Historically the summer markets coincide with tight ranges and low volume. Trends seem to dry up, markets trade in tight ranges, and short-term opportunities can be rare. For instance, the past 30-day range in the SP 500 has been the tightest range since 1995. That particular market led to a 180% rally in the stock market over the next four years. However, today’s market has its unique headwinds, including rate hike decisions that are eagerly awaited, dissected, and then obsessed over, as well as a unique presidential election around the corner. Whether it breaks up or down matters little to me as long as it goes somewhere.
The tight ranges made it a difficult month for Trend Following strategies, which collectively posted a -3.5% return according to the IASG Trend Following Index. Similar to the stock market, the month of August for the commodity complex was also rather void of volatility. With the stock market holding onto its post-Brexit rally so far, the flight to Gold has slowed. Gold gave up some gains after breaking out in June and July, dropping from $48 to $1300. Silver posted a somewhat larger drop of about 9%. Crude oil saw a modest rally of about 8.1%, with OPEC rhetoric and high demand season being drivers. Natural Gas closed the month little changed primarily due to relatively mild weather resulting in reduced demand / steady inventories. On the Agricultural front, corn and soybeans both continued their slow slide, as yield reports are somewhat mixed but generally considered plenty sufficient to meet demand. Corn finished -4.9% while Soy Beans were -6.7%.
In other strategies, Discretionary Traders were slightly positive for the month, finishing +.07%. When markets seem to lack conviction, a discretionary manager can usually emerge rather unscathed as they will tend to be out of the market. Options Traders were the standout for the month with a combined +1.95% return. Despite the VIX being in the teens for the month, option managers were able to make steady profits by being able to stay in many of their positions through expiration. Agricultural Traders were somewhat noncommittal with falling prices, yet some very apparent weather-related risks developing. Accordingly, positions seemed to be concentrated in the further dated contracts as that is where the trends are more highly anticipated.