In what should have been a nothing-type of day, with just minimal moves if any in those markets that are open on this US Bank holiday day in US; today’s green across the board is not what most managed futures programs wanted to see.
The May and June sell off in stocks and commodities stopped most programs out of long trades. Then the July and August moves lower moved many programs short so called ‘risk on’ markets. Then, the early October push to new lows put programs into any short positions that hadn’t been initiated yet (like short Platinum and Aussie Dollar).
And now we’re here staring a not insignificant trend reversal in the face, with nearly every market green below held short by managed futures programs; and those markets CTAs are holding long (bonds) the only markets in the red today.
The good news – one day does not make a new trend. And while up today, we remain well below the September highs for most of these markets, as well as below the 80-100d moving average of prices (a general level most CTAs use as a trigger to tell when a trend is over).
In fact, despite the Goldman Sachs Commodity Index being up about 2.25% today and up 8% from its 10/04 close, it still has about 7% to go until it hits the 100day moving average; meaning we would need about three more days like this before we start to see some exits among systematic multi-market (trend following type) managed futures programs. [disclaimer: stops can not guarantee an order is executed at the desired price]
So, while this move is causing some pain today for systematic multi-market programs holding short the bulk of these markets, the move is in character with we expect in managed futures – where the norm is more of three steps forward, two steps back, three steps forward, two steps back, and so on.
We simply don’t know at this point whether this is the start of a real trend reversal which would likely trigger October losses for many managed futures programs and the asset class as a whole; or just one of those two steps back. Stay tuned.
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