Trend Following - Week in Review - September 13, 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 Sea of Blue with the VIX Futures Tamed”

This week saw a stark contrast to the volatility of last week, as most asset classes saw strong positive movements, with only currencies showing a slight dip. The VIX futures significantly calmed, dropping by an impressive -18.15%, signalling a reduction in market uncertainty. This decline in the "fear gauge" came as broader economic concerns eased, following the turbulence from weaker data earlier this month.

In equities, the Nasdaq 100 rebounded with a notable +4.32% gain, while Metals surged, led by Palladium, which skyrocketed by +19.42% for the week. Commodities like Platinum and Silver followed closely behind with increases of +9.43% and +10.23%, respectively. On the energy front, Crude Oil prices held steady, continuing to show resilience despite broader market slowdowns.

In stark contrast to the calm elsewhere, Ethanol and Canola were among the top decliners this week, dropping by -5.08% and -4.81%, respectively, due to improving supply conditions.

Trend Barometer and SG Trend Index

As of September 13, 2024, the Trend Barometer stands at 50, signalling neutral trending conditions, matching last week's reading. This suggests a steady environment for trend-following strategies, although the 10-day rate-of-change shows a slight uptick, indicating a potential rise in trend strength moving forward.

The SG Trend Index, as of September 12, 2024, is showing a +0.96% month-to-date gain, bringing the year-to-date performance to +2.26%, improving from last week's +0.29% MTD and +1.37% YTD figures. This positive development reflects strengthening conditions for trend-followers, despite the relatively neutral barometer reading.

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

Here's how different asset classes moved this week:

• Volatility: -18.15%
  The VIX futures saw a sharp drop this week, reflecting a decrease in market volatility. This significant decline signals reduced investor anxiety, likely driven by easing concerns over economic data and sector-specific challenges. As market uncertainty fades, the need for protective measures like options has diminished, leading to this dramatic reduction in the "fear gauge."
• Grains: +1.02%
  Grain prices edged up slightly, driven by stable demand and some supply-side concerns. While the market has remained relatively calm, weather patterns and global economic conditions will continue to play a role in future price movements.
• Meats: +1.18%
  The meat sector showed modest gains this week. Continued strong demand and stable supply chains contributed to the slight price increase, though no major developments impacted the market significantly.
• Bonds: +0.29%
  Bonds saw a modest uptick this week as investors maintained a cautious approach, seeking safer assets amidst the broader equity market calm. The rise in bond prices reflects a still-uncertain long-term economic outlook.
• Energy: +0.11%
  Energy prices held steady, with crude oil markets continuing to show resilience despite global economic slowdowns. The small rise in the energy sector reflects a balanced supply and demand dynamic, with OPEC production levels remaining stable.
• Metals: +9.09%
  Metals emerged as the top-performing asset class this week, with Palladium leading the charge. Strong demand across industrial sectors and geopolitical factors contributed to the rally. Silver and Platinum also posted significant gains, adding to the sector's momentum.
• Soft Commodities: +3.02%
  Soft commodities saw healthy gains, driven by steady demand and supply chain factors. Cocoa, in particular, stood out with a strong upward move, continuing its bullish run from earlier in the year.
• Equity Index: +2.74%
  Equities rebounded this week, led by technology stocks. The Nasdaq 100 posted a solid recovery, reversing some of the losses seen in previous weeks. Renewed optimism around the sector contributed to the upward momentum.
• Currency: -0.01%
  Currencies saw minimal movement this week, with only a slight decline. Central bank policies remain a key influence, though no major shifts have been observed across the FX markets.

This week’s market movements reflected a calmer, more stable environment as the VIX futures dropped sharply, signalling reduced volatility and easing investor anxiety. Gains were modest across most asset classes, with grains, meats, and bonds seeing slight increases, while energy held steady. Metals led the charge, especially palladium, amid strong industrial demand and geopolitical influences. Soft commodities also posted healthy gains, particularly cocoa, continuing its bullish run. The Nasdaq 100 rebounded, contributing to broader equity market gains, while currencies saw minimal movement, highlighting a largely stable financial landscape.

Top 10 Bear and Bull Price Moves

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

What’s Moving Up

• Palladium: +19.42%
  This week, palladium experienced a notable surge, climbing 19.42%, propelled by robust demand from the automotive industry and supply chain concerns. The metal's crucial role in emission control devices within traditional combustion engines, alongside ongoing sustainability efforts by automakers adhering to tighter environmental regulations, contributed significantly to this rally. Despite the shift towards electric vehicles, palladium's importance in catalytic converters remains undiminished. Furthermore, supply disruptions, particularly from Russia, intensified the price increase ​(Forever NEWS)​(USGI). For medium to long-term trend followers who have maintained a bearish stance on palladium since its peak in March 2022, this upward movement might suggest a potential reversal of the bearish trend.

• Silver: +10.23%
  Silver surged by 10.23% this week, driven by growing demand across industrial applications and its role as a safe-haven asset amid market volatility. Investors are turning to precious metals like silver as central banks prepare for key interest rate decisions, further pushing up its price. For trend followers, this significant rise may indicate that the bullish trend, which started in September 2022, is resuming after a brief consolidation phase. The combination of industrial demand and market uncertainty makes silver particularly attractive in the current economic environment, signalling potential new opportunities for those aligned with this upward trend​ (Forever NEWS)​(XTB.com).

