Risk On/Risk Off Shutting Off

There’s no doubt Commodities are receiving more attention this year than years past, and it’s because of breakouts in Natural Gas, Coffee, Cattle, Lean Hogs, Sugar, Wheat, and Corn. Now some of the these trends have reversed course, not allowing long term trend followers to fully capitalize – but we’ve seen markets moving on their own fundamentals, not based solely on the Fed Minutes or view on the economy (what became known as the risk on/risk off environment back in 2009/2010).

There haven’t been too many Risk On/ Risk Off days to speak of in 2014, with just 1 ‘risk on’ day in both February and March. We define risk on as an average gain of over 1% for “risk” assets; risk off is an average loss of over -1% for “risk” assets. (Click here for a more detailed breakdown.)

Risk On Off(Disclaimer: Past performance is not necessarily indicative of future results)

This is no doubt another sign that the ‘recovery’ is in full force, with markets dancing to their own beat instead of following equities higher or lower on big moves. But it also could be a sign of further compression in volatility and a pending volatility spike – no chart goes/stays down like this forever.

Overall, Global Macro and Managed Futures strategies should be enjoying this move away from the risk on/risk off environment- as markets moving  in different directions/amounts at different times allows for the benefit of market/sector diversification such strategies rely on for risk control. Now if they could just stay in whatever direction their independently moving for a little bit longer – we could capture some nice trends.

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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.