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Trend Following - Week in Review - June 14, 2024

Trend Following - Week in Review - June 14, 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.

A Tough Week for Trend Followers

Trend Barometer

This week, the Trend Barometer dipped significantly from 41 to 30, indicating weak market conditions. This reflects a substantial decline in market trendiness, signalling a challenging environment for trend followers. The 10-day rate of change is falling moderately, highlighting the increasing difficulty in finding consistent trends to capitalize on.

So far this month, the SG Trend Index has decreased by -3.05% (as of Thusday), bringing the year-to-date gain down to 8.27%. This decline highlights the challenging period currently faced by many trend followers.

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

Source: Finwiz.com

This week saw notable fluctuations across various asset classes, driven by a mix of supply factors, economic indicators, and shifting market sentiment. Overall, the market landscape was shaped by continued concerns over inflation, interest rate hikes, and geopolitical tensions.

In the energy sector, heating oil prices surged by 5.19%, marking the most significant positive shift. This increase was largely driven by forecasts of hotter-than-normal temperatures, boosting demand, alongside concerns about supply constraints due to geopolitical factors. The rise in heating oil prices exemplifies the impact of weather and geopolitical events on energy markets.

Metals faced a downturn, with palladium prices dropping by -3.1%. This decline was influenced by reduced industrial demand and a stronger US dollar, which makes metals more expensive for international buyers. The industrial sector's reduced activity and currency fluctuations have put pressure on metal prices, reflecting broader economic trends.

Soft commodities remained relatively stable, experiencing a minor decline of -0.03%. Improved weather conditions in key growing regions have led to better-than-expected crop yields, stabilizing prices. This highlights how agricultural markets are sensitive to changes in weather patterns and crop forecasts.

Bond prices rose by 1.24%, reflecting market adjustments in response to changing interest rate expectations and economic data. The anticipation of continued monetary tightening by central banks has kept bond yields elevated, as investors seek safe-haven assets amidst equity market volatility.

Equity indices saw a decrease of -0.61%, influenced by mixed economic data and earnings reports. Ongoing macroeconomic concerns such as inflation and potential interest rate hikes have kept investor sentiment cautious, leading to reduced equity market performance.

Currency markets showed a minor increase of 0.05%, with the US dollar strengthening against other major currencies. This strength is due to expectations of continued interest rate hikes by the Federal Reserve, which bolsters the dollar while weighing on other currencies.

Overall, this week's market movements were shaped by a complex interplay of weather conditions, economic policies, and geopolitical events. Energy prices were notably influenced by weather forecasts, while metals and equities were impacted by industrial demand and economic data as well as political uncertainty in Europe. The bond and currency markets reflected investor responses to anticipated monetary policy changes, underscoring the diverse drivers of market trends this week.

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

Heating Oil: Heating oil prices surged by 5.19% this week, driven primarily by forecasts of higher demand due to hotter-than-normal temperatures. During periods of extreme heat, the demand for electricity to power air conditioning units rises sharply. Since a significant portion of electricity generation, particularly in the United States, relies on natural gas, this increased demand can affect other fuel markets, including heating oil. Additionally, high temperatures can increase evaporation rates of stored crude oil, thereby tightening supply and pushing prices upward​​.

On the geopolitical front, several factors have also contributed to the rise in heating oil prices. Geopolitical tensions in key oil-producing regions can disrupt supply chains and create uncertainties in the market. Instability in areas like the Middle East or major oil-producing countries can lead to fears of supply shortages, prompting traders to drive prices up. Recent geopolitical developments, such as renewed tensions in the Middle East or production cuts by OPEC, have further contributed to reduced supply and increased price.

This upward movement would likely be unfavourable for trend followers, who are probably holding short positions on this asset given the ongoing downtrend that has persisted since mid-2022.

Source: Finwiz.com

Cocoa prices once again have surged by 5.09% over the week driven by ongoing supply disruptions in major producing regions like West Africa. Political instability, unfavourable weather conditions, and logistical challenges have constrained supply, pushing prices higher. This trend has benefited trend followers with wider stops, while challenging the strategies of shorter-term trend followers. The key question is whether cocoa prices will rebound to their previous high from late April 2024.

This resurgence in prices may benefit some trend-following strategies that do not adjust positions based on increased volatility. However, many trend followers are likely reducing their exposure to cocoa due to the heightened volatility.

Source: Finwiz.com

Crude Oil (WTI) prices rose by 4.47% this week, supported by a tighter supply outlook and robust demand expectations. The supply outlook has been constrained by recent production cuts from OPEC+, which are expected to lead to global stock drawdowns of about 810,000 barrels per day through the end of 2024. These cuts aim to balance the market amidst fluctuating demand, reducing overall supply and thereby pushing prices upward.

