CTA market entry/exit levels: marketlevels_0212

Interesting observation – Almost two-thirds of all markets are at “all in” mode, meaning that all models are either fully long (fixed income, gold) or fully short (commodities). You may wonder how could CTAs would buy more of their longs and sell more of these shorts? I know of two ways – if new money is allocated to the CTA space or if market volatilities were to decrease. It’s important to note that most CTAs utilize some form of volatility targeting which means they reduce position sizes as an individual market’s volatility increases. The contrapositive would be they would increase their position sizes as an individual market’s volatility decreases.