Commodity investing is becoming more mainstream year after year. Managed futures accounts can be a good option for an investor with enough capital. An ETF or ETN tracking the S&P Commodity Trends Indicator / Index may be just as good as a managed futures account.

When the stock market lost over 50% in value from 2007-2008 the S&P Commodity Trends Indicator was up 30%.  The index perform well since it takes both LONG and SHORT positions in the commodity market.

Elements ETNs released an ETN that investors can purchase that tracks the S&P Commodity Trends Indicator. Even if it does not return 30% in the next two years it will at least provide some portfolio diversification away from stocks and bonds.

I. S&P Commodity Trends Indicator

• Rules-Based Methodology.
-Weights determined by global production
-Component positions determined using exponential moving averages
-Sectors are rebalanced monthly, components annually

• Long Components Capture Inflation.
The S&P CTI is a useful tool to offset inflation risk in portfolios as it is long components in markets with rising prices which may have a positive impact on the CPI.

• Short Components Capture Futures Cyclicality.
Commodities tend to exhibit long term price trends and often move in different directions. The S&P CTI captures this cyclicality by shorting futures contracts that show falling price trends and may act as a deflationary hedge.

• Long/Short Creates a Low Volatility Indicator.
The long/short nature of the S&P CTI creates a smooth and relatively low volatility return stream, earning the risk transfer premia that is present in the futures market.

• Measures Trends and Volatility.
The S&P CTI is designed to measure price trends in the traditional, physical commodity futures markets as well as the volatility of an aggregate of
major commodity price movements.

Download the fact sheet here

II. Elements ETN - S&P Commodity Trends Indicator Total Return

Elements ETNs offers the S&P Commodity Trends Indicator - Total Return ETN symbol LSC that follows the LONG/SHORT allocation of the index. Listed below are current holdings and a recent chart.

The following back-test documents the results of testing LONG and SHORT trades of the MACD Line crossing ZERO and the MACD Signal Line crossing ZERO.

The back-test in this post outperforms the most common MACD trading signal which is the MACD crossing the signal line. If a trader wants to use MACD for a trading system, without other confirming signals, it is best to use MACD crossing ZERO vs. MACD crossing the signal line.

Objective: Document historical returns using single indicators as trading systems.

Indicator/System: MACD and SIGNAL Crossing Zero

Ticker: PowerShares - QQQQ
Start Date: 3/11/1999
End Date: 12/01/2009
Max Stop Loss: 8%

I. MACD Crossing Zero Line

Number of Trades and % Profit

II. MACD Signal Line Crossing Zero

Number of Trades and % Profit

Conclusion: MACD Crossing ZERO produced 13.84% annual returns and out performs the MACD Signal line crossing zero, and MACD Crossover (crossing the signal line). The caution is that this strategy only result in 35% successful trades.

All back-tests were performed with AMIBroker

The following back-test documents the results of testing LONG and SHORT trades when the MACD crossing the signal line.  This MACD strategy by far under performs MACD crossing zero as a trading signal.

Objective: Document historical returns using single indicators as trading systems.

Indicator/System: MACD Signal Line Crossing MACD

Ticker: PowerShares - QQQQ
Start Date: 3/11/1999
End Date: 12/01/2009
Max Stop Loss: 8%

Number of Trades and % Profit

Conclusion: MACD Signal crossing MACD as a stand alone trading system produces inferior results with -7.75% annual returns.

All back-tests were performed with AMIBroker