Trend Following - Week in Review - July 5, 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 Seas are Picking Up and Some Gusts are About

Trend Barometer

After the sweltering, windless month of June left our trading vessels adrift in the doldrums, it seems the tides of July are finally shifting. The albatrosses are soaring once more, hinting at winds to come and clouds gathering favourably on the horizon.

This week, our trusty Trend Barometer has valiantly climbed from a dismal low of 20 to a more hopeful 34, signalling smoother sailing ahead. Though it’s still early in the month, the SG Trend Index is already up 1.06% as of Thursday, July 4th, 2024, boosting the year-to-date performance to an impressive 9.84%.

Let’s hope we’ve seen the last of those stagnant waters for a while. “Steer a course, bosun, and fill those sails, for there be trends about lads!”

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 we saw positive price moves across all asset classes. This is quite unusual as usually there is a trail of red somewhere to be seen, highlighting the broad-based strength in the markets.

• Bonds experienced a modest increase of 0.35%, reflecting market reactions to changing interest rate expectations and economic data. The anticipation of central banks potentially easing their aggressive rate hikes has provided some relief to bond markets, leading to slight gains.
• Energy sector prices rose slightly by 0.25%, influenced by fluctuations in supply and demand dynamics. Despite ongoing geopolitical tensions affecting oil supplies, the sector managed to see a small uptick, driven by stable demand and production adjustments from key oil-exporting nations.
• Metals saw a significant increase of 4.87%, with strong demand from various industrial sectors. The surge was led by key metals like copper and silver, which benefited from robust industrial activity and supply chain constraints, particularly in regions recovering from the pandemic.
• Soft Commodities increased by 0.74%, driven by movements in key commodities like coffee and sugar. Improved weather conditions in major producing regions and strong global demand have supported prices, despite the usual volatility in this sector.
• Indices posted a modest increase of 0.75%, influenced by varied economic data and earnings reports. The gains were bolstered by positive corporate earnings, especially in the tech and financial sectors, reflecting investor confidence amidst a backdrop of mixed economic indicators.
• Currency Markets showed a minor increase of 0.51%, with fluctuations in major currency pairs. The US dollar weakened slightly against other major currencies, influenced by changing interest rate expectations and economic policy signals from the Federal Reserve.
• Grains experienced a notable increase of 2.85%, driven by strong market dynamics and supply constraints. Key grains like wheat and corn saw price boosts due to unfavourable weather conditions affecting crop yields and strong export demand from major importing countries.
• Meats had a slight increase of 0.27%, reflecting changes in supply and demand. The market for meats like lean hogs and live cattle was influenced by production adjustments and evolving consumer demand patterns, leading to a modest gain.

The across-the-board positive movements highlight a unique week where every asset class saw gains, underscoring a period of synchronized optimism and stability across the markets. Investors are encouraged to remain vigilant, as such widespread positivity could indicate underlying shifts in market fundamentals or speculative activities that may not be sustainable long-term.

Top 10 Bear and Bull Price Moves

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

What’s Moving Up

Soybean Oil Prices Surge by 12.89%

Soybean oil prices surged by 12.89% this week, largely driven by supply constraints and strong global demand. This increase reflects ongoing challenges in meeting global soybean oil demand due to adverse weather conditions in key producing regions and logistic disruptions. While the long-term trend for soybean oil has been bearish since its peak in early 2022 due to various economic and supply chain factors, this week's price surge highlights the complex dynamics of the soybean oil market. The move is driven by immediate supply constraints and strong global demand, catching many trend followers by surprise and prompting a reassessment of their market positions.

