Trend Following - Week in Review - March 7, 2025

Welcome to "This Week in Trend", where each week, we cover key movements and trends in the futures markets, offering insights on commodities and indices shaping the economy. From price surges to notable declines, we provide an overview of the factors driving these changes. Stay informed about the latest developments and navigate the market with confidence. Join us weekly to explore the dynamic world of futures trading and the trends that matter most.

"Trade Tensions and Volatility Challenge Trend Followers"

This week presented a mixed environment for trend-followers, with SG Trend recording a slight decline of -0.34% month-to-date (MTD) and -3.37% year-to-date (YTD), compared to last week's -2.60% MTD and -2.46% YTD. While the pace of losses moderated, capturing sustained trends remains an ongoing struggle amid heightened volatility and uncertainty.

Market sentiment was dominated by escalating trade tensions following President Trump's latest tariff policies, leading to notable declines in equities, energy, and industrial metals. Meanwhile, bonds and volatility surged as investors sought safe-haven assets, reflecting growing concerns over economic stability.

TTU Trend Barometer: 45% (Last week: 32%)

• 10-day rate of change: Rising rapidly

• Trend conditions improving: The barometer's increase to 48% signals a more neutral environment, edging closer to a more favourable backdrop for trend-following strategies. However, choppy conditions persist, requiring disciplined risk management.

The Top Traders Unplugged (TTU) Trend Barometer is a proprietary tool that measures the percentage of markets with medium to strong trends. Similar to a thermometer, where 0 degrees Celsius equates to freezing, a TTU Trend Barometer reading below 40% indicates a “cold” environment for trend-following, while readings above 55% signal a “hotter,” more favourable trend environment.

Weekly Asset Class Snapshot

Source: Finwiz.com

As we move into March 2025, financial markets exhibited heightened volatility, with equities extending their decline, energy markets struggling, and soft commodities continuing their downward trajectory. Meanwhile, the Volatility Index (VIX) surged 16.04%, reflecting growing investor concerns over trade policies and economic uncertainty. Bonds weakened slightly, reversing last week's gains, while meats experienced a notable rebound.

Equities: -1.41% (Previous week: -0.87%)

Equities saw a sharper decline this week as uncertainty surrounding U.S. trade policies and mixed economic data pressured markets. Defensive positioning increased, with investors shifting toward volatility hedges and safe-haven assets. The S&P 500 dropped 3.21%, while the Nasdaq 100 fell 3.4%.

Energy: -0.60% (Previous week: -2.55%)

Energy markets remained under pressure, though losses were less severe than last week. Weaker demand outlooks and increased U.S. crude stockpiles weighed on prices. Geopolitical tensions failed to provide sustained support to the sector.

Metals: 0.00% (Previous week: -4.17%)

The metals sector stabilized after last week's sharp declines. Gold and silver gained amid increased safe-haven demand, while industrial metals like palladium and copper faced pressure due to weakening demand. A stronger U.S. dollar added to downward pressure on industrial metals.

Grains: -0.05% (Previous week: -3.91%)

Grains were relatively flat after last week's significant decline. Improved weather conditions and better-than-expected crop yields helped stabilize prices. Lower import demand from China continued to weigh on wheat and corn prices.

Meats: +3.44% (Previous week: -0.93%)

The meats sector rebounded sharply, contrasting with last week's losses. Supply constraints and seasonal demand increases helped lift cattle prices. Live cattle and feeder cattle posted strong gains.

Soft Commodities: -1.31% (Previous week: -2.32%)

Soft commodities continued their downtrend, though the pace of decline moderated. Cocoa and coffee saw extended selloffs, driven by profit-taking and improved supply expectations. Favourable weather in key growing regions contributed to price declines.

Currencies: +1.57% (Previous week: -1.07%)

The U.S. dollar rebounded, posting a 1.57% gain for the week. Fed policy speculation and risk-off sentiment drove currency market movements. Safe haven flows into the dollar increased amid trade uncertainty.

Volatility Index (VIX Futures): +16.04% (Previous week: +3.27%)

The VIX surged sharply, reflecting growing investor concerns over market instability. Escalating trade policy tensions and economic uncertainty fuelled demand for volatility hedges. Broad declines in equities contributed to heightened risk aversion.

