Has June Crossed the Line?

If you’re a regular on our blog, you know we’ve been watching the markets this June very closely. As we explained in our newsletter at the beginning of the month, the big downtrend in May had been good for many CTAs, as trend followers had largely moved into short positions to take advantage of the selloff. However, this also meant that a strong whiplash rally in June could close out many of these short positions for a loss, leading to a repeat of the phenomenon that has plagued managed futures several times over the last few years.

Then we watched as the markets climbed higher and higher – exactly what we’d been hoping to avoid. Last week we got a little reprieve as the June bounce wobbled, and are seeing further sell offs today (but not in grain markets).  But is it enough to “save” June for managed futures, where the V-Shaped June bounce in many markets has the Newedge CTA index down -2.10% for the month coming into today?

To find out, we checked out how close various markets are to moving above their 100-day moving averages. In our recent newsletter on trend following, we outlined one “basic” trend following model: the Bollinger band method, which initiates buy or sell orders when prices move above or below one standard deviation of a 100-day moving average (Bollinger bands), and exits the trade when the price returns to that moving average.

So how close are the various markets to their “stop level,” which, in the case of our trend following proxy, is the 100-day moving average?  We take a look below:

Disclaimer: past performance is not necessarily indicative of future results.

We see only 6 of 22 markets (27%) have rallied enough to cross above their 100-day moving averages after selling off in May, telling us that managed futures are still very much hoping this market continues to go down. As we’re fond of saying around these parts, here’s hoping the market goes to zero.

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