After a +127%, 15-month rally that peaked last May, Copper has been drifting in a volatile horizontal range:

For CTAs, this has made Copper a tough market to trade in 2021. Below is the individual and cumulative performance of 12 I-System strategies which represent a set of long-, medium- and short-cycle systematic trend following strategies typically used by CTA (managed futures) funds:

This morning, this set of strategies produced a series of trend reversal signals that brought our positions from full long exposure to basically flat:

This could be a significant development. For decades, commodities trading advisors (CTAs) have used systematic trend following in active investment trading. By and large, these strategies tend to be similar and as a result, when the CTAs start buying or selling some asset they often do so in concert, exerting disproportionate pressure on prices. For this reason, institutions like Nomura, JPMorgan and Rabobank pay close attention to CTAs as and that understanding CTA strategies “can provide a strong edge in today’s highly systematized markets.” (see here, and here).

But what of inflation?

Clearly, in an inflationary environment, it is hard to see Copper prices going anywhere but up. But while this trend – like inflation – is all but certain in the long term, commodity prices (especially metals) are always vulnerable to short-term selloffs that can be sharp and brutal (think oil prices in 2020). Of course, predicting this is quite out of the question and the CTAs are generally at peace with the fact that upward of 50% of all their trades will not be profitable – the whole idea is to capture value from large-scale price events, such as the one we saw in 2019/20 when Copper prices more than doubled.

Here’s how I-System strategies are positioned elsewhere in our Major Markets portfolio report (as of this morning – 11 Jan. 2022):

Of course, this is a fluid situation: as markets fluctuate, exposure changes daily. To receive these signals, check our TrendCompass page and consider signing up for a free 1-month free trial.