Bonds: -0.43% (Previous week: +1.18%)

Bonds weakened slightly, reversing last week's gains. Market uncertainty drove fluctuations in bond yields, with investors adjusting positions. Changing expectations around Federal Reserve policy influenced bond market movements.

This Week’s Key Takeaways

• Equities faced a sharper decline, driven by trade policy anxieties and economic uncertainty.
• Energy remained under pressure, though losses moderated compared to last week.
• Soft commodities continued to slide, while meats rebounded strongly.
• Currencies saw strength, with the U.S. dollar rebounding amid risk-off flows.
• Volatility surged, with the VIX climbing over 16% as investors hedged against market risks.

With trend conditions still in flux, risk management and systematic discipline remain crucial. The next few weeks will determine whether these moves develop into sustained trends or whether markets continue to experience choppy conditions.

Top 10 Bear and Bull Price Moves

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

What’s Moving Up

VIX: +16.04%

The CBOE Volatility Index (VIX), often termed Wall Street's "fear gauge," experienced a notable increase of 16.04% this week, reflecting heightened market uncertainty. Several key factors contributed to this surge

1. Trade Policy Uncertainty: Recent announcements of new tariffs on imports from Mexico, Canada, and China have raised concerns about potential economic slowdowns and increased inflation. The lack of clarity and consistency in trade policies has amplified investor anxiety, leading to increased market volatility. ​
2. Upcoming Inflation Data: Investors are on edge ahead of a critical inflation report. A higher-than-expected Consumer Price Index (CPI) could disrupt expectations of Federal Reserve easing and trigger further market volatility. ​
3. Equity Market Declines: The S&P 500 and Nasdaq Composite indices have experienced significant downturns, with the Nasdaq entering a correction phase. These declines have heightened fears of an economic slowdown, prompting investors to seek protective measures against potential downturns. ​
4. Investor Sentiment and Hedging: Options traders are increasingly seeking protection against potential market crashes, as indicated by a surge in demand for deep out-of-the-money call options tied to the VIX. This behaviour underscores growing apprehension about market stability. ​

Trend-Following Perspective

While the VIX itself is not typically traded by trend-following strategies, it serves as a crucial barometer of market sentiment and volatility. A rising VIX indicates increased market anxiety, which can lead to more pronounced price movements across various asset classes. Trend-followers may interpret a high VIX as a signal to adjust their risk management protocols, potentially reducing position sizes or tightening stop-loss levels to account for the heightened volatility environment. Conversely, a declining VIX might suggest a more stable market, allowing for more aggressive trend-following positions.​

In summary, the recent spike in the VIX reflects growing investor concerns over trade policies, upcoming economic data releases, and overall market stability. Trend-followers should remain vigilant, adapting their strategies to navigate the increased volatility effectively.

Natural Gas: +14.79%

Natural gas prices experienced a significant increase of 14.79% this week, signalling a potential resumption of the bullish trend. Several key factors contributed to this surge:​

1. Cold Weather and Increased Demand: Colder-than-average temperatures have led to higher heating demand, increasing natural gas consumption. ​
2. Supply Constraints: Despite high production levels, supply constraints have emerged due to increased demand and export activities. ​
3. Record LNG Exports: The U.S. has seen record flows to liquefied natural gas (LNG) export plants, driven by strong global demand, particularly from Europe and Asia. ​
4. Geopolitical Tensions: Ongoing geopolitical issues, such as the conflict in Ukraine, have disrupted traditional energy supply routes, leading to increased reliance on U.S. natural gas exports. ​

Trend-Following Perspective

The recent 14.79% surge in natural gas prices indicates a potential continuation of the bullish trend:​

• Short-Term Trend Followers: This sharp price increase presents favourable conditions, as momentum remains strong.​
• Medium- to Long-Term Trend Followers: The sustained uptrend may signal entry points, but it's crucial to monitor for potential volatility due to supply and demand dynamics.​

The natural gas market is currently influenced by a combination of increased demand due to cold weather, supply constraints, record LNG exports, and geopolitical tensions. Trend followers should consider these factors when assessing potential entry or exit points in the market.​

Palladium: +4.95%

Palladium prices experienced a notable increase of 4.95% this week, a movement that presents challenges for trend-following strategies, particularly those holding short positions. Several factors have contributed to this price surge:​

