Stock Market Update (9/18/15)

It has been a long time since we posted.  Our stock signals have mostly remained steadily long during the stock markets's rise over the past year-plus.

Recent volatility due to "China worries" and the "FED interest rate watch" have increased volatility and led to several relatively sharp declines.  Although there have been several sharp moves downward, investors should note that the S&P 500 is only about -5% to -7% off of recent peaks.  In addition, stocks are 15% to 20% higher than they were two years ago.

Still, based on recent market action, here are our stock market indicators:

• Long-Term Indicators are currently neutral, and are looking towards market action for a potential change in signal.
• Intermediate-term models are currently mildly short; the market seems overbought. 
• Short-term indicators follow the current trend and are too short-term to report regularly.  

It is noteworthy that other markets we trade - such as currencies and commodities - helped to cushion the decline in the equity markets the past few months.  

Good luck!  

Crude Oil on 6/7/13 - Popped up 1% and then another 1%

Today, crude oil was trading lower by about -1%, then bounced to about even -- and is now up almost +1%.  This is all within about 45 minutes -- and happened by about 10:15am EST.

Just an observation about market action and why traders oftentimes need to think about time-frames and how various triggers react to volatility.

Gold Continues Sell-Off 4/15/13

Gold continued the extreme sell-off it saw on Friday, when it dropped from about 1565 to 1500 (basis the June 2013 futures contract).  Over the weekend and into the New York opening on Monday, April 15, 2013, gold is seeing a breathtaking drop to the 1400 level.  This drop of about 10% shows why traders often have risk management approaches in place and act first -- and ask questions later.  Gold is now at two-year lows (at the lows of 2011 and 2012).

In futures trading, trend-followers are often seen as "reactive" -- but technical traders who follow trends have also seen their approaches be "predictive."  Other precious metals such as silver and platinum, and related markets such as the Aussie dollar are also selling off in sympathy.

More on the technical selling from the CME:

The gold futures markets opened in New York on Friday 12th April to a monumental 3.4 million ounces (100 tonnes) of gold selling of the June futures contract (see below) in what proved to be only an opening shot. The selling took gold to the technically very 
important level of $1540 which was not only the low of 2012, it was also seen by many as the level which confirmed the ongoing bull run which dates back to 2000. In many traders minds it stood as a formidable support level... the line in the sand. 

Two hours later the initial selling, rumoured to have been routed through Merrill Lynch's floor team, by a rather more significant blast when the floor was hit by a further 10 million ounces of selling (300 tonnes) over the following 30 minutes of trading. This was clearly not a case of disappointed longs leaving the market - it had the hallmarks of a concerted 'short sale', which by driving prices sharply lower in a display of 'shock & awe' - would seek to gain further momentum by prompting others to also sell as their positions as they hit their maximum acceptable losses or so-called 'stopped-out' in market parlance - probably hidden the unimpeachable (?) $1540 level.

The selling was timed for optimal impact with New York at its most liquid, while key overseas gold markets including London were open and able feel the impact. The estimated 400 tonne of gold futures selling in total equates to 15% of annual gold mine production - too much for the market to readily absorb, especially with sentiment weak following gold's non performance in the wake of Japanese QE, a nuclear threat from North Korea and weakening US economic data. The assault to the short side was essentially saying "you are long... and wrong".

Read more here:
http://www.cmegroup.com/education/market-commentary/metals/2013/04/pre-open-gold_3564.html


And why is gold selling off?  Some say it is the result of China's latest round of economic numbers (China GDP), and others report that stories of Cyprus selling gold reserves (related to the Greek crisis) is hitting the gold market.

Stock Market Systems: Reiterate Buy (8/17/12)

It's been a while since our last update from our Stock Market Systems on July 12, 2012 -- so we wanted to re-iterate our systems' Buy signals.  As our readers know, we update the blog whenever there is a change to our main stock market signals (Long-Term or Intermediate-Term Models).  In this case, our signals remain the same -- but we just wanted to check in and re-iterate the Buy signals.

On July 12, the S&P stood at 1336.8.  Our models kept us generally long -- and today, the S&P closed at 1415.5, reaching recent highs.  Our models remain long -- and we will make a blog post on a material change to our models' signals.

In the futures markets, after gains over the last few months, several markets have been in a consolidation phase (such as currencies, precious metals).  Grains have been choppy, although generally higher due to this year's drought.

