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Trend Following - Week in Review - June 28, 2024

Trend Following - Week in Review - June 28, 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 Drought Continues for Trend Followers

Trend Barometer

This week, the Trend Barometer dipped further into an unfavourable environment for trend followers, dropping from 23 to 20. Such low levels in the Barometer indicate a particularly challenging and lacklustre environment for trend following. The 10-day rate of change is falling weakly, reflecting the overall poor conditions for trend following this month and the increasing difficulty in finding consistent trends to capitalize on.

So far this month, the SG Trend Index has decreased by -2.93% (as of Thursday), bringing the year-to-date gain down to 8.41%. This decline underscores the challenging period currently faced by many trend followers, as reflected by the Trend Barometer.

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 featured significant variations across asset classes, propelled by a combination of supply dynamics, economic reports, and evolving market sentiment. The overall market landscape was shaped by persistent inflation concerns, anticipated interest rate adjustments, and ongoing geopolitical tensions.

  • Bonds experienced a decline of -0.83%, reflecting market reactions 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.
  • Energy sector prices decreased by -0.62%, driven by fluctuations in supply and demand dynamics. The recent movements in oil prices have been influenced by geopolitical tensions and production adjustments by major oil-exporting countries.
  • Metals saw a slight increase of 0.32%, with palladium and silver leading the gains. Strong industrial demand, particularly from the automotive sector, and supply constraints have supported prices in this sector.
  • Soft Commodities experienced a notable decline of -1.13%, led by significant drops in cocoa and corn prices. Improved weather conditions and increased supply expectations have been key factors in these movements.
  • Indices posted a modest increase of 0.19%, influenced by varied economic data and earnings reports. Persistent macroeconomic concerns, such as inflation and potential interest rate hikes, have maintained cautious investor sentiment.
  • Currency Markets showed a minor decrease of -0.16%, with the US dollar weakening against other major currencies. This decline is attributed to fluctuations in interest rate expectations and economic policy signals from the Federal Reserve.

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

Sugar prices surged by 6% this week, largely driven by supply constraints and strong global demand. This increase reflects ongoing challenges in meeting global sugar demand due to adverse weather conditions in key producing regions and logistic disruptions.

While the long-term trend for sugar has been bearish since November 2023 due to various economic and supply chain factors, this week's price surge highlights the complex dynamics of the sugar 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 November 2023:

  1. Increased Supply Earlier in the Year: Leading up to November 2023, favourable weather conditions and improved yields in major sugar-producing regions led to a temporary surplus in sugar supply. This increased availability of sugar in the market contributed to a decline in prices as supply outpaced demand​.
  2. Export Policies: Countries like India implemented measures to boost domestic supplies by limiting exports. While this initially led to a build-up in global stockpiles, the subsequent adverse weather conditions reduced the production capabilities, affecting the market later​.
  3. Economic Factors: Global economic slowdowns and fluctuations in demand impacted sugar prices. During periods of economic uncertainty, reduced industrial use of sugar in food and beverage manufacturing contributed to the downward pressure on prices​.

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

This week's 6% surge in sugar prices is a notable deviation from the overall downward trend observed since November 2023. The primary drivers for this surge include:

  1. Recent Adverse Weather: Recent droughts and unfavourable weather conditions in key producing regions like India and Thailand 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 sugar remains strong, particularly in emerging markets and industrial applications. 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 sugar due to the prolonged downtrend since November 2023. 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.
Source: Finwiz.com

Palladium saw a significant increase of 5.45%, primarily driven by robust industrial demand and ongoing supply constraints. The economic recovery has significantly bolstered demand, especially in the automotive sector.

The long-term decline in palladium prices since early 2022 has been driven by reduced demand from the automotive sector, an economic slowdown, and increased supply. This week's 5.45% price surge is a corrective move against the overall bearish trend, driven by supply constraints and strong industrial demand. This sudden price movement likely caught trend followers by surprise, highlighting the need for continuous market analysis and adaptability in trading strategies.

