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Get into a Trend Following System for access to the next Copper or Gold...

May 15, 2006

 

Many investors want to know what's working in the current market environment, and the listing of the top 5 systems on a risk adjusted basis for the past 90 days shows just that. The following rankings are the top systems on a risk adjusted basis at Attain over the past 90 days using a risk adjusted ratio which equals the past 90 days return / past 90 day drawdown.

The recent rallies in the metals markets are becoming the thing of legend with each new historic high those markets make. The numbers are astonishing. Gold has nearly doubled since the beginning of 2003, and is up 34% so far in 2006. And Copper's rally puts Gold to shame, with prices having nearly doubled so far in 2006 (in just 4.5 months) while increasing 7 fold (+738%) since the beginning of 2003.

To put the Copper market's 738% move since the beginning of 2003 in perspective, the Dow would be trading at 63,500 and Crude Oil prices would be at $280 per barrel if those markets had moved so much since 2003.

Many investors have called in asking what investments at Attain have exposure to these markets, and the answer has surprised some people - TREND FOLLOWING SYSTEMS. That's right, the nearly forgotten, old and boring trend following systems. Trend followers have had a tough go of it in two of the past three years, and have suffered in popularity because of that.

But just like many other types of investments, it is at about the exact time when popularity is at its lowest and everyone is quitting their trend following system when they start to really do well. That's exactly what has happened nearly across the board for trend following systems in the past year - as the big move higher in metals, interest rates finally moving higher, and the dollar weakening have combined to push 15 out of the 16 trend following systems we track to positive returns over the past twelve months(as tested on hypothetical model account on a single contract basis). Trend Following Results.

The two systems that have had success trading the Gold and Copper markets are SEMA4 Symmetry in the Gold and Trend Simplicity in the Copper. SEMA4 has been holding its long Gold position since September of last year, while Trend Simplicity has entered and exited five separate times in the Copper market this year.

The grand majority of trend following systems stay far away from the Gold market because it has historically been a very non-trending market - with 10+ years of declines interrupted by frequent bursts to the upside. But SEMA4 Symmetry approaches the market a little differently by using weekly bars to track market trends. Because of this, the system filters out a lot of spikes and dips which appear to be just noise when looked at on a longer time frame. This logic helped the system identify a breakout to the upside in Gold in September of last year, and the position is currently making about $18,000 per single contract.

The Copper market, meanwhile, is included in many trend following system portfolios - but the risk has been too high for most system to take a trade in the now very volatile market. A system like Aberration may issue a long trade in the Copper market with an initial risk for that trade likely to be $10,000 or more (about 2x the average volatility). That would represent a risk of 10% on a normal $100,000 account, which is simply too much. Trend Simplicity, however, utilizes a unique entry logic that allows it to jump into highly volatile markets like Copper while keeping the risk relatively small (~$1,300 per trade)

How has Trend Simplicity done in Copper? On 5 closed trades so far this year (including today) Trend Simplicity has earned an amazing $28,799.50 per single contract. That is about 37% on the recommended initial balance of $75,000. To learn more about the system or to sign up for a free 30 day trail (daily system signals sent out daily) go to www.trendsimplicity.com and then select “Free Trade Signals”.

These systems don't only take winners, of course, and these Copper trades are as much of an outlier as the huge rally in Copper itself. But trend following systems are designed to hit home runs. Nearly all trend following systems use a logic which cuts losers short and lets winners run. The result is having to suffer through many small losing trades in hopes of getting the one, very big winning trade.

Some of the small losing trades SEMA4 Symmetry has had this year include a losing long Canadian Dollar trade for a loss of -$1675.00 per contract. Trend Simplicity has had losses of $225.00 per contract in Eurodollars, -$1462.50 in the British Pound, and -$1,425 in the Eurocurrency this year.

What market will see the the next Copper-like move?

But does it do us any good to look at these big moves in Gold and Copper and see what could have been? The more intriguing question is what is next? What is the next market to make a Copper-like rally and hit a home run for your portfolio? That is of course, the million dollar question, and if anyone knew the answer for sure, all they would have to do is load up on the long side.

A quick poll around the office found our team thinking the next big move will come from the agricultural markets and be driven by overwhelming demand for ethanol products. Corn, Sugar, Soybeans, and Soybean Oil were all thrown out there as possible big movers. Always the contrarian, I myself went with Copper, knowing it's more than possible that the next Copper-like move will be in Copper itself. If the metal gave back just half of its gains since 2003 over the next 12 to 18 months, that would still be a bigger move than any currency, bond, or other market is likely to make.

