We mentioned in our blog post here how Silver breaking out to new 2011 highs on may be the precursor to more markets following higher, and indeed we’ve seen Gold, Live Cattle, Feeder Cattle, & the Aussie Dollar (and now the Russell 2000 today) break above their pre-Japan crisis highs.
The interesting thing in terms of those looking for and/or following trends is that this isn’t looking like an all commodity trend higher, with the entire grain complex remaining well below their February highs (10% to 20% below); and Cocoa in a clear trend downward with further losses today taking it down ~20% from its highs.
Do managed futures follow the metals, meats, and commodity currencies higher; or sell the grains and cocoa short?
Why not both… We often get caught up in saying commodities are rising or falling, without remembering that there are dozens of commodity markets, and hundreds of futures markets which managed futures programs follow. The past few years when we’ve seen nearly all commodity markets rise and fall in tandem has really been the exception, not the rule, as the more normal course of things is for some markets to be going up and others to be going down.
Indeed, one of the main strengths of managed futures is to be able to play varying themes simultaneously, as the math which makes up the models doesn’t care what market it is, and whether it is going up or down. The same model that triggers a buy in Silver can signal a sell in Cocoa because the breakouts look the same to the model. The strength of managed futures in many cases is the ability to scan dozens of markets for such breakout opportunities, then acting upon them automatically.
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