Reasons for the Downtrend Since Early-2022:

1. Increased Supply Earlier in the Year: Favorable weather conditions and improved yields in major soybean-producing regions, particularly in South America, led to a temporary surplus in soybean oil supply. This increased availability of soybean oil in the market contributed to a decline in prices as supply outpaced demand.
2. Export Policies: Countries like Brazil and Argentina, major soybean producers, implemented measures to boost domestic supplies by limiting exports. While this initially led to a build-up in global stockpiles, subsequent adverse weather conditions reduced production capabilities, affecting the market later.
3. Economic Factors: Global economic slowdowns and fluctuations in demand impacted soybean oil prices. During periods of economic uncertainty, reduced industrial use of soybean oil in food and biodiesel manufacturing contributed to the downward pressure on prices.

This Week's Price Surge Against the Overall Short Trend:

This week's 12.89% surge in soybean oil prices is a notable deviation from the overall downward long-term trend. The primary drivers for this surge include:

1. Recent Adverse Weather: Recent droughts and unfavourable weather conditions in key producing regions like Argentina and Brazil have severely impacted crop yields. This sudden drop in production has tightened the supply, pushing prices upward.
2. Strong Global Demand: Despite the earlier downtrend, global demand for soybean oil remains strong, particularly in emerging markets and industrial applications such as biodiesel production. This sustained demand, coupled with the sudden supply constraints, has driven the recent price increase.
3. Logistical Disruptions: Ongoing logistical challenges, such as transportation delays and supply chain disruptions, have exacerbated the supply issues, contributing to the price surge.

Reception by Trend Followers:

1. Caught Off Guard: Trend followers, who typically capitalize on long-term market movements, would likely have been short on soybean oil due to the prolonged downtrend since its peak in early 2022. The sudden price surge would have caught many off guard, potentially leading to losses on their short positions.
2. Reassessment of Positions: The unexpected price movement might prompt trend followers to reassess their positions. While the long-term trend remains bearish, the recent surge could indicate a temporary reversal or a correction driven by short-term supply constraints and heightened demand.
3. Market Volatility: This week's move underscores the inherent volatility in commodity markets, where external factors such as weather conditions and logistical issues can cause significant price swings. Trend followers need to stay vigilant and adaptable, monitoring these developments closely to adjust their strategies accordingly.

Silver Prices Surge by 6.65%

Silver prices surged by 6.65% this week, driven by robust industrial demand and signs of economic recovery. This increase highlights the multifaceted factors influencing the silver market, including its dual role as both an industrial metal and a precious metal investment. The move is attributed to heightened demand from various industrial sectors and positive economic indicators, confirming the existing uptrend that has been in place since September 2022. Despite the high volatility displayed by the chart, this move would have been viewed favourably by trend followers, reinforcing their market positions.

Reasons for the Uptrend Since September 2022:

1. Increased Industrial Demand: Silver is a key component in various industrial applications, including electronics, solar panels, and medical devices. The ongoing industrial demand, particularly in the technology and renewable energy sectors, has supported the uptrend.
2. Economic Recovery: Positive economic data from major economies, including the US and China, has bolstered investor confidence. Economic recovery has spurred industrial production, increasing the demand for silver.
3. Inflation Concerns: Rising inflation has renewed interest in precious metals as a hedge. Silver, often viewed as a store of value, has benefited from this increased demand amidst growing inflationary pressures.
4. Supply Constraints: Supply disruptions due to mining challenges and logistical issues have also contributed to the price increase. Reduced output from major silver-producing regions has tightened supply, pushing prices higher.

This Week's Price Surge Within the Existing Uptrend:

This week's 6.65% surge in silver prices aligns with the overall uptrend observed since September 2022. The primary drivers for this week's surge include:

1. Recent Economic Indicators: Recent positive economic data has reinforced the market's confidence in a sustained economic recovery, boosting industrial demand for silver.
2. Strong Industrial Demand: The ongoing demand from the electronics and renewable energy sectors continues to drive the price of silver. The recent surge is a reflection of this sustained industrial demand.
3. Supply Chain Challenges: Continued supply chain disruptions, including transportation delays and mining challenges, have exacerbated supply issues, contributing to the 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 silver due to the uptrend since September 2022. 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 silver market remains volatile, the overall upward trajectory provides opportunities for trend followers. Staying vigilant and adaptable is crucial, as external factors such as economic indicators and supply chain disruptions continue to influence price movements.