Long-term Decline Since Early 2022:

1. Reduced Demand from the Automotive Sector: Palladium is primarily used in catalytic converters for vehicles to reduce harmful emissions. The automotive industry has been transitioning towards electric vehicles (EVs), which do not use catalytic converters, leading to a decline in demand for palladium. As more automakers shift their production focus to EVs, the demand for palladium has significantly dropped​.

2. Economic Slowdown: The global economic slowdown, partly due to the COVID-19 pandemic and subsequent supply chain disruptions, has reduced industrial activity. This has further decreased the demand for palladium, which is also used in electronics and other industrial applications. Economic uncertainties have caused fluctuations in industrial output, leading to reduced consumption of palladium​.

3. Increased Supply: Concurrently, there has been an increase in palladium supply from major producers such as Russia and South Africa. Despite occasional disruptions, overall production levels have remained relatively high, contributing to the surplus in the market and driving prices down​.

This Week's Corrective Move of +5.45%:

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 the availability of palladium, 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 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 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​​.

Source: Finwiz.com

The Nikkei 225 surged by 3.52% this week with recent gains reflecting a combination of strong economic fundamentals, increased foreign investment, and positive performances across key sectors, positioning the index for continued growth in the coming months.

The long-term uptrend of the Nikkei 225 since early 2020 is attributed to economic recovery measures, strong corporate earnings, foreign investment, and structural reforms. This week's 3.52% surge is driven by positive economic data, strong corporate performance, favourable global market trends, and continued foreign investment inflows, reinforcing the bullish sentiment among trend followers.

Long-term Uptrend Since Early 2020: The Nikkei 225 Index has experienced a significant uptrend since early 2020, driven by several key factors:

1. Economic Recovery and Stimulus Measures: Japan, like many other countries, implemented substantial fiscal and monetary stimulus measures to counteract the economic impact of the COVID-19 pandemic. These measures included government spending, tax incentives, and interest rate cuts, which helped stimulate economic activity and boost investor confidence​.

2. Strong Corporate Earnings: Japanese companies have shown resilience and adaptability, reporting strong earnings growth despite global economic challenges. This growth has been particularly notable in sectors such as technology, automotive, and manufacturing, which are well-represented in the Nikkei 225 index​​.

3. Foreign Investment: There has been a significant influx of foreign investment into Japanese equities. Investors have been attracted by the relative stability of Japan's economy and the attractive valuations of Japanese companies compared to their global peers. This has provided additional upward momentum for the Nikkei 225​​.

4. Structural Reforms: The Japanese government has been pursuing structural reforms aimed at improving corporate governance, increasing labor market flexibility, and promoting innovation. These reforms have enhanced the long-term growth prospects of Japanese companies and boosted investor confidence​.

Reasons for This Week's 3.52% Surge:

1. Positive Economic Data: Recent economic data from Japan has been encouraging, indicating a robust economic recovery. Improved GDP growth figures, rising consumer spending, and strong industrial output have all contributed to the positive market sentiment​.

2. Corporate Announcements: Several major Japanese corporations reported better-than-expected earnings and provided optimistic forecasts for the future. This has bolstered investor confidence and driven up stock prices across the board​.

3. Global Market Trends: The Nikkei 225's performance has also been influenced by positive developments in global markets. Optimism about the global economic recovery, progress in vaccination campaigns, and easing of pandemic-related restrictions have supported stock market gains worldwide, including in Japan​.

4. Foreign Investment Inflows: The week saw continued strong inflows of foreign capital into Japanese stocks, driven by the attractiveness of the market and the improving economic outlook. This has provided additional buying pressure and contributed to the index's rise​​.

Reception by Trend Followers:

Trend followers, who typically capitalize on sustained market movements, would likely view this week's 3.52% surge in the Nikkei 225 as a confirmation of the ongoing uptrend. For trend-following investors, this sharp increase would be seen as a positive signal to either maintain or increase their long positions in the index. The consistent upward trajectory since early 2020 and the recent spike provide strong indications that the bullish trend remains intact, encouraging trend followers to continue riding the upward momentum​.

