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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DISCLAIMER

Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.

The entries on this blog are intended to further subscribers understanding, education, and – at times- enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex, and is not intended as investment advice, or an offer or solicitation for the purchase or sale of any financial instrument. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts. Opinions expressed are that of the author.

*The mention of specific asset class performance (i.e. +3.2%, -4.6%) is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.), and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship and self reporting biases, and instant history.

The mention of general asset class performance (i.e. managed futures did well, stocks were down, bonds were up) is based on Attain’s direct experience in those asset classes, estimates of performance of dozens of CTAs followed by Attain, and averaging of various indices designed to track said asset classes.

It should be noted that past market performance is not indicative of future market movement.No market data or other information is warranted by Attain Capital Management as to completeness or accuracy, express or implied, and is subject to change without notice.

Managed Futures Disclaimer:

Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.