Copper Prices Surge by 6.3%

Copper prices surged by 6.3% this week, driven by strong industrial demand and positive economic indicators. This increase underscores copper's critical role in various industrial applications and its sensitivity to global economic health. The move aligns with the uptrend that has been in place since October 2023, although the market has experienced significant volatility. While medium to long-term trend followers view this as a positive sign, short-term trend followers may find the volatility challenging for their models.

Reasons for the Uptrend Since October 2023:

1. Infrastructure Development: The global push for infrastructure development, particularly in emerging markets, has driven consistent demand for copper. Projects in sectors like construction, telecommunications, and renewable energy have significantly boosted copper consumption.
2. Electric Vehicle (EV) Revolution: The ongoing transition to electric vehicles has increased copper demand, as EVs use substantially more copper than traditional internal combustion engine vehicles.
3. Economic Recovery: Positive economic data from major economies, including the US and China, has fuelled investor confidence. Economic recovery has spurred industrial production, increasing the demand for copper.
4. Supply Constraints: Supply disruptions due to labour strikes, geopolitical tensions, and logistical issues have also supported the uptrend by tightening global copper supplies.

This Week's Price Surge Within the Existing Uptrend:

This week's 6.3% surge in copper prices is a significant movement within the overall uptrend observed since October 2023. The primary drivers for this week's surge include:

1. Robust Industrial Demand: Continuous demand from the construction and technology sectors has bolstered copper prices. The increased focus on renewable energy projects, including wind and solar power, has further driven demand.
2. Economic Indicators: Recent economic data indicating strong manufacturing and industrial output has reinforced the positive sentiment in the copper market.
3. Supply Chain Challenges: Ongoing disruptions in major copper-producing countries like Chile and Peru, due to labour strikes and political unrest, have tightened supply, pushing prices higher.

Reception by Trend Followers:

1. Medium to Long-Term Trend Followers: Medium to Long-term trend followers, who typically focus on sustained market movements, would view the recent surge as a confirmation of the ongoing uptrend. The consistent demand and supply constraints support the positive long-term outlook.
2. Short-Term Trend Followers: The significant volatility in the copper market poses challenges for short-term trend followers. The sharp price movements can disrupt models and strategies that rely on more stable trends, making it difficult to capitalize on short-term opportunities.
3. Market Volatility: The inherent volatility in the copper market, influenced by external factors such as geopolitical events and supply disruptions, requires trend followers to remain adaptable. Continuous monitoring of market conditions and adjusting strategies accordingly is crucial.

Palladium Prices Surge by 5.89%

Palladium prices surged by 5.89% this week, driven by robust industrial demand and supply constraints. This increase comes against the backdrop of a strong and consistent downward trend since its high in March 2022. While this surge provides a temporary respite, it presents challenges for trend followers who have been navigating the prolonged bearish market.

Reasons for the Downtrend Since March 2022:

1. Reduced Automotive Demand: Palladium is a crucial component in catalytic converters for vehicles. The transition to electric vehicles, which do not use catalytic converters, and a slowdown in traditional automotive production have significantly reduced palladium demand.
2. Economic Slowdown: The global economic slowdown, exacerbated by the COVID-19 pandemic and subsequent supply chain disruptions, has decreased industrial activity, further reducing demand for palladium.
3. Increased Supply: Despite occasional disruptions, overall palladium production levels from major producers such as Russia and South Africa have remained relatively high, contributing to a surplus in the market and driving prices down.

