Numb to the Rumors

Earlier in the month we wrote about the “August doldrums”- the sense that this month the markets have been, well, boring. Even taking into account the historically low activity in August, the lack of volume has been surprising. We aren’t the only ones to notice. But even the low volume doesn’t fully capture what we’re witnessing – the markets just aren’t going anywhere. The S&P 500 has been remarkably range bound, reflected by the lowest average daily true range of 2012:

S&P 500 E-mini Front-Month Futures Contract

*Through August 29. Disclaimer: past performance is not necessarily indicative of future results.

This August has been dull by historical standards, but it has seemed even starker in a year dominated by headline-driven ups and downs. The risk on/risk off trading environment of 2011 has followed us into 2012 – and when market correlations are high, the choice for investors increasingly boils down to “in or out?” And the answer for many this August, it seems, is “out.”

Neither the bulls nor the bears seem to have much conviction – and investors are content to sit on the sidelines for the most hated rally in recent memory. So what is everyone waiting for? Jackson Hole? The Troika report? The fiscal cliff? Rampant speculation about looming, potentially huge macro-economic bombs led to huge swings in the market earlier this year… but now all it musters is crickets.

In our view, the last year of the risk on/risk off see-saw has fostered a sense of weariness. Rumors and speculation can only swing the market so many times in a given period of time before those rumors start to lose their effect. Whether this is all to the good or not remains to be seen – we may still see extreme risk on/risk off swings once we get a concrete sense of what’s happening with QE3, the future of the Euro, or the fiscal cliff. But maybe, just maybe, the markets will stop swinging wildly on the rumors, and wait… to swing wildly on the facts.

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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.

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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.