Commodities: Dry Weather Pushes Grains Higher

Dry weather in the US Midwest, over an extended period, has turned what some predicted to be a bumper crop -- into a potential disaster for this year's crops.  Corn, in particular, has been in the news, with recent prices soaring above $7.00 per bushel, from a recent price in the $5.50 range.

It is noteworthy that corn started the year in the $6.20 to $6.80 range, but weather forecasts, the shaky economy -- and other predictions (of a bumper crop) -- caused choppy price action down to the $5.50 level.  Today, corn surpassed the $7.00 level -- and all eyes are on Mother Nature -- and the weather.  One expert calls for some potential relief over the weekend, albeit -- not much -- before more oppressive heat (and dry weather) continues in the near-term afterwards.  

Some farmers are comparing the weather and crop conditions to the 1988 drought, while others are even bringing up the 1930's Dust Bowl scenario.  On the other hand, some say it is too early -- and that the situation is fluid (no pun intended) -- and that we will only know after "pollination," at the end of the summer.

A spike in food prices -- and a potential blip in (food) inflation will not be good news for an already shaky economy.  On the other hand, managed futures traders have been caught in choppy market action for quite a while, so sustained trends will be a positive for futures traders.


Please read more here:
http://www.nytimes.com/2012/07/05/us/for-midwest-corn-crop-the-pressure-rises-like-the-heat.html?_r=1

http://www.cnbc.com/id/48058304

On Rebalancing

Some recent research on rebalancing:  There's a tradeoff between staying true to the desired asset allocation -- versus: execution costs (commission and slippage), and normal market action (fluctuations, trends).

Rebalancing too frequently can create extra costs. On the other hand, rebalancing infrequently allows the asset mix to drift -- and can increase risk (nominal risk and risk relative to the desired mix). Based on other publications -- as well as Monte Carlo simulations I performed -- the data DOES show that rebalancing too frequently can give up some gains in exchange for potential expected asset mix drift. This is evidence of how markets can trend -- and yield excess performance for holding assets that are trending... (But some of these topics might be the topic of other research/articles)... The "sweet spot" for rebalancing seems to be 6-14 months, depending on the assets/investment vehicles -- and investment goals.

Interestingly, some products (like commodity indices) are designed to rebalance annually rather than monthly (or even daily)...

http://seekingalpha.com/article/277851-a-well-balanced-portfolio-including-alternative-investment-etf-allocation

Alternatives in the News

How Managed Futures Fit into Your Portfolio

In a nutshell, what managed futures provide is an important non-correlated asset that any serious investor should have in their portfolio. Statistical studies—academic studies—suggest that that should be anywhere from 5% to 15% of a portfolio.

Some people say, “Well, it should be held for three to five years.” I would posit that it should be held as long as you own equities and/or fixed income in a portfolio, because of the diversification effects.

What we’re trying to do is to provide some stability. One of my colleagues likes to suggest that it’s the seatbelt in the portfolio. You get into a car, you’re in a high-performance car, you still want to put a seatbelt on in case there’s an accident.

Read more here:

http://www.forbes.com/sites/katestalter/2012/01/17/how-managed-futures-fit-into-your-portfolio/3/

Bruising Year for Commodities Hedge Funds

The drop came as multibillion-dollar commodities hedge funds such as Blenheim, Clive Capital, BlueGold and Merchant posted double-digit losses for the year.

Some of the industry’s best-known managers were hardest hit. Blenheim, which has $5bn in assets, posted a loss of about 17 per cent, according to three investors. The fund, founded in 1988 by trader Willem Kooyker, suffered its worst month since inception in September, weighed down by bets on corn and aluminium, an investor said.

(May need free registration at FT.com)

http://www.ft.com/cms/s/0/9179ec9a-4c2f-11e1-bd09-00144feabdc0.html#ixzz1lLDjfXjv

Interview with Carlton Chin of CARAT / Adamah Capital

I truly believe that the best way to enhance diversification is through managed futures. A lot of hedge funds will use the same basic building blocks - using stocks and bonds - while managed futures uses everything from currencies to commodities. That really adds diversity to a portfolio.

...

