It’s really easy to look at a blood red screen with a few safety plays blazing green and think, “Oh, ok- we’re risk off today.” Sometimes, that’s a fair assessment, especially when it looks like the markets getting hit hardest are the ones surrounded by flashy headlines – such as a lack of investor confidence in the Eurocrisis solutions tanking the Euro lately, or Treasuries going neon (green) after Operation Twist hit the scene. This year in particular, risk on and risk off trading atmospheres have been fleeting and fickle, reversing course on a whisper of a rumor and wreaking havoc on a good amount of managed futures trend following programs.

So when we see a red blood screen, and we hear the crazy headlines, it’s understandable that we write it off as “another one of those days,” and, indeed, comments in the Twittersphere from market participants seem to have that sort of ring.

But are we missing the forest for the trees?

Taking a look at MTD movement in some of the more liquid markets in each sector, it looks like a sustained movement to the downside. The stars indicate markets that have, as a brief glance at Finviz shows, hit new 2011 lows in December; several more look to be flirting with prior lows for the year, as well. To be fair, Finviz YTD performance does not smooth prices to take into account the effect of rolling the futures contract over upon expiration, and may be different from the cash market or backadjusted YTD performance for that reason, but the gist remains the same.

There are some glaring exceptions, and those exceptions happen to be traditional flight to safety investments. They may not be making new 2011 highs, but their trajectory is definitely distinctly different.

We’re accustomed to thinking of “risk on, risk off” on a daily basis, but the data shows that it has been occurring for longer periods of time. The question now becomes, how enduring will this perspective be? We’ve grown so accustomed to it being nearly a daily change that an extended period of either predominantly risk on or risk off trading seems foreign. As we’ve touched on recently, many of the recent risk on surges appear to be fueled by little more than hope and a prayer. Is the bigger picture that the markets are finally coming to their senses? Are they realizing exactly how much trouble we’re all in with the global economy walking a tightrope and attempting to dodge bullets like the Eurocrisis, a treacherous regulatory landscape, employment woes and more? That’s not even taking into account the struggles that face us moving forward.

Those holding out for the famed “Santa Claus” rally in stocks (and, by extension, the rest of the “risk on” crew) are certainly hoping that’s not the case, but as investors survey the volatile political, economic, and social climates across the globe during their end of year portfolio evaluations,  their seasonal belief may be overshadowed by some cruel realities. There’s no way to know whether this will be enduring, but those managed futures programs holding short positions and benefitting from this most recent period of risk off behavior are sure hoping the year ends with a wimper instead of a bang.

Bouchard Capital- Short Term Multi-Market, Covenant Capital Management Aggressive, Clarke Capital Worldwide, Integrated Capital Management Global Concentrated, Robinson Langley Capital Management, and Dominion Capital Management Sapphire have all benefited from the risk off movement this month, particularly in Cotton. Other programs have struggled for a variety of reasons. Though Dominion is now benefitting from some short positions, the lack of follow-through on short term trends has hurt them overall in December. While the view of the forest may paint the picture of a trend, their strategy, in the thick of it, has them running into trees shaped as brief bursts of volatility. Much to our surprise, the only options selling program we’re following that’s taken a hit in this environment has been Reynoso Asset Management LLC Small Accounts– and they’re only down 2.3%.  Typically, we’d expect the all of the option sellers to be hurting badly in this atmosphere.

That being said, we will note that the bulk of the programs we’re following are posting gains month to date. Past performance (especially this year) is definitely not indicative of future results, but this is certainly a nice change of pace after the past few months. Will this trend be enough to push managed futures into positive territory for the year? Well, that might be even more of a stretch than believing in the Santa Claus rally. With BarclayHedge putting managed futures down -3.04% through November and Newedge putting us down -4.64% YTD, it would take more than a mere “bang” to push us through; we’d have to pull off a full fireworks display. In the meantime, everyone is  holding their breath to see whether the end of December will bring the kind of surprise trend reversal seen in early October and the end of November, and can you blame them? If this year has proven anything, it’s that nothing is a certainty, and to expect the unexpected.