1. Geopolitical Tensions and Supply Concerns:
   • Russia, a leading producer of palladium, has been subject to geopolitical tensions, raising concerns about potential disruptions in supply. ​
2. Automotive Industry Dynamics:
   • Palladium is extensively used in catalytic converters for gasoline-powered vehicles. While the automotive sector is transitioning towards electric vehicles (EVs), which do not require palladium, the pace of this shift influences palladium demand. Fluctuations in automotive production and sales can impact palladium consumption.​
3. Market Speculation and Investor Behaviour:
   • Market participants may be adjusting positions in response to evolving economic indicators, contributing to price volatility. ​

Trend-Following Perspective

The recent 4.95% uptick in palladium prices poses challenges for trend-followers, especially those with short positions:​

• Short-Term Trend Followers: The abrupt price increase may trigger stop-loss orders or necessitate position adjustments to mitigate potential losses.​

• Medium- to Long-Term Trend Followers: While the broader bearish trend may still be intact, the recent price action calls for heightened vigilance. Trend-followers should monitor for signs of a potential trend reversal or continued volatility.​

Silver: +4.51%

Silver prices experienced a notable increase of 4.51% this week, benefiting trend-following strategies likely holding long positions. Several factors have contributed to this price surge:​

1. Rising Industrial Demand:
   • Silver's extensive use in industrial applications, particularly in renewable energy technologies such as solar panels and electric vehicles (EVs), has significantly boosted demand. The global push towards green energy solutions has heightened silver consumption in these sectors. ​
2. Supply Constraints:
   • Despite the increased demand, silver mine production has not kept pace, leading to supply shortages. The market has experienced consistent supply deficits since 2021, with 2023 recording a substantial shortfall of 184.3 million ounces. ​
3. Geopolitical Tensions and Economic Uncertainty:
   • Ongoing geopolitical tensions and economic uncertainties have driven investors towards safe-haven assets like silver. The metal's appeal as a store of value has intensified amid global instability. ​
4. Monetary Policies and Inflation Concerns:
   • Expectations of interest rate cuts by major central banks and concerns about inflation have made non-yielding assets like silver more attractive. A weaker U.S. dollar also contributes to higher silver prices, as it becomes cheaper for holders of other currencies. ​

Trend-Following Perspective

The recent 4.51% uptick in silver prices is advantageous for trend-followers with long positions:​

• Short-Term Trend Followers: The price surge aligns with existing bullish trends, potentially offering profitable opportunities.​

• Medium- to Long-Term Trend Followers: The sustained upward momentum in silver prices supports the continuation of long positions. However, ongoing monitoring of industrial demand, supply constraints, and geopolitical developments is essential to assess the trend's durability.​

EUR: +4.46%

The euro experienced a significant increase of 4.46% this week, marking its strongest performance against the U.S. dollar since 2009. Several key factors have contributed to this substantial appreciation:​

1. German Fiscal Stimulus Initiatives:
   • Germany's announcement of plans to overhaul its debt brake rules and establish a substantial infrastructure fund has bolstered investor confidence in the Eurozone's economic recovery. ​
2. European Commission's Defence Spending Proposal:
   • The European Commission's proposal to borrow €150 billion for a rearmament plan has further fuelled expectations of economic growth within the Eurozone. ​
3. European Central Bank's Monetary Policy Adjustments:
   • The ECB's recent interest rate cut to 2.5%, coupled with indications of a potential slowdown in future rate reductions, has influenced currency markets, contributing to the euro's strength. ​
4. Weakening of the U.S. Dollar:
   • Concerns over U.S. economic growth, exacerbated by President Trump's aggressive trade policies and the implementation of tariffs on imports from Mexico, Canada, and China, have led to a depreciation of the U.S. dollar, thereby enhancing the euro's relative value. ​

Trend-Following Perspective

Despite this notable surge, trend-followers may exercise caution:​

• Congestion Pattern: The euro has been trading within a congestion pattern, characterized by sideways movement without a clear directional trend.​
• Awaiting Breakout Confirmation: Trend-followers typically seek sustained breakouts from such patterns before committing to new positions. The recent price action, while significant, may not yet constitute a definitive breakout, prompting a watchful stance.​

In summary, while the euro's recent appreciation is noteworthy, trend-followers are likely to await further confirmation of a sustained trend before adjusting their positions, mindful of the broader economic and policy factors at play.