This Week's Price Surge Against the Overall Downward Trend:

This week's 5.89% surge in palladium prices is a notable deviation from the long-term downward trend observed since March 2022. The primary drivers for this surge include:

1. Supply Constraints: Recent geopolitical tensions and operational challenges in major producing regions have tightened palladium supply. Issues such as labour strikes in South Africa and sanctions on Russian exports have temporarily reduced availability, leading to a price spike.
2. Industrial Demand: Despite the long-term trend, there remains strong industrial demand for palladium, particularly in the automotive sector for traditional internal combustion engine vehicles and hybrid models. The economic recovery has spurred manufacturing activities, increasing the short-term demand for palladium.
3. Market Speculation: The sudden price surge could also be attributed to market speculation and short covering. Traders who had short positions on palladium may have rushed to cover their positions in response to the supply disruptions, driving prices higher temporarily.

Reception by Trend Followers:

1. Caught Off Guard: Trend followers, who typically capitalize on long-term market movements, would likely have been short on palladium due to the prolonged downtrend since March 2022. The sudden price surge would have caught many off guard, potentially leading to losses on their short positions.
2. Reassessment of Positions: The unexpected price movement might prompt trend followers to reassess their positions. While the long-term trend remains bearish, the recent surge could indicate a temporary reversal, or a corrective move driven by short-term supply constraints and heightened demand.
3. Market Volatility: This week's move underscores the inherent volatility in commodity markets, where external factors such as geopolitical events and supply chain issues can cause significant price swings. Trend followers need to stay vigilant and adaptable, monitoring these developments closely to adjust their strategies accordingly.

Canola Prices Surge by 5.2%

Canola prices surged by 5.2% this week, driven by supply constraints and renewed demand. This increase stands in contrast to the long-term bearish trend that has been evident since its peak in May 2022. While this surge offers a short-term reprieve, it is not sufficient to suggest that the long-term downtrend is over, presenting a mixed outlook for trend followers.

Reasons for the Downtrend Since May 2022:

1. Increased Global Supply: Favourable weather conditions in key canola-producing regions, particularly in Canada, have led to high yields and increased production. The abundant supply has exerted downward pressure on prices as the market struggles to absorb the excess production.
2. Weak Export Demand: The demand for canola in the international market has been weaker than expected. Major importers, including China, have reduced their purchases due to geopolitical tensions and trade policies. This reduced demand has contributed to the oversupply and declining prices.
3. Economic Factors: Global economic conditions, including lower biodiesel production due to fluctuating crude oil prices, have also impacted canola demand. Canola is a primary feedstock for biodiesel, and reduced production has led to lower demand for canola oil, further depressing prices.

This Week's Price Surge Against the Overall Downward Trend:

This week's 5.2% surge in canola prices is a notable deviation from the overall downward trend observed since May 2022. The primary drivers for this surge include:

1. Supply Constraints: Recent adverse weather conditions and logistical challenges have temporarily reduced the supply of canola. Issues such as droughts in major producing regions have tightened the market, leading to a price increase.
2. Renewed Demand: There has been a resurgence in demand for canola, particularly from the food processing industry. The increased usage of canola oil in cooking and food products has boosted demand.
3. Market Speculation: The sudden price surge could also be attributed to market speculation and short covering. Traders who had short positions on canola may have rushed to cover their positions in response to the supply disruptions, driving prices higher temporarily.

Reception by Trend Followers:

1. Caught Off Guard: Trend followers, who typically capitalize on long-term market movements, would likely have been short on canola due to the prolonged downtrend since May 2022. The sudden price surge would have caught many off guard, potentially leading to losses on their short positions.
2. Reassessment of Positions: The unexpected price movement might prompt trend followers to reassess their positions. While the long-term trend remains bearish, the recent surge could indicate a temporary reversal, or a corrective move driven by short-term supply constraints and renewed demand.
3. Market Volatility: This week's move underscores the inherent volatility in commodity markets, where external factors such as weather conditions and logistical issues can cause significant price swings. Trend followers need to stay vigilant and adaptable, monitoring these developments closely to adjust their strategies accordingly.

