December was a great trend environment for those focused on intermediate to long-term timeframes. There were profitable opportunities in both equity indices and global bonds. Equity index trends flipped early in December and have accelerated albeit with greater intraday volatility. Bond trends continue on slower macroeconomic growth numbers and the perception of a more dovish Fed. Strong signals exist for short, intermediate and long-term timeframes. There are also strong rate trends as Fed expectations radically changed. Currencies generally show downward trends except for Japanese yen. Nevertheless, these trends are more mixed relative to bonds. Precious metals show upward trends while base metals are generally down. The energy complex shows short signals even with declines in OPEC production. Commodities also show downtrends.
The value of these trends may not have shown-up in performance numbers for trend-following firms because of the higher volatility and the Christmas holiday season. Managers who size positions on volatility have cut exposure in many markets from what was seen a few months ago. Similarly, many managers will cut positions based on liquidity concerns over the holidays. Those firms that trade without liquidity constraints or volatility positioning and targeting likely performed better this month.
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