in maintaining or increasing their positions.
3. Monitoring Market Conditions: While the current trend is favourable, trend followers will continue to monitor market conditions closely. They will watch for any signs of market stabilization or reversal but are likely to remain short as long as the bearish trend persists.

Palladium Prices Decline by 6.69%

Palladium prices declined by 6.69% this week, reinforcing the substantial downtrend that has been ongoing since March 2022. This trend is driven by a combination of factors impacting both supply and demand in the palladium market.

Reasons for the Downtrend Since March 2022:

1. Shift in Automotive Demand:
   • Transition to Platinum: The automotive industry, which accounts for over 80% of palladium demand, has been increasingly shifting towards using platinum in catalytic converters. This transition has reduced the demand for palladium significantly​.
2. High Stockpiles:
   • Surplus Inventory: There has been a build-up of palladium stockpiles due to reduced industrial demand. This oversupply in the market has been a key factor in driving prices downward​.
3. Economic Factors:
   • Global Economic Slowdown: The broader economic slowdown has led to decreased industrial activity and consumer spending, further impacting demand for palladium-based products.
   • Inflation and Interest Rates: Rising inflation and higher interest rates in major economies have also contributed to the reduced demand for commodities, including palladium​.

This Week's Price Decline Within the Existing Downtrend:

This week's 6.69% decline in palladium prices is a continuation of the broader bearish trend. The primary drivers for this week's decline include:

1. Continued Weak Demand: The ongoing weak demand from the automotive sector and industrial applications has kept prices under pressure.
2. Market Sentiment: Investor sentiment remains bearish due to the anticipation of continued surplus and weak demand. This sentiment has further exacerbated the price decline.

Reception by Trend Followers:

1. Validation of Short Positions: Trend followers who have been short on palladium since the downtrend began in March 2022 would view this week's decline as a positive sign, validating their positions and strategy.
2. Reinforcement of Positions: The ongoing price decline may prompt trend followers to reinforce their short positions. The clear downward trend provides confidence in maintaining or increasing their positions.
3. Monitoring Market Conditions: While the current trend is favourable, trend followers will continue to monitor market conditions closely. They will watch for any signs of market stabilization or reversal but are likely to remain short as long as the bearish trend persists.

Wheat Prices Decline by 6.65%

Wheat prices declined by 6.65% this week, bringing renewed vigour to the ongoing bearish trend that began in March 2022. This week's move is favourable for trend followers who have maintained short positions on wheat. The downtrend has been influenced by several key factors impacting both supply and demand in the global wheat market.

Reasons for the Downtrend Since March 2022:

1. Increased Global Supply:
   • High Production Levels: Wheat production has remained relatively high, especially with substantial harvests from major producers like Russia and the United States. The global wheat output for the 2023/2024 season was projected to remain above average despite a slight decrease from record levels​.
   • Stockpiles: There has been a build-up of wheat stockpiles due to high production levels, contributing to the surplus and putting downward pressure on prices​.
2. Weak Demand:
   • Economic Slowdown: The global economic slowdown has reduced industrial activity and consumer spending, affecting the demand for wheat-based products​.
   • Uncertainty in the Black Sea Region: The ongoing geopolitical tensions in the Black Sea region have added volatility and uncertainty to wheat exports, impacting demand dynamics​.
3. Market Sentiment:
   • Speculative Activities: Speculative trading and market expectations of continued high yields have kept prices suppressed. Additionally, inflation and rising interest rates in major economies have also contributed to the reduced demand for commodities like wheat​.

This Week's Price Decline Within the Existing Downtrend:

This week's 6.65% decline in wheat prices aligns with the broader bearish trend observed since March 2022. The primary drivers for this week's decline include:

1. Supply Surplus: The global wheat market remains oversupplied, with recent reports indicating higher-than-expected production levels continuing to weigh on prices​.
2. Weak Export Demand: Major importing countries have reduced their purchases due to sufficient stockpiles and economic challenges, contributing to the price decline​ .

Reception by Trend Followers:

1. Validation of Short Positions: Trend followers who have been short on wheat since the downtrend began in March 2022 would view this week's decline as a positive sign, validating their positions and strategy.
2. Reinforcement of Positions: The ongoing price decline may prompt trend followers to reinforce their short positions. The clear downward trend provides confidence in maintaining or increasing their positions.
3. Monitoring Market Conditions: While the current trend is favourable, trend followers will continue to monitor market conditions closely. They will watch for any signs of market stabilization or reversal but are likely to remain short as long as the bearish trend persists.

Soybean Oil Prices Decline by 5.91%

Soybean oil prices declined by 5.91% this week, reinforcing the downtrend that has been in place since April 2022. Despite a bullish move last week that raised hopes by some traders for a potential end to the downtrend, this week's price retracement suggests that bearish sentiment still holds sway. This trend is driven by several factors impacting both supply and demand in the soybean oil market.

Reasons for the Downtrend Since April 2022:

1. Increased Global Supply:
   • High Production Levels: Major producers such as the United States, Brazil, Argentina, and China have seen substantial soybean harvests, leading to a surplus in the market. This oversupply has been a key factor in driving prices down​.
   • Stockpiles: There has been an increase in soybean oil stockpiles due to high production levels, contributing to the surplus and putting downward pressure on prices​.
2. Weak Demand:
   • Economic Slowdown: The global economic slowdown has led to decreased industrial activity and consumer spending, impacting the demand for soybean oil​.
   • Substitution Effects: The rising costs of soybean oil have prompted consumers and industries to switch to alternative oils, further reducing demand​.
3. Market Sentiment:
   • Speculative Activities: Speculative trading and market expectations of continued high yields have kept prices suppressed. Additionally, inflation and rising interest rates in major economies have contributed to the reduced demand for commodities like soybean oil​.