In addition to the supply constraints, the demand for WTI crude has remained strong. The ongoing economic recovery and increased industrial activity have bolstered demand for crude oil. Moreover, seasonal factors such as the summer driving season in the United States have contributed to higher demand for gasoline, further supporting crude oil prices.

Geopolitical factors also play a crucial role. Recent geopolitical tensions in key oil-producing regions, such as the Middle East, have heightened concerns over potential supply disruptions. Such tensions create uncertainties in the market, often leading to speculative trading that drives prices higher.

Overall, the interplay of tighter supply due to OPEC+ cuts, strong demand from economic activities, and geopolitical uncertainties have collectively supported the rise in WTI crude oil prices this week​.

Despite the upward movement, trend followers are unlikely to interpret this as a bullish signal. The recent price action has been stuck in a congestion phase since early 2023, with no clear indications that the asset is starting a new trending phase.

Source: Finwiz.com

Ethanol prices climbed by 4.42% this week, driven by strong demand for ethanol-blended fuels and concerns over crop conditions. The demand for ethanol is primarily influenced by its use in ethanol-blended fuels, such as E10 and E15, which are common in many regions due to mandates and incentives for renewable energy use. The increase in ethanol prices reflects heightened demand for these blends, particularly as the summer driving season leads to higher gasoline consumption.

Additionally, concerns over crop conditions, particularly for corn, which is a primary feedstock for ethanol production, have also influenced prices. Adverse weather conditions and delayed planting seasons can lead to lower crop yields, tightening the supply of corn and, consequently, ethanol. This supply concern is compounded by logistical issues and delays in shipments, further straining the ethanol market.

The ethanol market is also looking forward to potential policy support from the federal government, which could further spur demand. The Environmental Protection Agency (EPA) is expected to issue a final rule allowing the year-round sale of E15, a gasoline blend containing up to 15% ethanol, in several states. This policy change, if implemented, would likely boost ethanol consumption and support higher prices​.

Overall, the combination of strong demand for ethanol-blended fuels, crop condition concerns, and potential policy changes are driving the recent increase in ethanol prices.

Despite this favourable upward movement, it is unlikely that trend followers would have benefited from it. Medium to long-term trend followers are most likely short on this asset due to the ongoing downtrend in place.

Source: Finwiz.com

Crude Oil (Brent) prices rose by 3.83% this week, reflecting similar supply and demand dynamics to WTI crude oil. This increase can be attributed to several key factors.

Firstly, recent production cuts by OPEC+ have significantly tightened the supply outlook. In June 2023, OPEC members agreed to extend production cuts through the end of 2024. Additionally, Saudi Arabia announced a voluntary oil production cut of 1 million barrels per day for July and August 2023. These measures are intended to balance the market amidst fluctuating demand, reducing overall supply and thereby supporting higher prices​.

Secondly, robust demand expectations have played a critical role. As the global economy continues to recover, industrial activity has increased, bolstering the demand for crude oil. Seasonal factors, such as the summer driving season, have also contributed to higher demand for gasoline, further supporting crude oil prices​.

Moreover, geopolitical factors have influenced the market. Heightened geopolitical tensions in key oil-producing regions, particularly in the Middle East, have raised concerns over potential supply disruptions. These uncertainties often lead to speculative trading, which can drive prices higher.

Similar to WTI Crude, despite the upward movement in Brent, trend followers are unlikely to view this as a bullish signal. The recent price action has been stuck in a congestion phase since early 2023, with no clear indications that the asset is entering a new trending phase.

Source: Finwiz.com

What’s Moving Down

Oats prices fell sharply by 5.98% this week, driven by improved crop conditions and increased supply expectations. Favourable weather has led to better-than-expected crop yields, resulting in an abundant supply that has alleviated concerns about shortages and put downward pressure on prices. Additionally, the easing of previous supply chain constraints has further boosted supply levels, contributing to the price decline.

This downward move suggests the possible continuation of a short trend that has been ongoing since early 2022. It may be signalling short breakout entries for trend followers seeking to exploit this continuation of the downward trend in Oats.

Source: Finwiz.com

The Euro Stoxx 50 index declined by 4.23% this week, influenced by mixed economic data and heightened investor caution within the Eurozone, following the European elections. Recent data reflecting slow economic growth and persistent inflation concerns have weighed heavily on market sentiment. Additionally, uncertainties surrounding potential interest rate hikes by the European Central Bank (ECB) have further dampened investor confidence.