I love to look, especially for hedge funds and managed futures, at downside volatility. We can look at the standard deviation of the S&P 500, which over the past 30-plus years is 15.6 percent. Interestingly, if you look at the downside volatility, that is 11.7 percent. So the scary, or downside volatility, represents 75 percent of the overall volatility. This is one place where managed futures shines because based on a series of returns, mostly the BarclayHedge CTA Index but also my performance, the volatility has been 17 percent in total. The standard deviation is about 17 percent which is a little higher than the S&P 500 but if you look at just the downside volatility, when the performance for managed futures was negative, that number is just 10.1 percent.

...

I’ve been lucky to work with some folks at the University of Chicago -- and Frank Vannerson was from Princeton. These academic studies can add credibility as well, and show that managed futures/alternative investments have benefits.

...

Carlton Chin is chief investment officer and head of research at CARAT/Adamah Capital LLC, a fund manager and CTA focused on systematic managed futures strategies. An investment professional since 1990, he spoke with Managed Futures Newsletter editor Jim Kharouf about his start in the business, whether markets change and how he looks at volatility.

Read more here:

http://www.jlnmanagedfutures.com/2012/02/five-minutes-with-carlton-chin.html

Gold at a Crossroads

Here's an excerpt from an article on Commodities & Gold:


As gold surged towards the $1900 per ounce price level over the past few months, there has been growing interest in gold as part of a well-diversified portfolio – and as a safe-haven investment. Indeed, the gold positions of large and well-respected institutional investors such as the University of Texas endowment, and hedge fund manager, Paulson & Company, have been in the news.

Interestingly, many of these headlines came around the time when gold was rallying towards its all-time highs in the $1900 range. We note that many of these large investors have already profited from their stakes in the precious metal. Since peaking at around $1900 per ounce in September 2011, gold sold off rapidly to $1550 within a few weeks. Gold has been consolidating mainly in the $1600-$1800 range since that time. Where will gold head from here? In this article, we look at gold – which stands at a crossroads, as we prepare for 2012.

...

Our CTA’s proprietary trading models cover the gamut of time-frames, which include long-term and short-term trend-following. Briefly, our futures trading strategy can be described as:

• intermediate to long-term trend following, with
• pattern recognition and machine-learning components, and
• (short-term) risk management approaches that help set us apart from others.

In particular, some industry professionals like the fact that our pattern recognition and short-term risk management components have a slight mean-reversion flavor.

As intermediate-to-long-term futures traders, our outlook remains bullish, but the bullish case has started to crumble. As usual, we will follow our computer models and trading strategies to give us direction.

As our clients and investors know, we apply a “barbell” approach to help us maximize “forward information.” Systematic and computerized trading strategies keep us disciplined – and market action will dictate our positions. 

Read more here:

http://seekingalpha.com/article/315072-commodities-gold-at-a-crossroads

Carlton Chin, CFA, is the portfolio manager for ADAMAH Capital, which specializes in Computer Aided Research & Advanced Technology (CARAT). He is a specialist in quantitative investment strategies, managed futures, alternative assets, global macro & strategic asset allocation. Carlton combines a CTA hedge fund background with portfolio optimization work for institutional investors. He founded Adamah with his long-time friend and associate, George Parr. Carlton has been quoted and featured in the Wall St. Journal, NY Times, MARhedge, Futures Magazine, and Financial Trader. He holds both undergraduate and graduate degrees from MIT.

AN INVESTMENT IN FUTURES CAN RESULT IN LOSSES.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

Managed Futures & Commodities: Overview & 2012 Outlook

Below is an excerpt from an article by Carlton Chin on Managed Futures, Commodities and corresponding indices, including a Liquid Commodities Index and an Investable Managed Futures Index -- as well as Barclays & NewEdge Indices: 

The performance of the Managed Futures industry and CTAs (Commodity Trading Advisors) is generally uncorrelated to the stock market and other hedge fund strategies. The year 2011 has seen most CTAs flat- to-slightly down, along with most other investment strategies and asset classes.

Here is a sampling of several Managed Futures industry benchmarks through the end of November:

• Barclays CTA Index -3.1%
• Barclays BTOP 50 Index -4.0%
• NewEdge CTA Index -4.7%
• NewEdge Trend Sub Index -8.4%
• Investable Managed Futures Index 0.0%

Although CTAs would have loved to achieve positive returns this year – to further its diversification arguments – the Managed Futures industry has already proven its diversification mettle in 2008, when CTAs produced double-digit returns during the start of the financial meltdown. In particular, the Barclays CTA Index was up 14.1% and the Investable Managed Futures Index was up 25.5% in 2008, when the S&P 500 was down -37.0%.


