Friday, 1 June 2007

Bright Skies for Equities, Clouds for Metals

Bullish news for equities in today's Commitments of Traders reports. The "smart money" commercial hedgers are giving their 11th consecutive buy signal for Toronto's S&P/TSX index. This, according to my trading setup correlating the TSX with the S&P 500 COTs data. (Click the explanatory links to the right for details of how my system works if you're not in the know.)

That makes the commercials more bullish on the TSX than at any time since Dec. 2003, near the start of the current bull run.

Commercial hedgers are also highly bullish on Japan's Nikkei index. While other world indexes have zoomed off into the cosmos, the Nikkei has ailed of late, trapped well below its February high. But this week the Nikkei and Japan iShares ETF (EWJ) broke out of their four-month descending triangle pattern, suggesting Japan wants to play some catch-up with North American equities.

The commercials have been this bullish on the Nikkei only once before in the past seven years—in Nov. 2005, just as the Nikkei's grinding 15-year bear market came to an end. The index subsequently exploded 28 percent in six months.

Meanwhile, the "dumb money" large speculators have gone super-bearish once again on the NASDAQ—which means renewed buys for the NASDAQ and Semiconductors (SOX).

In the metals, despite impressive technical action in silver and gold shares this week, the Commitments of Traders data today are urging caution. The commercials have yet to reverse earlier mega-bearish positioning in the futures and options markets enough to give me any new buy signals in the gold complex or silver.

In copper, the COTs data gave a sell signal in April after large specs turned excessively bullish. In fact, the last time the large specs were so aggressively positioned one way in copper was July 2002—except back then they were highly bearish. That gave a buy signal that lasted five years and marked the beginning of a five-fold explosion in copper prices. April's sell signal brought that run to a close.

New Signals*
BUY
None

SELL
None

Renewed Signals**
BUY
-30-Year Treasury Yield
-TSX
-NASDAQ
-SOX Semiconductors
-Nikkei

SELL
-Soybean Oil
-Natural Gas***

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

-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)

SELL
-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)

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

Notes
* 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.

3 comments:

Larry Swing said...

wow alex, this is swing trading on staroids... great system trading signal...

regards
Larry Swing
CEO & Head Swing Trader
www.mrswing.com
theboss@mrswing.com
+1 (281) 968-2718
Yahoo & Skype ID: larry_swing

GKS said...

Alex

Glad to have found your site - particularly since it covers the Canadian market which I trade.

What I was wondering is: is there not some reportable information from maybe the Montreal Exchange or other showing the commercial, spec and large trader positions in the TSX60 options and futures?

(ie: a Canadian equivalent to the COT)

With the TSX essentially 30% banks 30% oil and 30% energy - is the TSX correlation with the S&P500 COT really reliable over decades of data?

My correlation analysis shows the TSX more correlated with emerging market indices and oil movements rather than the S&P.

Great Work by the way...

Gary Ontario..

Alex Roslin said...

Hi Gary,

Thanks for your message. I haven't had a chance to look at the Montreal Exchange data, but I do hope to at some point. I'm sure it would be interesting. So many markets, so little time!

Regarding TSX's correlations, my calculations show the TSX correlation with the S&P 500 is 0.8 since 1995, the same as its correlation with crude oil. But you do raise a good point. I have been planning to look into refining my TSX setup, either with a filter correlated with the crude oil COTs data or by combining two groups of the S&P traders into a composite signal specific to the TSX.

As for the correlation with emerging markets, unfortunately there isn't any COTs data for emerging markets at this point.

Regards,
Alex