Commodity Trading & Trend Following

Everyone would love to know what would be the outlook for the commodity markets and commodity trading. After a roaring 2007 and 2008 it seemed that commodity trading advisors would know no limit. The stock markets collapsed in 2008 and fear was rampant through out the world. During the turmoil when virtually every strategy lost money the Newedge CTA Index was up 13.07%. However in 2009 we encountered one of the biggest run up in the history of Wall Street and commodity traders did not find oppurtunities to profit. Many question was this a dead cat bounce or have things really changed and improved?

For commodity trading advisors and trend followers the commodities markets were choppy, whipsawing and full of false starts. In this tough & difficult environment, the Newedge CTA Index was down -4.25%, its first negative year since its inception in 2000. Many inexperienced investors have fled the managed futures markets with the first scent of a draw down.

These investors forget the central banks have flooded the world with liquidity and more cheap money. This historically has been a catalyst for inflation. Another wild card could be the effect of China having it’s own version of a housing crisis due to massive over building. Regardless…trend followers do not predict..they only react…The proven fact though in times of crisis..trend following a basket of commodities, currencies, interest rates, metals and energies has been a profitable trade.

What I personally see is resumption of wall street preaching to the public to be a long term investor, buy stocks..they are a safe investment. This could not be further from the truth… For a 10 year period..most investors in the stock market were lucky just to break even. Now you look at all the risks, they seem to be magnified. There have been weak earning from Alcoa to Chevron. There is still is massive unemployment, interest rates can go any lower and possibly will be heading higher to outset some of the tremendous debt created by the Fed, as well as many of the technical and consensus indicators which have become negative.

Have a plan…be aware of the inherent risks that are becoming more luminous.

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Andrew Abraham
A.Abraham@AngusJackson.com
www.AJpartnersinc.com
www.myinvestorsplace.com
Futures trading involves risk. People can and do lose money