AN INVESTMENT IN FUTURES CAN RESULT IN LOSSES.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

Managed Futures and S&P 500 Annual Performance

Notes:

• Annual returns for S&P 500 and Investable Managed Futures Index.
• 2011 Returns are year-to-date as of November 30, 2011.

The author, Carlton Chin, CFA (CTA and portfolio manager at Adamah Capital) is a specialist in systematic and quantitative investment strategies as well as dynamic asset allocation.  He believes that alternative assets can help diversify traditional portfolios of stocks & bonds -- and improve risk-adjusted returns. 

Read more here:

http://seekingalpha.com/article/312307-managed-futures-and-commodities-overview-and-outlook-for-2012




Carlton Chin, CFA, is the portfolio manager for ADAMAH Capital, which specializes in Computer Aided Research & Advanced Technology (CARAT). He is a specialist in quantitative investment strategies, managed futures, alternative assets, global macro & strategic asset allocation. Carlton combines a CTA hedge fund background with portfolio optimization work for institutional investors. He founded Adamah with his long-time friend and associate, George Parr. Carlton has been quoted and featured in the Wall St. Journal, NY Times, MARhedge, Futures Magazine, and Financial Trader. He holds both undergraduate and graduate degrees from MIT.

Some thoughts from another trader 9/26/11

Here are some thoughts from a hedge fund manager (J. Taylor):

... believes that Greece is going to default, that the euro will fall, and that the U.S. dollar's rebound has just started. It was his kind of week last week.

... positive on the commodity-based ones, such as the Australian and New Zealand dollars, despite their run-up. "We use commodities to forecast currencies," he notes. For instance, Norway's krone is a function of the price of oil, which he thinks is a solid long-term bet on the next growth cycle. In five years, he says, "we could see oil at $500 a barrel. I would be a buyer on dips of oil." But that's a trade for another week.

Read more here:
http://online.barrons.com/article/SB50001424052702304336204576582692220816096.html 

Article on Portfolio Optimization & Alternative Assets

Here's an article one of our contributors wrote on asset allocation, alternative investments, and ETFs.

The benefits of portfolio optimization and Modern Portfolio Theory are well-documented. In this article, we review a well-balanced portfolio and several low-fee ETFs that can be used to implement the asset mix.

Of particular interest, the portfolio mix includes an ETF allocation specializing in an “alternative investment” strategy. Alternative investment strategies such as “managed futures” are gaining in popularity because they offer increased diversification benefits – due to lower correlations – versus traditional assets such as stocks and bonds.

Please read more here:

http://seekingalpha.com/article/277851-a-well-balanced-portfolio-including-alternative-investment-etf-allocation

Volatile Commodities & Futures Markets

Just a quick report on the volatility in the commodities & futures markets.  Our risk management approaches got us out of oil and gold before the steep declines today.  On the other hand, the downdraft crept into many other markets (industrial metals, agriculturals, foreign currencies, US Dollar) -- and reversed long-standing trends in early May.  This caused us to give up much of the recent profits we have earned over the past several weeks.  Our Diversified Programs are down about -3.5% this month.

As reported by MarketWatch, commodities suffered their worst decline since 2009.  Please read more here:

http://www.marketwatch.com/story/commodities-suffer-worst-slide-since-2009-2011-05-05?dist=afterbell

CRB Index Past 3 months (as of 5/5/11; see the last bar on the right...)

Thank you to INO.com for the chart.

***

Today alone, crude oil declined $10/barrel to below $100 and gold declined about $50/ounce to below $1500.  The Liquid Commodity Index reflected the recent volatility -- declining -5% today (May 5, 2011); and is down -8.6% for the month, after rising to new highs in April.   

We currently have relatively small positions, reflecting the reversals and volatility in the futures markets.  We will, of course, continue to "do what we do" -- and will follow our trading system/risk management strategies. (Unfortunately, this kind of market action is not unprecedented.)

Please let us know if you have any questions.

February Recap for Markets

February saw rising stock prices, slightly lower bond prices -- and mixed results for managed futures programs. The Middle East unrest created volatility in the energy markets.  This resulted in both winning and losing trades in the energy sector, with net profits for the month in crude oil trades.