But trend following systems allow the investor the luxury of not having to know exactly which market will make the big move. Surely, those investors utilizing SEMA4 Symmetry and Trend Simplicity didn't get involved because they know those systems would have big trades in Gold an Copper.

Rather, the investors knew that those systems gave them the exposure to those markets and more, and gave them the opportunity to participate in such big moves in markets they know little about or have little way of getting involved in elsewhere. Where will the next big move come from? Nobody knows for sure, but you can be sure that one trend following system or another will catch it, as that is what they are designed to do.

- Jeff Malec

IMPORTANT RISK DISCLOSURE
Futures based investments are often complex and can carry the risk of substantial losses. They are intended for sophisticated investors and are not suitable for everyone. The ability to withstand losses and to adhere to a particular trading program in spite of trading losses are material points which can adversely affect investor returns.

Feature   |   Week In Review   |   Chart of the Week   |  

Chart of the Week : Want Higher Returns, Expect Higher Risk

Feature   |   Week In Review   |   Chart of the Week   |  

***Overview***

Commodities are IN once again as investors try capitalize on decade high prices for every day staples like copper, gold, silver, crude oil, and unleaded gas. Even typical boring markets like soybean oil, corn and wheat are worthy of attention lately.

What is causing the recent surge in commodity popularity? Two factors are coming into play in the recent commodity boom. First, emerging nations like China are gobbling up all the commodities they can consume creating less supply and higher prices for the rest of the world. Second, commodities have always been viewed as a safe haven during inflationary times (especially the precious metals markets). Throw in higher energy prices and all of a sudden the perfect commodity storm has been born.

Last week the metals markets led the way with big gains in platinum (+10.88%), high grade copper (+10.61%), palladium (+5.17%), gold (+4.02%), and silver (+2.48%), as the world supply for these metals continues to shrink.

Energies also remain in focus as summer approaches. Unleaded gas futures were up +6.76% last week due to supply concerns. Crude Oil (+2.30%) and Heating Oil (+4.51%) also traded higher, while Natural Gas futures (-6.98%) fell for the week.

Grains, which are viewed by many as the best alternative fuel source, have also rallied as well. Soybean Oil which can be made into bio diesel fuel was up +2.86% last week while corn (+7.38%) which is used in ethanol also traded higher. Wheat (+7.86%) and soybeans (+1.06%) followed suit for the week.

Stock traders didn’t let the commodities have all the attention however. Stocks were hit hard last week, as many traders (Attain included) welcomed the return of volatility to the market. The CBOE VIX index which measures stock market volatility was up over 13.61% last week alone. Stock index futures were hit hard - led by NASDAQ futures which fell -4.58% and Russell 2000 futures which were down -5.31% for the week due to weakness in the tech sector. SP futures were also volatile falling -2.60% while Midcap 400 futures fell -3.39%.

Foreign currencies also stayed in the headlines as the US Dollar continues to look weak. Last week Eurocurrency (+1.30%), the Swiss Franc (+2.14%), and Japanese Yen (+1.98%) all gained ground against the greenback.

***Day Trading***

Day trading systems that have been patiently awaiting some intraday volatility finally got their wishes granted last week. Nearly every day trading system was able to capitalize on the sharp decline in equities last week, particularly on Thursday and Friday.

Foreign systems trading the Dax cleaned up last week and finished in the top four spots across all day trading systems in terms of profitability. Phi Plus Dax took top honors last week with profits of +$3,179.17 on two trades from Thursday and Friday. Beta V2 captured +$2,948.64 in profits for the week on five trades. Theta Dax had struggled in weeks past but rebounded nicely with profits of +$2,884.41. Beta Con 4/1 Dax was just a hair behind with gains of +$2,254.10.

RC Success eRL tacked on gains of +$1,220 last week to bring its yearly total to +$6,220 or +62.2 %. Rayo Plus had moderate gains of +$838.87 after making back the losses incurred on Monday with a home run trade on Thursday. Impetus eRL has been extremely consistent recently and made +$830.40 on two of its signature late-afternoon trades last week. Epsilon 12/12 Bund was able to capitalize on moves in both directions in the Euro Bund for profits of +$636.68. R-Mesa eRL had two trades for profits of +$514.30 per contract. SPmd traded three times for profits of +$500 including a four point winner on Friday to close out the week on the right foot. Beta Con 4/1 ESX had similar trades to the sister system that trades the Dax but made +$386.63 due to the smaller point values in the Eurostoxx compared to the Dax.