What’s Moving Down

Natural Gas Prices Decline by 10.42%

Natural gas prices sharply declined by 10.42% this week, driven by a combination of mild weather conditions, higher inventory levels, and weaker demand. This significant move is seen more as a reversion to the mean rather than a strong short trending signal, as natural gas has been in a protracted congestion phase since April 2023. Trend followers are likely observing this move from the sidelines, waiting for a clearer breakout or breakdown before committing to positions.

Reasons for the Congestion Phase Since April 2023:

1. Balanced Supply and Demand: The natural gas market has seen relatively balanced supply and demand dynamics. Increased production, particularly from the U.S. shale fields, has met steady demand from industrial, residential, and power generation sectors, leading to a lack of significant directional movement.
2. Geopolitical Stability: Unlike previous years where geopolitical tensions and supply disruptions significantly impacted prices, the past year has seen relatively stable geopolitical conditions affecting natural gas supply routes. This stability has contributed to the absence of dramatic price movements.
3. Seasonal Factors: Seasonal variations in demand, particularly for heating and cooling, have been predictable and well-anticipated by the market. These expected variations have resulted in minor fluctuations rather than establishing a clear trend.

This Week's Price Decline Within the Congestion Phase:

This week's 10.42% decline in natural gas prices is viewed as a reversion to the mean within the ongoing congestion phase. The primary drivers for this week's decline include:

1. Mild Weather Conditions: Unseasonably mild weather has reduced the demand for natural gas used in heating, leading to a surplus in supply and a subsequent drop in prices.
2. Higher Inventory Levels: Higher-than-expected inventory levels reported by the U.S. Energy Information Administration (EIA) have also exerted downward pressure on prices. The increased storage levels indicate ample supply, which can drive prices down in the short term.
3. Weaker Demand: Reduced industrial activity and power generation demand have contributed to the decline in natural gas prices. Economic slowdowns and fluctuations in energy consumption patterns have impacted demand.

Reception by Trend Followers:

1. Reversion to the Mean: Trend followers, who typically seek to capitalize on sustained market movements, are likely to view this week's sharp decline as a reversion to the mean within the congestion phase. The lack of a clear directional trend makes it difficult to justify entering new positions based on this move alone.
2. Watching for Breakout or Breakdown: Given the prolonged congestion phase since April 2023, trend followers are likely waiting for a clearer signal of either a breakout or a breakdown before committing to significant positions. This week's price move is unlikely to trigger substantial trading activity among trend followers.
3. Market Volatility: The inherent volatility in the natural gas market, influenced by factors such as weather conditions and inventory levels, requires trend followers to remain adaptable. Continuous monitoring of market conditions and adjusting strategies accordingly is crucial.

Rough Rice Prices Decline by 5.1%

Rough rice prices declined by 5.1% this week, indicating a clear breakdown to the short side. This move marks the end of the bullish trend that had been evident since mid-2023 and the onset of a strong short selling phase. Trend followers are likely viewing this short phase positively and are aggressively entering or adding to their short positions.

Reasons for the Bullish Trend Since Mid-2023:

1. Supply Constraints: Adverse weather conditions and production issues in key rice-producing regions had led to supply constraints. These supply-side challenges supported higher prices throughout the bullish phase.
2. Increased Global Demand: Strong demand from major importers, including countries in Asia and Africa, drove up prices. The increased consumption, particularly for food security purposes, sustained the bullish trend.
3. Geopolitical Factors: Trade policies and export restrictions from major rice-producing countries, like India, contributed to tighter global supply, further supporting the upward price movement.

This Week's Price Decline Indicating a Breakdown:

This week's 5.1% decline in rough rice prices signals a clear breakdown from the previous bullish trend. The primary drivers for this week's decline include:

1. Improved Weather Conditions: Recent favourable weather in major rice-producing regions has led to better crop prospects, alleviating some of the previous supply constraints. Improved yields and higher production forecasts have increased supply.
2. Decreased Demand: Reduced buying interest from major importers due to sufficient stockpiles and changes in consumption patterns has weakened demand, contributing to the price decline.
3. Market Realignment: The market is adjusting to the new supply-demand dynamics, leading to a realignment of positions. Traders are now anticipating a more balanced market, which has led to the downward price movement.