Our zFutures Diversified Program, tracked at Collective2, was slightly higher at +0.5%, while the z-Trader Short-Term Program registered a +10.6% gain.  

The zFutures Diversified Program can be carved into two main sectors (Financials & Commodities).  The z-Trader Financials Program gained +4.7% with profits in the currencies, bonds, and precious metals.  These gains, however, were offset by losses in the z-Trader Commodities Program (with the grains and softs being the main culprits), leading to a drop of -8.3%.  The Financials & Commodities Program offer good diversification to one another -- and together, will approximate the Diversified Program, at higher leverage (but offer the benefit of a lower account size). 

The z-Trader Short-Term Program rode the S&P to fairly steady gains during the month.

AN INVESTMENT IN FUTURES CAN RESULT IN LOSSES.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
ALL RESULTS MUST BE CONSIDERED HYPOTHETICAL RESULTS, WITH MANY INHERENT LIMITATIONS.

z-Trader Quant Systems & Collective2

We have used a system developer name of "z-Trader" to post the results of quant trading strategies on Collective2 (C2), a third-party tracker.  We have created four programs on C2 as follows:

zFutures Diversified (Adamah Cap)

z-Trader Commodities

z-Trader Financials

z-Trader Short-Term

In addition, note that we have a track record and/or hypothetical results that go back to 1996.  Performance on C2 must be considered hypothetical, with all of the risk disclosures associated with futures trading and hypothetical results.  

AN INVESTMENT IN FUTURES MAY RESULT IN LOSSES.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

zFutures Diversified Program (Adamah Capital): is a fully-diversified program that trades both Commodities & Financials.  The Diversified Program was posted on C2 about 8 months ago and appears on C2's leaderboard.

http://best-tradingsystems.collective2.com/

In order to achieve lower account sizes (as requested by several C2 users), we recently created the z-Trader Commodities and z-Trader Financials Program.  On average, these two programs will combine to be a good proxy for zFutures Diversified (although with more leverage to achieve the lower account sizes).  Commodities have had a few good months, while Financials (currencies in particular) have struggled the past 1-2 months.  Over the long-term, we expect the two programs to have similar levels of performance.  The programs offer good diversification to one another.   

z-Trader Short-Term applies similar approaches as our other programs -- but with a shorter-term outlook that can be applied to large markets (and markets that exhibit volatility).  The program trades markets such as the S&P, energy & metals, with a focus on the E-Mini S&P.  

Please contact us for more information.

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.


AN INVESTMENT IN FUTURES MAY RESULT IN LOSSES.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

Intermediate Stock Indicators - Moderately Long

As the market nears the close, our intermediate-term stock market indicators are moving to an increasingly bullish position -- going from a slightly-long reading to a moderately-long position. Our long-term indicators remain strongly bullish.

We do not post indications from our short-term indicators, but our overall S&P positions are dictated by the combination of all time frames. Our S&P models are part of a z-Trader Short-Term System monitored at Collective2.

We also use Collective2 to track our Diversified Futures program, zFutures.

Trading Systems: Managing the Ebb & Flow of Futures Markets

Here are some excerpts from an article Carlton Chin of Adamah Capital wrote at SeekingAlpha on the recent sharp reversals in the futures markets -- and how trading systems need to find balance between profit opportunities, risk management, and potential losses (drawdown).

...The futures markets (both financials and commodities) -- and in particular, currencies, metals, energy, agriculture, and several softs -- have presented profit opportunities to futures traders. However, after a strong December, early January has seen some sharp reversals in the future markets.

...

Back in November, we wrote about the sharp reversal in the futures markets. At the time, we saw severe reversals even sharper than this week's moves... However, at the time (back in November), traders had to manage their risk -- and protect profits from potentially severe drops.

...

Managing the Ebb & Flow of Markets

There is a trade-off between "potential profit opportunities" versus losses -- and a "decline or drawdown" for any trading strategy. In a nutshell, traders must "surf" the waves of the markets -- and manage their positions and strategies through the inevitable "ebbs and flows" of the markets.

...

There are always risk and return trade-offs, but good research can help traders and investors capture profit opportunities in the financial markets. We have studied and developed trading methodologies that attempt to capture profits while managing risk. Please check out the results in this FX/Forex trading challenge (top few percent). In addition, several of our trading strategies can be tracked at this third-party tracker, Collective2.