What’s Moving Down

Cocoa: -9.4%

Cocoa prices experienced a significant decline of 9.4% this week, marking a notable retracement from recent highs. Several key factors have contributed to this downturn:​

1. Market Volatility and Speculative Activity:
   • Disconnect Between Futures and Physical Markets: Major industry players, such as Hershey Co., have raised concerns about the disconnection between ICE New York cocoa futures and the global physical market. High-margin calls have driven commercial participants away, reducing liquidity and increasing price volatility. ​
2. Supply Dynamics in West Africa:
   • Illegal Gold Mining in Ghana: In Ghana, cocoa farmers are abandoning cocoa production for illegal gold mining, leading to a significant drop in cocoa yields and contributing to global supply constraints. ​
3. Global Economic Factors:
   • Demand Fluctuations: High cocoa prices have led to reduced demand as manufacturers and consumers adjust to elevated costs, potentially contributing to the recent price decline. ​

Trend-Following Perspective

The sharp 9.4% decline in cocoa prices presents both challenges and opportunities for trend-following strategies:​

• Short- to Medium-Term Trend Followers: The pronounced price drop may trigger short-selling signals, with traders capitalizing on the downward momentum.​

• Long-Term Trend Followers: Those holding long positions may face challenges due to the recent retracement, necessitating a reassessment of risk management strategies.​

Gasoline RBOB: -5.17%

RBOB Gasoline prices experienced a notable decline of 5.17% this week, influenced by several key factors:​

1. Anticipated Decrease in Retail Gasoline Prices:
   • The U.S. Energy Information Administration (EIA) projects a decrease in U.S. retail gasoline prices for 2025 and 2026, primarily due to expected lower crude oil prices and increasing fuel economy standards. This outlook contributes to downward pressure on gasoline futures prices. ​
2. Recent Downward Trends in RBOB Gasoline Futures:
   • Recent trading sessions have seen declines in RBOB Gasoline futures. For instance, front-month NYMEX RBOB Gasoline for April delivery fell by 2.61% to settle at $2.1370 per gallon, and subsequently by 1.68% to $2.1012 per gallon, reflecting ongoing bearish sentiment in the market. ​

Trend-Following Perspective

The current congestion phase in RBOB Gasoline prices presents challenges for trend-following strategies:​

• Short-Term Trend Followers: The lack of a clear directional movement may result in limited trading opportunities, as signals remain mixed.​
• Medium- to Long-Term Trend Followers: The ongoing congestion suggests that these traders may remain on the sidelines, awaiting a definitive breakout or the establishment of a sustained trend before committing to positions.​

The recent decline in RBOB Gasoline prices is influenced by expectations of lower future retail prices and recent bearish trends in futures markets. Trend-following traders are likely exercising caution, monitoring the market for clearer signals before engaging in new positions.​

Heating Oil: -4.44%

Heating oil prices experienced a notable decline of 4.44% this week, influenced by several key factors:​

1. Anticipated Increase in OPEC+ Production:
   • The Organization of the Petroleum Exporting Countries and its allies (OPEC+) have announced plans to proceed with a scheduled oil output increase in April. This decision contributes to expectations of higher crude oil supply, exerting downward pressure on oil prices, including heating oil. ​
2. Rising U.S. Fuel Inventories:
   • Recent data indicates an unexpected build in U.S. gasoline and distillate inventories, signalling potential demand weakness. This increase in supply has contributed to the decline in heating oil prices. ​
3. Seasonal Demand Patterns:
   • Heating oil demand is typically higher during the winter months. As the Northern Hemisphere approaches the end of winter, demand for heating oil naturally decreases, leading to lower prices. ​

Trend-Following Perspective

The recent decline in heating oil prices presents considerations for trend-following strategies:​

• Short-Term Trend Followers: The current bearish trend may offer opportunities for short-term traders to capitalize on downward price movements.​
• Medium- to Long-Term Trend Followers: The sustained price decline could signal a continuation of the bearish trend, potentially prompting medium- to long-term trend-followers to maintain or initiate short positions.​

The decline in heating oil prices is influenced by anticipated increases in crude oil supply, rising fuel inventories, and seasonal demand patterns. Trend-following traders may find opportunities in the current bearish environment, depending on their trading horizons and risk management strategies.