This Week's Price Decline Within the Existing Downtrend:

This week's 5.91% decline in soybean oil prices aligns with the broader bearish trend observed since April 2022. The primary drivers for this week's decline include:

1. Supply Surplus: The global soybean oil market remains oversupplied, with recent reports indicating higher-than-expected production levels continuing to weigh on prices​.
2. Weak Export Demand: Major importing countries have reduced their purchases due to sufficient stockpiles and economic challenges, contributing to the price decline​.

Reception by Trend Followers:

1. Validation of Short Positions: Trend followers who have been short on soybean oil since the downtrend began in April 2022 would view this week's decline as a positive sign, validating their positions and strategy.
2. Reinforcement of Positions: The ongoing price decline may prompt trend followers to reinforce their short positions. The clear downward trend provides confidence in maintaining or increasing their positions.
3. Monitoring Market Conditions: While the current trend is favourable, trend followers will continue to monitor market conditions closely. They will watch for any signs of market stabilization or reversal but are likely to remain short as long as the bearish trend persists.

Soybean Prices Decline by 5.4%

Like its cousin Soybean Oil, Soybean prices declined by 5.4% this week, reinforcing the bearish trend that has persisted since mid-2022. This week's movement highlights that the downtrend in soybeans is still very much alive, driven by various factors affecting the supply and demand dynamics in the soybean market.

Reasons for the Downtrend Since Mid-2022:

1. Increased Global Supply:
   • High Production Levels: Major producers like the United States, Brazil, and Argentina have seen substantial soybean harvests. The United States, in particular, continues to produce large volumes, contributing to a global surplus. According to Trading Economics, these countries account for over 80% of total production and 90% of total exports.
   • Stockpiles: There has been an increase in soybean stockpiles due to high production levels, which has further contributed to the surplus and exerted downward pressure on prices​.
2. Weak Demand:
   • Economic Slowdown: The global economic slowdown has led to decreased industrial activity and consumer spending, impacting the demand for soybeans. The effects of the COVID-19 pandemic and subsequent recovery phases have continued to affect market dynamics.
   • Substitution Effects: Rising costs of soybean oil have prompted consumers and industries to switch to alternative oils, further reducing demand​.
3. Market Sentiment:
   • Speculative Activities: Speculative trading and market expectations of continued high yields have kept prices suppressed. Additionally, inflation and rising interest rates in major economies have contributed to reduced demand for commodities like soybeans​.

This Week's Price Decline Within the Existing Downtrend:

This week's 5.4% decline in soybean prices aligns with the broader bearish trend observed since mid-2022. The primary drivers for this week's decline include:

1. Supply Surplus: The global soybean market remains oversupplied, with recent reports indicating higher-than-expected production levels continuing to weigh on prices​.
2. Weak Export Demand: Major importing countries have reduced their purchases due to sufficient stockpiles and economic challenges, contributing to the price decline​.

Reception by Trend Followers:

1. Validation of Short Positions: Trend followers who have been short on soybeans since the downtrend began in mid-2022 would view this week's decline as a positive sign, validating their positions and strategy.
2. Reinforcement of Positions: The ongoing price decline may prompt trend followers to reinforce their short positions. The clear downward trend provides confidence in maintaining or increasing their positions.
3. Monitoring Market Conditions: While the current trend is favourable, trend followers will continue to monitor market conditions closely. They will watch for any signs of market stabilization or reversal but are likely to remain short as long as the bearish trend persists.

Conclusion

This week's report underscores the vibrant and complex nature of the futures markets, showcasing a powerful reaffirmation of long-standing trends. The consistent performance across key assets, with most significant price movements reinforcing existing trends, has provided a buoyant environment for trend followers. The Trend Barometer's slight rise to 36 signifies a promising shift towards more favourable trading conditions.

This week, the market dynamics have been particularly favourable. Notable declines in assets like wheat, canola, and soybean oil have solidified the bearish trends, providing profitable opportunities for short positions. Meanwhile, robust gains in commodities such as coffee and orange juice have validated long positions, reinforcing the bullish sentiment in these markets.

The clear signals from the price movements, whether reinforcing long or short trends, emphasize the importance of staying attuned to market shifts and maintaining a strategic approach. The intricate interplay of market forces, from supply chain disruptions to economic policies, continues to shape the futures landscape, offering both challenges and opportunities.

As we look ahead, it is evident that staying informed and strategically agile remains crucial. The diverse dynamics across different asset classes underscore the need for a keen eye on both broader market trends and specific sector nuances. This week's successes highlight the value of trend-following strategies and the importance of adaptability in the face of market volatility.

So, steer your course wisely, keep those sails ready, and stay vigilant for the winds of change that define our journey in futures trading.

Join us next week for another edition of "This Week in Trend," where we'll continue to explore the dynamic world of futures trading and provide insights to help you navigate these markets with confidence. In this ever-changing sea, a touch of humour and a strategic mindset can be the best compass.

Thank you for joining us, and we look forward to another exciting week in the futures markets!

List of Resources used in the Week in Review

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This document and its contents are proprietary information of TTU and may not be reproduced or otherwise disseminated in whole or in part without TTU’s prior written consent.

This document contains simulated or hypothetical performance results that have certain inherent limitations AND SHOULD BE VIEWED FOR ILLUSTRATIVE PURPOSES. Unlike the results shown in an actual performance record, these results do not represent actual trading. HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR INVESTMENT ACCOUNT.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM OR OTHER ASSET.

There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results. No representation is being made that any investment will or is likely to achieve profits or losses similar to those being shown.