Source: Finwiz.com

Lumber enjoyed a modest favourable price move of 1.69% for the week. This week's price increase is a corrective move within this longer-term congestion range, and trend followers are likely to remain cautious, awaiting clearer signals of a directional trend before committing to new positions. As supply and demand dynamics continue to evolve, close monitoring of market conditions will be essential for making informed trading decisions.

Long-term Congestion Period:

Lumber prices have been oscillating within a congestion range since September 2022. This period of price stabilization follows the unprecedented highs and subsequent volatility experienced during the peak of the COVID-19 pandemic, when supply chain disruptions and a surge in home building demand caused lumber prices to skyrocket. The post-pandemic market has seen more stabilized supply and demand dynamics, although prices have not returned to pre-pandemic levels​.

Weekly Price Move:

This week, lumber prices saw a modest increase of 1.69%. This corrective move remains within the established congestion range and reflects temporary supply and demand fluctuations rather than indicating a new trend. Factors contributing to this week's price increase include minor supply chain adjustments and a slight uptick in demand from ongoing construction and home improvement projects. However, the overall market conditions remain largely unchanged from the broader congestion phase observed over the past two years​.

Reception by Trend Followers:

For trend followers, this week's price movement would likely be viewed with caution. Given that lumber has been oscillating around its equilibrium within the congestion phase, no clear trend is currently evident. Trend followers typically seek to capitalize on sustained directional moves, and the current market conditions do not present a strong enough signal to warrant significant commitments to new positions. The recent price increase, while noteworthy, is seen as a short-term correction rather than an indication of a new upward trend​.

Source: Finwiz.com

Oats prices increased by 1.37% this week. Despite the positive price move, the overall trend is still short. Despite this corrective move, trend followers are likely to remain cautious interpreting this price movement as part of the broader volatility rather than a definitive trend reversal.

Long-term Downtrend:

Since early 2022, oats have been experiencing a significant downtrend. The primary factors contributing to this long-term decline include:

  1. Increased Supply: There has been an improvement in global oats production. Key producing regions, such as Canada and the United States, have reported higher yields due to favourable weather conditions and advancements in agricultural practices. This increase in supply has outpaced demand, putting downward pressure on prices​.
  2. Economic Factors: The global economic slowdown has impacted the demand for oats, particularly in the food and feed industries. As the cost of living rises, consumers tend to cut back on non-essential purchases, including premium food products that use oats, which reduces overall market demand​.
  3. Market Dynamics: The general commodity market trends, influenced by factors like inflation and fluctuating currency exchange rates, have also contributed to the downtrend in oats prices. Additionally, competitive pricing from alternative grains like wheat and corn has made oats less attractive to buyers​.

This Week's Price Move:

This week, oats saw a positive price move of 1.37%. This increase, however, is viewed as a corrective move within the longer-term downtrend. The short-term factors influencing this week's price surge include:

  1. Short-term Supply Disruptions: There might have been temporary disruptions in supply chains due to logistical issues or weather-related events, leading to a short-term spike in prices​.
  2. Speculative Trading: Short-term market speculation and trading activities can cause brief upward movements in prices, even within a broader downtrend. Traders might have reacted to specific market news or economic reports, leading to increased buying activity​.

Reception by Trend Followers:

Trend followers, who typically look for sustained directional movements, are likely to view this week's price increase with caution. Given the significant downtrend since early 2022, a single week's upward movement is not sufficient to indicate a trend reversal. Most trend followers would probably not commit to long positions based on this isolated price spike. Instead, they would wait for more consistent signs of a trend change before adjusting their strategies.

Source: Finwiz.com

What’s Moving Down

Cocoa prices once again fell sharply by -15.55% this week, primarily driven by improved weather conditions and a corrective market realignment.

This week’s move goes against the spectacular longer-term bullish trend in cocoa prices driven by supply constraints, structural issues, and speculative trading. This week's continued corrective reversal clearly reflects a realignment of market positions, prompting caution among trend followers who are now re-evaluating their strategies in light of these developments.