Reception by Trend Followers:

1. Positive Short Phase: Trend followers, who capitalize on sustained market movements, are likely viewing this week's sharp decline as the beginning of a strong short selling phase. The breakdown from the previous bullish trend provides a clear signal for entering or adding to short positions.
2. Aggressive Positioning: Given the clear indication of a breakdown, trend followers are expected to aggressively enter or increase their short positions in rough rice. The current market dynamics suggest a favourable environment for short selling.
3. Market Volatility: While the breakdown presents opportunities, the inherent volatility in the rough rice market requires trend followers to remain vigilant. Continuous monitoring of supply and demand factors, as well as external influences like weather and trade policies, will be crucial for managing positions effectively.

VIX Declines by 4.8%

The VIX index, commonly known as the "fear gauge" for the equity market, declined by 4.8% this week. This decline brings the VIX closer to its historic lows, a level not seen since its peak in March 2020 during the COVID-19 pandemic. The US equity markets have been progressively inching upwards under this very low volatility environment. While the VIX is more of a fear gauge than a trending instrument, some trend followers do trade it. The current low levels indicate a sustained period of market calm and investor confidence.

Reasons for the Peak in March 2020 and Subsequent Decline:

1. COVID-19 Pandemic: The peak in March 2020 was driven by the unprecedented market volatility and uncertainty caused by the global COVID-19 pandemic. Widespread lockdowns, economic shutdowns, and fear of the unknown led to a significant spike in the VIX.
2. Economic Recovery: As global economies gradually recovered from the pandemic, extensive fiscal and monetary policy measures from governments and central banks worldwide helped stabilize markets, leading to a steady decline in the VIX.
3. Increased Market Confidence: Strong corporate earnings, robust economic data, and accommodative monetary policies have contributed to increased market confidence, reducing the perceived risk and volatility in equity markets.

This Week's Decline Within the Current Low Volatility Environment:

This week's 4.8% decline in the VIX further solidifies its position near historic lows. The primary drivers for this week's decline include:

1. Stable Equity Markets: US equity markets have been experiencing a steady upward trend, driven by positive economic indicators and strong corporate earnings. This stability reduces the need for protective hedging, which in turn lowers the VIX.
2. Calm Market Conditions: The absence of major economic shocks or geopolitical events during the week has contributed to a calmer market environment, further reducing volatility expectations.
3. Investor Confidence: Continued investor confidence, fuelled by positive economic data and ongoing support from central banks, has kept volatility low. This confidence is reflected in the reduced demand for options and other hedging instruments that typically drive the VIX higher.

Reception by Trend Followers:

1. Low Volatility Challenges: While some trend followers do trade the VIX, its current low levels present challenges. Low volatility environments make it difficult to find strong trends and profitable trading opportunities based on volatility spikes.
2. Focus on Equity Markets: The declining VIX is a positive sign for equity markets, indicating a stable and upward-trending environment. Trend followers are likely to be benefiting from long Equity positions benefiting from the steady and slowly rising market conditions.
3. Monitoring for Breakouts: Trend followers who trade the VIX will continue to monitor for any potential breakouts or shifts in volatility. While the current environment is calm, external factors such as unexpected economic data or geopolitical events could quickly change market dynamics.

Cotton Prices Decline by 2.19%

Cotton prices declined by 2.19% this week, reinforcing the bearish trend that has been in place since its most recent high in March 2024 and, for some long-term trend followers, since May 2022. This decline is a positive sign for trend followers who have maintained short positions, as the market continues to move in their favour.

