Friday, 25 May 2007

Bull Rides... And Rides... And Rides

This week's little market selloff sure caused some hand-wringing among the usual talking heads. But the Commitments of Traders data says everything's still a-okay. The major equity markets - except the S&P 400 Midcap - are all on buys, according to my COTs trading system.

That's in part because the large investment firms and hedge funds remain quite bearish, so you know what that means: When the "dumb money" says sell, it's probably a good time to buy. (Yes, these are the guys managing our pensions and retirement savings. Oops!)

As well, the "smart money" commercial hedgers are highly bullish. In fact, Toronto's S&P/TSX put in its ninth consecutive renewed buy signal after the original buy back in March. (This is based on extreme levels of bullishness of commercial traders in S&P 500 futures and options, which correlate well historically with ups and downs in the TSX.) Click the COTs intro links to the right if you don't know what I'm talking about.

This week, I've started a new regular feature on this blog - running results for the S&P 500 and NASDAQ. I'll update them each week after Monday's open.

As for that ailing S&P 400 Midcap trade, watch next week for some updated profit/loss results on this setup. I haven't run the numbers yet, but I think the short side of that setup may now be historically unprofitable. I might try to see if there's a way to combine signals from two groups of traders to get a better trade for this index - like I've done for the S&P 500 and silver.

New Signals*


Renewed Signals**
-30-Year Treasury Yield

-S&P/TSE Canadian Energy iUnits ETF, symbol: XEG.TO
-Crude oil (light sweet)***
-Soybean Oil

Existing signals (date of original signal in parentheses)****

-30-Year Treasury Yield (3-Jan-07)
-10-Year Treasury Yield (20-Mar-07)
-S&P 500 (20-Mar-07)
-NASDAQ (27-Mar-07)
-Semiconductor Index, symbol: SOX (30-Mar-07)
-Dow Jones Industrial Average (20-Dec-05)
-Russell 2000 (25-Mar-03)
-Nikkei (3-Feb-04)
-TSX (20-Mar-07)

-S&P/TSE Canadian Energy iUnits ETF, symbol: XEG.TO (3-Apr-07)
-Oil Service Holders ETF, symbol: OIH (18-Apr-06)
-Soybean Oil (2-May-06)
-US Global Investors Funds US Gold Fund, USERX (30-Jan-07)
-S&P/TSE Canadian Gold iUnits ETF, symbol: XGD.TO (30-Jan-07)
-Gold Bugs Index, HUI (13-Feb-07)
-Canadian Dollar (10-Apr-07)
-U.S. Dollar Index (3-Oct-06)
-Gold (13-Feb-07)
-Copper (10-Apr-07)

-S&P 400 Midcap (3-Jan-07)
-Crude Oil, Light Sweet (3-Apr-07)***
-Natural Gas (27-Mar-07)***
-Silver (21-Nov-06)

* For an explanation of what I do after a new signal, click “How It Works” on the right.

** A “renewed” signal is when a market is already on a buy or sell signal, and traders again register an extreme net trading position in the same direction. Click “Glossary” in right-hand column for more details.

*** See my special caveats for Crude Oil and Natural Gas (click “Profit/Loss Results” in the right-hand column and check the footnotes).

**** The date in parentheses refers to the date of the COTs report that gave this signal. For details on how these trades work, including trade delays and portfolio allocation, click on "How It Works" and “Profit/Loss Results” in right-hand column. Please note that my system gave these existing signals months ago in many cases. My profit/loss calculations were based solely on taking trades right after the signals were given as indicated in the “Trade delay” column on the “Profit/Loss Results” page.


Robert said...

By my analysis, it looks like the Comemrcials added about $7Billion to their net long positions in the S&P large contract and the mini.

That is a lot of money, and as far as I aware, it is very rare for the commercials to have a net positive position in those two contracts.

Load up long, this rally has legs!

Alex Roslin said...

Hi Robert,

Thanks for your comment. Good point! The last time the commercials had a positive net percentage-of-open-interest position was in Nov. 2005 - briefly, for one week!

Based solely on technicals and seasonality, I might be worried about this market, but fortunately the COTs are here to enlighten!

The S&P 500 commercial traders are the basis for my TSX setup - which has given renewed buy signals for the past couple of months.

One note, however, is that I found it was usually more profitable historically to pay attention the net percentage-of-open-interest positions, rather than the net number of contracts.

All the best,

Anonymous said...

Alex, Can you please look at Silver and provide your cooment please? Thx, Jay

Alex Roslin said...

Thanks for your question.

Technically, I would say the SLV ETF has just broken out of a short-term downtrend, confirmed by the breakout of the SLV:GLD ratio.

But from the COTs perspective, my best silver setup calls for being in cash owing to the bearish position of the "smart money" commercial traders.

In the latest report, they've increased their net percentage-of-open-interest position to 1.28 standard deviations above the moving average I use for this setup, but I won't get a buy until it's at 2 standard deviations or more. Watch for any new signals in my weekly updates.