• Coffee: +9.43%

Coffee prices surged by 9.43% this week, largely driven by adverse weather conditions in key growing regions like Brazil. Poor harvest forecasts, combined with ongoing logistical challenges, have created upward pressure on prices. This rise has also been supported by growing global demand for coffee. For trend followers, this bullish move is a positive development, especially for those who have been riding the coffee rally since its low in October 2023. The sustained demand and weather-related supply constraints suggest the continuation of the upward trend ​(Forever NEWS).

• Platinum: +8.96%

Platinum rose by 8.96% this week, fuelled by increasing global industrial demand, particularly in the automotive and electronics sectors. Supply constraints from major producers like South Africa further supported this bullish sentiment. However, this move is unlikely to have excited trend followers, as platinum has been stuck in a prolonged congestion phase since early 2022, with no clear directional trend emerging. The market’s choppy behaviour over the past two years would have made it difficult for trend-following strategies to capitalize on this recent surge ​(Forever NEWS)​(XTB.com).

Cocoa: +8.36%

Cocoa prices surged by 8.36% this week, driven by supply shortages caused by poor harvests in West Africa, one of the largest cocoa-producing regions. Increased global demand for chocolate products has further supported the upward move. However, this rally is unlikely to excite trend followers, as cocoa has been in a congestion phase since its peak in April 2024. That said, there may be signs of an imminent upside breakout forming, suggesting the potential for renewed bullish momentum if supply constraints continue to pressure the market ​(Forever NEWS)​(XTB.com).

What’s Moving Down

• VIX Futures: -18.15%

The VIX futures dropped sharply by -18.15% this week, reflecting a substantial decrease in market volatility. This decline signals that investor sentiment has improved, as concerns over weak economic data and sector-specific challenges have eased. The market saw a reduced demand for hedging instruments like options, contributing to this dramatic fall.

The decrease in the VIX futures, now at 16.56 as of September 13, 2024, also coincides with improved outlooks in the stock markets, where investors are reacting to softer inflation data and expectations of a modest interest rate cut by the Federal Reserve ​(Nasdaq)​(YCharts).

This sharp reduction in volatility indicates a more stable market environment, reducing the "fear gauge" that measures market uncertainty and investor anxiety. Such a significant drop in the VIX futures typically correlates with rising equity prices, as seen in the tech-heavy Nasdaq 100's recovery during the same period. Investors have become more optimistic, leading to increased market participation and a drop in volatility as the markets continue to stabilize.

• Ethanol: -5.08%

Ethanol prices dropped by -5.08% this week, largely due to improved crop conditions and higher-than-expected yields in the U.S. Midwest, which boosted supply forecasts. Additionally, a decline in gasoline demand has reduced the blending requirements for ethanol, intensifying the downward pressure on prices. For trend followers, this move may be viewed as a continuation of the bearish trend, especially when compared to ethanol's peak in July 2024. The combination of robust supply and lower blending demand is signalling potential further downside​ (Forever NEWS)​(XTB.com).

• Canola: -4.81%

Canola prices dropped by -4.81% this week, largely due to favourable weather conditions in key growing regions like Canada, which have bolstered expectations for a strong harvest. Additionally, softer demand has continued to pressure prices lower. For trend followers, this move is likely seen as a strong continuation of the bearish trend that began after the market peaked in July 2024. The combination of improved supply forecasts and weakening demand provides a clear signal for further downside momentum ​(Forever NEWS)​(USGI).

• Lumber: -3.19%

Lumber prices dropped by -3.19% this week, reflecting continued weakness in demand from the housing market as rising interest rates dampen construction activity. Additionally, an oversupply from North American producers further pressured prices downward. This sustained bearish move may attract trend followers, as the conditions suggest opportunities for opening short positions, particularly with the market struggling to find support amid these ongoing challenges​ (USGI)​(XTB.com).

• Soybean Oil: -1.59%

Soybean oil prices dropped by -1.59% this week, as increased production from South America and weakening biodiesel demand put downward pressure on the market. Despite earlier concerns over crop yields, the market remains well-supplied. This decline is a positive sign for trend followers who have maintained a bearish outlook since the peak in April 2022, as the continued surplus and softening demand support the sustained downward trend ​(Forever NEWS)​(USGI).

Conclusion

This week’s market movements marked a significant shift towards stability, as volatility eased, and asset classes displayed mostly positive performances. The VIX futures plummeted by -18.15%, underscoring reduced market anxiety, while metals, led by Palladium, experienced notable gains fuelled by strong industrial demand. Meanwhile, soft commodities like Cocoa saw continued strength, and the Nasdaq 100 rebounded, reflecting renewed investor optimism.

On the downside, sectors like Ethanol, Canola, and Lumber remained pressured, with trend followers likely eyeing opportunities in these bearish continuations.

As we move forward, the markets present a balanced landscape—one in which trend followers can seize on emerging trends, whether they are bearish or bullish. The question remains: Will these shifts solidify into lasting trends, or are we in for further twists in the coming weeks?

Stay tuned for next week’s insights as we navigate the dynamic and ever-evolving world of futures

List of Resources used in the Week in Review

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