Long-term Bullish Trend:

Cocoa prices have experienced a significant bullish trend since November 2022, culminating in a peak in late April 2024. This upward movement was driven by several key factors:

  1. Supply Constraints: A major driver of the price surge was the global cocoa shortage. Climate change-induced droughts in West Africa, which produces about 80% of the world's cocoa, severely impacted crop yields. According to the International Cocoa Organization (ICCO), global cocoa supply declined by almost 11% during the 2023/2024 season. This supply shortfall put upward pressure on prices as demand outstripped available supply​​.
  2. Structural Issues: Chronic underinvestment in cocoa farms has also played a significant role. Smallholder farmers, who make up a large part of the cocoa supply chain, often lack the resources to invest in their farms, leading to lower yields over time. Aging cocoa trees and low replanting rates have exacerbated these supply issues​.
  3. Investor Speculation: The sharp increase in cocoa prices was further fuelled by investor speculation. Non-commercial investors held over 60% of total open interest in cocoa futures and options in the New York market, driving prices to historical highs. Speculative trading amplified the supply-side issues, leading to a parabolic rise in prices​.

This Week's Corrective Reversal:

This week, cocoa prices saw a significant downward move of -15.55%. This corrective reversal can be attributed to several factors:

  1. Improved Weather Conditions: Recent rainfall in West Africa improved the outlook for cocoa crops, alleviating some of the immediate supply concerns. This led to a reduction in speculative buying and a sharp price correction​​.
  2. Market Realignment: Following the significant price surge earlier in the year, the market was due for a correction. As speculative positions were unwound, prices adjusted downwards, reflecting more stable supply expectations​.

Reception by Trend Followers:

Trend followers, who had benefited significantly from the long-term bullish trend in cocoa prices, would view this week's sharp corrective move with caution. The significant drop indicates a potential reversal of the upward trend that had been one of the most notable trends over the past decade. Trend followers are likely to reassess their positions, as the sharp price decline may signal the end of the bullish phase. While some may consider this an opportunity to capitalize on short-term volatility, many will wait for clearer signals before making significant changes to their trading strategies.

Source: Finwiz.com

Natural Gas decreased in price by8.29% this week representing a reversion back to the mean within a broader ongoing congestion phase. This week's mean reversion, and the lack of clear trend signals present a challenging environment for trend followers. Without significant directional movement, it remains difficult to find trend-worthy opportunities in this market.

Long-term Congestion Phase:

Since early 2023, natural gas prices have been in a prolonged congestion phase, characterized by a lack of significant directional movement. This stagnation can be attributed to several key factors:

  1. Supply and Demand Dynamics: The natural gas market has seen relatively balanced supply and demand. Increased production, particularly from the U.S. shale fields, has met the steady demand from industrial, residential, and power generation sectors. However, fluctuations in these dynamics have not been substantial enough to drive a sustained trend in either direction​​.
  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 Move:

This week, natural gas prices dropped by -8.29%. This decline can be viewed as a reversion back to the mean within the ongoing congestion phase. The factors contributing to this week's price drop 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. 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​.

Reception by Trend Followers:

For trend followers, the current market conditions in natural gas offer little in terms of clear, actionable trends. The prolonged congestion phase and this week's reversion to the mean highlight the market's tendency to oscillate within a narrow range without establishing a definitive direction. Key considerations for trend followers include:

  1. Unclear Signals: The natural gas market has not provided strong signals indicative of a sustained trend. The absence of significant breakouts or breakdowns from the congestion phase makes it challenging to identify profitable trading opportunities based on long-term trends​.
  2. Market Volatility: While short-term price movements like this week's drop can create volatility, they do not necessarily translate into long-term trends. Trend followers typically look for more consistent and sustained price movements to justify entering or exiting positions​.
  3. Strategic Patience: Given the current market dynamics, trend followers may choose to remain on the sidelines, monitoring for any potential changes that could signal the start of a new trend. Patience and vigilance are crucial in such a market environment where clear trends are elusive.
Source: Finwiz.com

Corn prices dropped sharply by -7.26% this week reinforcing the persistence of the longer-term short trend providing strong confirmation for trend followers and likely prompting them to maintain or increase their short positions.