Reasons for the Bearish Trend Since May 2022:

1. Increased Global Supply: Favourable weather conditions and technological advancements in major cotton-producing regions, such as the United States, India, and China, have led to increased yields and a surplus in global cotton supply. This oversupply has exerted downward pressure on prices.
2. Weak Demand: The demand for cotton has been impacted by several factors, including a slowdown in the global textile and apparel industry. Economic uncertainties and changing consumer behaviour, such as a shift towards synthetic fibres, have further weakened demand.
3. Economic Slowdown: Global economic slowdowns, particularly in key cotton-consuming countries, have reduced industrial activity and consumer spending, leading to lower demand for cotton products.

This Week's Price Decline Reinforcing the Bearish Trend:

This week's 2.19% decline in cotton prices aligns with the ongoing bearish trend observed since May 2022. The primary drivers for this week's decline include:

1. Continued Supply Surplus: The global cotton market remains oversupplied, with recent reports indicating higher-than-expected production levels. This surplus has continued to weigh on prices.
2. Weak Export Demand: Major importing countries have reduced their purchases due to sufficient stockpiles and economic challenges. The decrease in export demand has contributed to the price decline.
3. Market Sentiment: The overall market sentiment remains bearish, with traders and investors anticipating further declines in cotton prices due to the ongoing supply-demand imbalance.

Reception by Trend Followers:

1. Positive Sign for Short Positions: Trend followers who have been short on cotton since its recent high in March 2024, or for some, since May 2022, view this week's decline as a positive sign. The continuation of the bearish trend validates 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 for Further Declines: 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.

Russell 2000 Index Declines by 1.2%

The Russell 2000 Index declined by 1.2% this week, reflecting a small but notable move within its ongoing congestion phase. Since April 2024, the index has been oscillating within a relatively narrow range, lacking a clear directional trend. This week's decline is not conclusive and indicates that trend followers are likely watching for signs of a possible breakdown or breakout before committing to this asset. The Russell 2000 Index is particularly important as it is less affected by the heavily capitalized top stocks of the S&P 500 and other US equity indices, making it a more representative gauge of the overall state of the economy.

Reasons for the Congestion Phase Since April 2024:

1. Mixed Economic Indicators: The U.S. economy has been presenting mixed signals, with some sectors showing strength while others lag. This inconsistency has kept the Russell 2000 in a state of uncertainty, preventing a clear trend from forming.
2. Market Sentiment: Investor sentiment has been cautious, influenced by concerns over inflation, interest rate hikes, and geopolitical tensions. This cautiousness has led to a lack of strong buying or selling pressure, maintaining the index in a congestion phase.
3. Earnings Variability: Small-cap companies, which make up the Russell 2000, have exhibited variable earnings performances. This variability has contributed to the sideways movement of the index, as investors react differently to each earnings report.

This Week's Price Decline Within the Congestion Phase:

This week's 1.2% decline in the Russell 2000 is a minor move and does not provide a clear signal for trend followers. The primary drivers for this week's decline include:

1. Economic Uncertainty: Continued economic uncertainty, including concerns about future growth prospects and potential interest rate hikes, has weighed on the index.
2. Investor Caution: Investors remain cautious, avoiding large commitments to small-cap stocks amid the lack of clear economic direction. This caution has kept the index within its congestion phase.
3. Market Reactions: The index's movement reflects general market reactions to a mix of positive and negative news, resulting in a minor decline.

Reception by Trend Followers:

1. Waiting for Clarity: Trend followers are likely to view this week's minor decline as part of the ongoing congestion phase. The lack of a decisive move means they will continue to watch the index closely for any signs of a breakout or breakdown.
2. No Significant Commitment: Given the current market conditions, trend followers are unlikely to commit to significant positions in the Russell 2000. They prefer to wait for a clearer directional signal before entering trades.
3. Monitoring Market Conditions: Trend followers will monitor economic indicators, earnings reports, and market sentiment closely. Any strong signals of a breakout or breakdown will likely prompt action, but until then, they remain on the sidelines.