We will follow our trading methodologies and continue to monitor and research the markets. Ongoing research and a systematic, disciplined, approach can help put the numbers -- and market action -- on your side.

__________

For the complete article at SeekingAlpha, please click here.

Commodities: Prices & Volatility Increase (Capturing Profits with Managed Futures)

Below are excerpts from our SeekingAlpha article on the recent spike in commodity prices -- and sudden sharp reversal. The increased volatility presents challenges to CTAs as futures traders balance the offsetting goals of:

• capturing additional profits, while
• protecting existing principal.

The article discusses methods that managed futures programs use to capture -- and retain profits from the futures markets. For the complete text and some charts, please visit the link.

http://seekingalpha.com/article/236692-commodities-prices-and-volatility-increase

Recent months have seen a continued decline in the U.S. dollar and an associated rise in commodities prices. After a relatively steady climb in commodity prices since May, commodity prices spiked early in November. Gold crossed above the $1400/ounce level and crude oil challenged the $90/barrel level. Along with the rise in commodity prices, volatility has suddenly picked up this past week in the commodity futures markets.

Some additional recent futures market activity, reflected by the Liquid Commodities Index (LCI):

• Since hitting a recent low at May 31, 2010, commodities have rallied strongly, with the LCI rallying more than 20%.

...

The investable, "Liquid Commodities Index" (LCI), was designed so that Adamah Capital could more easily track the price movements of the commodity futures markets. The LCI has a very high correlation (about 0.98) to other commodities indices, has slightly better risk/return characteristics, and is a good low-fee alternative for investors seeking the diversification benefits of the major commodities markets.

Managed Futures

In addition to a passive approach to investing in commodities, some investors seek a more actively-managed approach to futures, namely "managed futures." These products can capture both up and down movements within the futures markets. The Liquid Commodities Index showed the "buy and hold" performance of the commodities markets over the past several months.

...

... The Adamah Diversified Program captured profits in the futures markets over the past few months -- and protected profits during the sharp reversal of the week ending November 12, 2010, maintaining about 75% of the month's gains.

...

Many managed futures programs are systematic and aim to capture moves within the futures markets. While no program will be successful all of the time, a good trading strategy will attempt to capture the profit opportunities within the markets -- maintain these profits -- and minimize risk and whipsaw losses during more difficult trading environments.

Quantitative trading programs often manage and monitor risk on both a "trading system" level as well as on a "portfolio level." Trading strategies are often based on historical simulations, as well as statistical and systematic research. They are also tested in a multitude of ways to increase the comfort level of robustness and improve the "forward information" of the strategies. These methods include blind-testing, bootstrapping, Monte Carlo, and other methods to maximize the effective use of data.

Finally, CTAs monitor and manage risk within their portfolios using a number of metrics and models. In addition to capturing the opportunities the futures markets offer, it is essential to protect these profits. In today's economic environment -- with commodity price volatility increasing -- risk management and "protecting profits" are particularly important.

___

Carlton Chin, CFA, is the portfolio manager for ADAMAH Capital, which specializes in Computer Aided Research & Advanced Technology (CARAT). He founded Adamah with his long-time friend and associate, George Parr. Carlton has been quoted and featured in the Wall St. Journal, NY Times, MARhedge, Futures Magazine, and Financial Trader. He holds both undergraduate and graduate degrees from MIT.

Managed Futures: Performance & Diversification

Some of our readers know that our specialty is "alternative investments." We believe that alternative investments such as commodities, managed futures, and other diversifying strategies offer good diversification benefits to a traditional portfolio of stocks and bonds.

CARAT Capital was originally started to combine concepts of Modern Portfolio Theory, downside measures of risk, and robust trading systems. CARAT is an acronym for Computer Aided Research & Advanced Technology. Today, all money management activities are handled byAdamah Capital, a firm founded by Carlton Chin, CFA and his long-time friend and associate, George Parr.

Managed Futures have had a nice run over the past several months. Please check out the performance of our Diversified Program, tracked by a third-party firm. Carlton Chin, has a solid longer-term track record. Over time, managed futures have proven to earn returns from opportunities in the futures markets -- that are non-correlated to traditional assets such as stocks and bonds.

Please visit our websites and contact us for more information.