Elsewhere, RC Success ES was busy adding to the bottom line with profits of +$320. Kappa Dax came out of the week ahead by +$234.74. Compass eRL made +$131.10 per contract. Compass SP had just one trade last week for a gain of +$125. While it seems logical that the system would have been more active last week, it’s important to keep in mind that Compass looks to enter on a retracement of a main trend-which just didn’t occur last week. Also, several of the domestic systems including Compass are coded to not signal trades on FOMC days to avoid whipsaw trades caused by the volatility and illiquidity around the time of the announcement. Tanker CL had two trades for a loss of -$100 for the week. RC Miracles ERL and eMD got caught up in some reversal trades losing -$595 and -$1,100 respectively. Finally, R-Mesa SP traded three times for a loss of -$1,425.

***Swing Trading***

Swing trading is notorious for testing one's patience, and for most of those involved last week the waiting paid off.

Leading the charge last week was the Tzar suite of systems once again, which earned an amazing $10,252.50 in open trade gains – the system had been holding short from late April - waiting in the wind for the type of sell off markets experienced last week. The system officially reversed its positions long today and recorded +$10,774.90 in closed trade profits across all three markets. (ES, NQ, eRL)

Individually, SC Trader eRL experienced the largest single market gain for the week with gains of +$4,690. The system traded twice before jumping in short 2 contracts on Thursday where it locked in +$3,040 per contract including today’s final exit.

Other notable trades for the week included gains of +$2,580 and $2,190 in Delphi eRL and EMD respectively, Targets eMD +$1,466.66, Targets eRL $1,266.62, Axiom EMD +$1,055.50, Axiom ERL +$940, AG Mechwarrior ES +$752.50, Hourly eRL +$501.24, and Eclipse eRL +$330.

Despite the above success there were a few systems that ended the week in the red including; The Ping portfolio which gave back -$4,015 on the week – the system trades the Daily eRL (currently long), 60 minute eRL (currently short), and 15 minute ES (currently long). Also registering losses on the week were Pivots weekly SP -$2,025, Pivots weekly NQ -$1,575, Gettess ES -$517.50, Axiom ES -$380, Axiom NQ -$215, and the Seasonal ES and eRL systems which gave back -$130 and -$170 respectively.

In the FOREX markets action was limited- SC Forex had another winning week earning +$430 including a closed out trade from last night and Hurricane FX GBP posted 2 trades for a combined loss of -$260.

***Long Term***

While the commodity boom has been in the headlines for a while, it hasn't been until just recently that the long term trend following systems have started to show it on their bottom lines. But trend followers are sure enjoying the bull market conditions across most of the commodity market, now. In addition to the metal markets outlined above other sectors that long term traders are enjoying include bonds, grains, and meats.

With interest rates on the rise bond futures markets have been bearish for quite awhile. 30 year bond futures have led the way falling approximately 8% since January with 10 year notes, 5 year notes, 2 year notes, and Eurodollars all following suit. Most systems with short positions have been short for some time with the highlights including Trend Simplicity holding short in the US for open trade profits of +$6790 per contract and in the ten year note for open trade profits of +$1668.75 per contract.

Other systems with open bond trade include Aberration, which is holding short in the 10 years for profits of +$1778.13 per contract and in the five year notes for profits of +$1391.25 per contract. Andromeda is short for gains of +$5481.25 in the 30 year bonds and profits of +$1856.25 in the 10 year notes. Axiom LT is making +$3435.00 per contract in the ten year notes, while Brix is making +$8165.63 per contract. Finally, SEMA4 Symmetry is making +$2015.63 per contract on a short 5 year note trade.

Brix had the only losing trade of the week after getting stopped out of wheat for a loss of -$1250.00 per contract.

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IMPORTANT RISK DISCLOSURE
Futures based investments are often complex and can carry the risk of substantial losses. They are intended for sophisticated investors and are not suitable for everyone. The ability to withstand losses and to adhere to a particular trading program in spite of trading losses are material points which can adversely affect investor returns.

Feature   |   Week In Review   |   Chart of the Week   |  

Rank System 90 Day RoR Return In Dollars 90 Day Drawdown DD In Dollars Init Cap (000s)
1 Rho H/3 DAX 8.35% $960.21 -0.0374% ($4.30) $11.5