The decline in the index was also affected by sector-specific downturns, particularly in financial services and industrial goods, which have faced significant pressure. The overall market volatility has been exacerbated by geopolitical tensions and the ongoing economic repercussions of supply chain disruptions. These factors have collectively contributed to a cautious investment environment, prompting a sell-off in the Euro Stoxx 50​.

This sharp retracement would likely be viewed unfavourably by trend followers, who were probably long on this asset given the recent upward price action. The sudden decline disrupts the anticipated trend, potentially triggering stop-losses and leading to reassessment of positions.

Source: Finwiz.com

Canola prices dropped by 3.57% this week, driven by favourable weather conditions and higher supply forecasts. Improved weather across major canola-growing regions has led to better-than-expected crop yields, significantly increasing supply. This has alleviated previous concerns about shortages, thereby exerting downward pressure on prices.

The decline in canola prices can also be attributed to the second-highest global production levels ever recorded, despite some production challenges in key exporting countries. For instance, Australia is expected to see a more than 30% drop in canola production compared to last year’s strong crop. However, this is offset by anticipated increases in production in Canada and Ukraine. Canada's canola crop is projected to rebound if weather conditions improve, while Ukraine is expected to produce a record crop due to an expanded planting area, despite ongoing geopolitical challenges.

This favourable weather and increased production are likely contributing to the strong supply forecasts, further driving down prices. The overall market outlook suggests that while vegetable oil demand remains robust globally, especially driven by biofuel usage, the substantial supply from increased production may continue to weigh on canola prices in the near term.

This price decline in canola is likely to benefit medium to long-term trend followers who have been short on this trend since its peak in mid-2022.

Source: Finwiz.com

Lumber prices decreased by 3.22% this week, reflecting a combination of reduced demand in the housing market and improved supply conditions. The housing market has seen a slowdown due to higher mortgage rates and broader economic uncertainties, which has led to decreased demand for new construction and, consequently, lumber. Additionally, improved supply conditions have contributed to the price decline. Increased lumber production and better management of supply chains have alleviated some of the shortages that previously drove prices up. These factors combined have led to a significant drop in lumber prices.

Trend followers are likely benefiting from this week's price movement, as their models are probably signalling short positions based on the price action observed since April 2024. The consistent downward trend in prices since April has provided clear signals for trend-following strategies to initiate or maintain short positions.

Source: Finwiz.com

Palladium prices fell by 3.1% this week, impacted by reduced industrial demand and a stronger US dollar. The shift towards electric vehicles (EVs) has significantly reduced the demand for palladium, which is primarily used in catalytic converters for internal combustion engines. As more consumers and manufacturers move towards EVs, the demand for palladium has decreased. Additionally, the stronger US dollar makes palladium more expensive for holders of other currencies, further reducing demand. Market analysts also point to technical factors and speculative trading as contributors to the recent price decline. The ongoing geopolitical tensions and sanctions on Russia, a major producer of palladium, have added to market volatility, but the overall trend remains downward due to these broader shifts in demand​.

The sustained short trend that has been evident since early 2022 continues to offer an excellent, well-behaved short opportunity for medium to long-term trend followers. This consistent downtrend provides a clear and predictable pattern, making it easier for trend-following strategies to capitalize on the decline.

Source: Finwiz.com


This week has presented a complex and challenging environment for trend followers, marked by significant fluctuations across various asset classes. The substantial dip in the Trend Barometer from 41 to 30 underscores the weakening market conditions and the difficulties in identifying consistent trends.

The energy sector saw notable gains, particularly in heating oil, driven by weather forecasts and geopolitical tensions. However, these gains have been unfavourable for trend followers holding short positions. Similarly, while cocoa and crude oil prices rose, the associated volatility and congestion phases have posed challenges for many trend-following strategies.

In contrast, the declines in oats, canola, lumber, and palladium prices have offered opportunities for trend followers who have been positioned short. These sustained downtrends have provided clear signals, allowing for strategic short positions that align with ongoing market movements.

The mixed performance across asset classes, influenced by a blend of supply dynamics, economic indicators, and geopolitical events, highlights the intricate and multifaceted nature of the current market landscape. As trend followers navigate this environment, the ability to adapt and respond to these diverse drivers will be crucial in capitalizing on emerging opportunities and mitigating risks.

As we move forward, it remains essential to stay informed and agile, leveraging detailed market insights and robust trend-following strategies to navigate the evolving market conditions effectively. Stay tuned for next week's update as we continue to track and analyse the key trends shaping the futures markets.

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List of Resources used in the Week in Review

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