Long-term Short Trend:

Since early 2022, corn prices have been on a significant downward trend. This long-term decline can be attributed to several factors:

  1. Increased Global Supply: Improved weather conditions in key corn-producing regions, such as the United States and Brazil, have led to higher crop yields. The 2022 and 2023 harvests were particularly robust, contributing to an oversupply in the market​.
  2. Weak Demand: Demand for corn has been impacted by multiple factors, including reduced biofuel production due to lower crude oil prices and weaker demand from the livestock sector. Additionally, the economic slowdown has dampened demand for corn in various industrial applications​.
  3. Economic and Geopolitical Factors: Trade tensions and fluctuating tariffs have also played a role in depressing corn prices. Uncertainties surrounding trade policies, especially between the U.S. and China, have contributed to volatility and downward pressure on corn prices​.

This Week's Price Move:

This week, corn prices declined sharply by 7.26%. This significant drop reinforces the persistence of the longer-term short trend. The factors driving this week's decline include:

  1. Favourable Weather Conditions: Recent favourable weather conditions in the U.S. Corn Belt have boosted crop prospects, leading to expectations of a bumper harvest. This has increased supply forecasts and put downward pressure on prices​.
  2. High Inventory Levels: The U.S. Department of Agriculture (USDA) reported higher-than-expected inventory levels, indicating ample supply. This surplus in stock has further contributed to the price decline​.
  3. Weak Export Demand: Reduced export demand, particularly from major buyers like China, has also played a role. Ongoing trade uncertainties and competition from other corn-producing countries have affected U.S. corn exports​.

Reception by Trend Followers:

Trend followers, who capitalize on sustained market movements, are likely to view this week's sharp decline in corn prices as a strong confirmation of the ongoing short trend. Key considerations for trend followers include:

  1. Confirmation of Bearish Trend: The significant price drop aligns with the long-term bearish trend observed since early 2022. This week's move is likely to be seen as a continuation of the downward trajectory, reinforcing the validity of short positions held by trend followers​.
  2. Increased Confidence in Positions: The persistent decline strengthens the confidence of trend followers in their existing short positions. The alignment of this week's move with the longer-term trend provides additional assurance that the bearish trend remains intact​.
  3. Potential for Further Declines: Given the factors driving the long-term trend and this week's significant price drop, trend followers might anticipate further declines in corn prices. This expectation could prompt them to maintain or even increase their short positions in the market​.
Source: Finwiz.com

The VIX index, a key measure of market volatility, declined by -3.09% this week. The VIX Index's long-term decline reflects improved market stability and investor confidence since the early 2020 pandemic spike. This week's further decline bringing it closer to its lowest point since early 2020 signals continued low volatility in equity markets. For trend followers, this reduction in volatility presents challenges in finding strong trends within the equity market, potentially prompting a strategic shift towards other markets or assets with higher volatility.

Long-term Trend in the VIX:

The VIX Index, often referred to as the "fear gauge," measures market expectations of near-term volatility conveyed by S&P 500 stock index option prices. The VIX has shown a significant long-term downward trend since its spike in early 2020, during the height of the COVID-19 pandemic. Key factors contributing to this decline include:

  1. Economic Recovery: As global economies have gradually recovered from the pandemic, investor sentiment has improved, leading to reduced market volatility. This recovery has been supported by extensive fiscal and monetary policy measures from governments and central banks worldwide​.
  2. Market Confidence: Increased market confidence, driven by strong corporate earnings, robust economic data, and accommodative monetary policies, has contributed to a more stable and less volatile equity market. This environment has gradually pushed the VIX lower over the past few years​.
  3. Reduced Systemic Risks: Compared to the peak of the pandemic, systemic risks have diminished significantly. Vaccination rollouts, improved healthcare responses, and better economic management have helped mitigate the factors that previously caused high volatility​.

