Thursday, January 20, 2011

Managed Futures Sector Report: "Caution Flag for Financials"

After several months of good returns in the managed futures and commodities arena, several futures market sectors are seeing "red" in early 2011. Many markets are seeing choppy market action and consolidation in January.

In particular, gold - which has been entrenched in a long-term bull market - has seen stiff resistance in the 1420 area and has seen a recent reversal. Today, the gold market took out recent lows and is sitting in the 1340 range.

Other related markets, such as the currencies and U.S. dollar have also seen reversals and whipsawing market action. In a nutshell, the financial and metals sectors of the futures markets have suffered losses. We have recently created a tradable Financials Program so that investors can track the performance of this managed futures sector, on third-party tracker Collective2. Note that the financials program includes metals.

On the other hand, the Commodities sector has held up relatively well during this volatile period. Various markets such as softs and cattle have yielded profits, which have offset losses in hogs and grains. The energy market has given up gains earned earlier in the month. Overall, however, the commodities sector remains slightly higher for the month. The performance of this sector can be tracked here, in our tradable Commodities Program.

Today's volatility has caused our systematic approaches to go into a slightly more "defensive mode." Risk management is one of the key elements to long-term investment success in the financial markets. The goal is to capture "profit opportunities" when they present themselves -- but to keep losses from accumulating when the markets are in a "whipsaw mode" -- and trying to "find" a "new equilibrium / price level."

Our trading models are currently signalling a "caution flag" for several markets -- and in particular, the financials sector. We do not believe that the long-term bull market in commodities is ending. However, we "try not to think" -- and instead -- follow our quantitative models that are based on many years of data and research. For now, if you are in these markets, please watch your risk levels and "stops," to prevent losses from accumulating.

The Financials Program and Commodities Program are good diversifiers to one another -- and combined, are a good proxy for a fully Diversified Managed Futures Program, which can also be tracked and traded. Please contact us for more information.



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