Russell 2000: -4.04%

The Russell 2000 index, representing small-cap stocks, experienced a notable decline of 4.04% this week, influenced by several key factors:​

1. Escalating Trade Tensions:
   • President Trump's announcement of increased tariffs on imports from major trading partners, including Canada, Mexico, and China, has heightened concerns about a potential trade war. Small-cap companies, which are more domestically focused, are nonetheless affected due to their reliance on supply chains and materials subject to these tariffs. ​
2. Recession Fears:
   • Investors are increasingly acting on concerns that a recession may be on the horizon, driven by fluctuating policy decisions and trade uncertainties under President Trump's administration. ​
3. Market Volatility and Investor Sentiment:
   • The recent sell-off in major indices, including the S&P 500 and Nasdaq Composite, has contributed to a risk-off sentiment among investors. This broader market volatility has led to reduced appetite for small-cap stocks, further pressuring the Russell 2000 index. ​

Trend-Following Perspective

The recent decline in the Russell 2000 presents considerations for trend-following strategies:​

• Long-Term Trend Followers: The current bearish move challenges existing long positions. Long-term trend-followers may need to reassess their positions, considering potential trend reversals or continued downward momentum.​
• Short- to Medium-Term Trend Followers: The pronounced decline may trigger short-selling signals for short- to medium-term trend-followers. These traders might initiate short positions to capitalize on the downward momentum, aligning with their trend-following models.​

In summary, the Russell 2000's 4.04% decline is influenced by escalating trade tensions, recession fears, and broader market volatility. Trend-following traders should carefully evaluate these factors in the context of their strategies and risk management frameworks.

Crude Oil WTI: -3.88%

The West Texas Intermediate (WTI) crude oil market experienced a 3.88% decline this week, influenced by several key factors:​

1. Escalating Trade Tensions:
   • The implementation of new U.S. tariffs on imports from Canada, Mexico, and China has heightened concerns about a potential global economic slowdown, which could reduce energy demand. ​
2. Increase in U.S. Crude Oil Inventories:
   • U.S. crude oil stockpiles rose by 3.6 million barrels last week, surpassing analyst expectations. This increase in supply has added downward pressure on oil prices. ​
3. OPEC+ Decision to Raise Output:
   • The Organization of the Petroleum Exporting Countries and its allies (OPEC+) announced plans to increase oil production starting in April. This anticipated boost in supply has contributed to the bearish sentiment in the oil market. ​

Trend-Following Perspective:

• Medium- to Long-Term Trend Followers: The recent decline may present favourable opportunities for medium- to long-term trend-following strategies, as the market exhibits a bearish trend.​
• Short-Term Trend Followers: Short-term trend followers should exercise caution due to potential volatility arising from geopolitical developments and market reactions to policy changes.​

The WTI crude oil market's 3.88% decline this week is primarily driven by escalating trade tensions, rising U.S. crude inventories, and OPEC+'s decision to increase output. Trend-following strategies may find this bearish trend favourable but should remain vigilant to ongoing market dynamics.

Conclusion: Navigating a Shifting Landscape in Trend Following

This week presented a nuanced environment for trend-followers, characterized by both challenges and emerging opportunities. The SG Trend Index recorded a modest decline of -0.34% month-to-date (MTD) and -3.37% year-to-date (YTD), reflecting a tempered pace of losses compared to the previous period. Simultaneously, the TTU Trend Barometer rose to 45%, up from last week's 32%, indicating a shift towards a more neutral trend-following environment.​

Market dynamics were significantly influenced by escalating trade tensions, leading to pronounced declines in equities, energy, and industrial metals. Conversely, safe-haven assets such as bonds and volatility indices experienced gains, as investors sought refuge amid growing economic uncertainties.​

Despite the improvement in the Trend Barometer, the persistence of choppy conditions necessitates cautious optimism. Trend-followers are advised to maintain disciplined risk management practices, balancing the potential for emerging trends against the backdrop of ongoing market volatility. The coming weeks will be pivotal in determining whether these movements evolve into sustained trends or if the current fragmentation continues to dominate the trading landscape.

List of Resources used in the Week in Review

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