This Week's Price Move:

This week, the VIX declined by -3.09%, bringing the index close to its lowest point since early 2020. This movement reflects the continued reduction in market volatility as equity markets inch towards new highs. The factors driving this week's decline include:

  1. Stable Equity Markets: Equity markets have shown strength, with indices approaching or reaching new highs. 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​.

Reception by Trend Followers:

For trend followers, the reduction in volatility as indicated by the declining VIX has several implications:

  1. Less Attractive Trading Environment: Trend followers thrive in environments with clear and sustained market movements, which are often accompanied by higher volatility. A declining VIX suggests reduced market fluctuations, making it harder to identify and capitalize on strong trends​.
  2. Shift in Strategy: With lower volatility, trend followers might need to adjust their strategies, potentially focusing more on markets or assets that are experiencing higher volatility or clearer trends. The equity market, with its current low volatility, might be less attractive compared to other markets where trends are more pronounced​.
  3. Risk Management: The declining VIX also indicates a lower perceived risk in the market. While this might reduce the potential for large gains from trend following, it also suggests a more stable environment where trend followers can employ more conservative strategies with lower risk exposure​.
Source: Finwiz.com

Canola prices declined by -2.72% this week which reinforces the persistence of the bearish longer-term trend, providing strong confirmation for trend followers and likely prompting them to maintain or increase their short positions.

Long-term Downtrend:

Since May 2022, canola prices have been in a significant downtrend. Several factors have contributed to this prolonged decline:

  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 Move:

This week, canola prices declined by -2.72%, reinforcing the overall long-term downtrend. The factors driving this week's decline include:

  1. High Inventory Levels: Reports indicated that inventory levels remained high due to the substantial harvests and slow export pace. This surplus in stock has contributed to the downward pressure on prices​.
  2. Market Adjustments: The market is adjusting to the reality of high supply and weaker-than-expected demand. Traders and producers are likely adjusting their positions, leading to the observed price drop.

Reception by Trend Followers:

Trend followers, who capitalize on sustained market movements, are likely to view this week's decline in canola prices as a strong confirmation of the ongoing short trend. Key considerations for trend followers include:

  1. Reinforcement of Bearish Trend: The significant price drop aligns with the long-term bearish trend observed since May 2022. This week's move is likely seen as a continuation of the downward trajectory, reinforcing the validity of short positions held by trend followers​.
  2. Increased Confidence in Positions: The alignment of this week's move with the longer-term trend provides additional assurance that the bearish trend remains intact. Trend followers are likely to maintain or even increase their short positions in anticipation of further declines​.
Source: Finwiz.com


This week's report highlights the diverse and complex nature of the futures markets. From significant price surges in sugar and palladium to notable declines in commodities like cocoa and natural gas, the market continues to present both challenges and opportunities for investors and trend followers.

The Trend Barometer's dip to 20 underscores the challenging environment for trend followers, with consistent trends becoming increasingly difficult to identify. The SG Trend Index's decline of -2.93% further reflects the broader difficulties faced by many in this sector. As we have seen with assets such as corn and canola, which reinforced their long-term bearish trends, and sugar and palladium, which experienced unexpected price movements, adaptability and continuous market analysis remain crucial.

The Nikkei 225's robust performance and the VIX's decline to pre-pandemic levels highlight the contrasting dynamics across different asset classes. While equity markets show strength and reduced volatility, commodities exhibit significant fluctuations driven by supply-demand imbalances and geopolitical factors.

For trend followers, the current market conditions emphasize the need for strategic patience and vigilance. The ability to quickly reassess and adapt to new information, as seen with this week's price moves, is essential for navigating these turbulent waters. As always, staying informed and monitoring the evolving market landscape will be key to capitalizing on emerging opportunities and mitigating risks.

Join us next week for another edition of "This Week in Trend" as we continue to explore the ever-changing world of futures trading and provide insights to help you navigate the market with confidence.

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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.



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.