Conclusion

This week's report continues to highlight the ever-changing and complex nature of the futures markets. From soybean oil's unexpected surge to silver and copper's robust climbs, the landscape offers both exhilarating opportunities and formidable challenges.

The Trend Barometer's climb from a dismal 20 to a hopeful 34 signals potential smoother sailing ahead, much to the delight of trend followers who were adrift in June's doldrums. The SG Trend Index's boost of 1.06% as of July 4th, now standing at an impressive year-to-date performance of 9.84%, is a testament to the rewarding nature of perseverance and strategic patience.

This week, we've witnessed the unique phenomenon of across-the-board positive movements in all asset classes, from bonds to grains, indicating a rare, synchronized optimism. However, the sharp declines in natural gas and rough rice serve as a stark reminder of the market's inherent volatility. For those riding these waves, adaptability remains the name of the game.

The intricate dance of market forces was evident in this week's price surges and declines, from soybean oil's supply-driven leap catching many by surprise, to palladium's brief rally amidst a long-term bearish trend. These movements underscore the importance of continuous market analysis and the ability to swiftly adjust strategies.

As we prepare for the weeks ahead, it's clear that staying informed and strategically agile is more crucial than ever. The diverse dynamics across different asset classes, like the bullish Nikkei 225 and the plummeting VIX, highlight the need for a keen eye on both the broader market trends and the specific nuances within each sector.

So, steer your course wisely, fill those sails, and keep a sharp lookout 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 and a touch of humour. After all, in this ever-changing sea, a little laughter can be the best compass.

List of Resources used in the Week in Review

Important Disclaimers

This document is directly solely to Accredited Investors, Qualified Eligible Participants, Qualified Clients and Qualified Purchasers. No investment decision should be made until prospective investors have read the detailed information in the fund offering documents of any manager mentioned in this document. This document is furnished on a confidential basis only for the use of the recipient and only for discussion purposes and is subject to amendment This document is neither advice nor a recommendation to enter into any transaction. This document is not an offer to buy or sell, nor a solicitation of an offer to buy or sell, any security or other financial instrument. This presentation is based on information obtained from sources that TopTradersUnplugged (“TTU”) (“considers to be reliable however, TTU makes no representation as to, and accepts no responsibility or liability for, the accuracy or completeness of the information. TTU has not independently verified third party manager or benchmark information, does not represent it as accurate, true or complete, makes no warranty, express or implied regarding it and shall not be liable for any losses, damages, costs or expenses relating to its adequacy, accuracy, truth, completeness or use.

All projections, valuations, and statistical analyses are provided to assist the recipient in the evaluation of the matters described herein. Such projections, valuations and analyses may be based on subjective assessments and assumptions and may use one among many alternative methodologies that produce different results accordingly, such projections, valuations and statistical analyses should not be viewed as facts and should not be relied upon as an accurate prediction of future events. There is no guarantee that any targeted performance will be achieved Commodity trading involves substantial risk of loss and may not be suitable for everyone

TTU is not and does not purport to be an advisor as to legal, taxation, accounting, financial or regulatory matters in any jurisdiction. The recipient should independently evaluate and judge the matters referred to herein. TTU does not provide advice or recommendations regarding an investor’s decision to allocate to funds or accounts managed by any manager (“or to maintain or sell investments in funds or accounts managed by any manager, and no fiduciary relationship under ERISA is created by the investor investing in funds or accounts managed by any manager, or through any communication between TTU and the investor

In reviewing this document, it should be understood that the past performance results of any asset class, or any investment or trading program set forth herein, are not necessarily indicative of any future results that may be achieved in connection with any transaction. Any persons subscribing for an investment must be able to bear the risks involved and must meet the suitability requirements relating to such investment. Some or all alternative investment programs discussed herein may not be suitable for certain investors This document is directed only to persons having professional experience in matters relating to investments. Any investment or investment activity to which this document relates is available only to such investment professionals. Persons who do not have professional experience in matters relating to investments should not rely upon this document.

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.