Friday, 27 July 2007

It's Gonna be Okay, Say COTs

Lovely. A crappy close to a crappy week. I hope you fared okay and managed to stay out of too much trouble.

In my case, my DUG UltraShort Oil & Gas and SDS UltraShort S&P 500 positions - based on signals from my trading system built upon the Commitments of Traders reports issued by the Commodity Futures Trading Commission - managed to offset the carnage in my precious metals and other long equities holdings. Plus, the caved-in Canadian dollar boosted the value of my U.S. dollar assets, in C$ terms.

I'm sure you're wondering what gems of wisdom we can glean about all this turmoil from the magical COTs reports. As an aside, here's one of the reasons I find them so interesting, believe it or not: I see them as a calming influence that gives me the longer perspective and helps me catch the big moves, instead of worrying about less significant market yo-yoing.

Why, take this week for example. There aren't any new signals. Y'ad think they'd have something to say at a time like this. But nah, yawn, wake me up next week, seems to be their message. And for that, I thank them. They've helped me lighten up on a certain innate bearishness I've had, well, I guess ever since the dot-com cock-up, which I think still influences much of market sentiment. The doomsday fears of the Robert Prechter types.

Not that I'm saying we won't be crashing down some sort of precipice very soon. Who knows? But we're not there right now - at least not according to my reading of the COTs reports, such as it is.

No new signals this week in Friday's report, based on data as of last Tuesday. A renewed bearish call for the S&P 500. My composite U.S. equity indicator is at -0.18, a drop from last week's -0.1. But still far from the end of the world. Plus or minus 1 means a historic sell or buy signal. A "-1," for example, would mean that on average all of my U.S. equity setups just gave a sell signal.

More trouble to be expected from the renewed bearish signals in energy, the loonie and U.S. dollar. But precious metals appear solid enough. Good luck next week!

New Signals*
BULLISH
None

BEARISH
None

Renewed Signals**
BULLISH
-NASDAQ 100

BEARISH
-Soybean Oil
-Natural Gas***
-13-Week Treasury Bill Yield
-S&P 500
-Crude Oil, Light Sweet***
-S&P/TSE Canadian Energy iUnits ETF, XEG.TO
-Oil Service Holders, OIH

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

-30-Year Treasury Yield (3-Jan-07)
-10-Year Treasury Yield (17-Apr-07)
-S&P/TSX Composite (15-Aug-06)
-NASDAQ 100 (27-Mar-07)
-Dow Jones Industrial Average (20-Mar-07)
-Russell 2000 (1-Aug-06)
-Silver (3-Jul-07)
-Gold (29-May-07)
-US Global Investors Funds US Gold Fund, USERX (12-Jun-07)
-S&P/TSE Canadian Gold iUnits ETF, XGD.TO (22-May-07)
-Gold Bugs Index, HUI (29-May-07)

BEARISH
-13-Week Treasury Bill Yield (27-Feb-07)
-S&P/TSE Canadian Energy iUnits ETF, XEG.TO (3-Apr-07)
-Oil Service Holders, OIH (3-Apr-07)
-S&P 500 (26-Jun-07)
-NASDAQ Composite (26-Dec-06)
-Semiconductor Index, SOX (20-Mar-07)
-S&P 400 Mid Cap (3-Jan-07)
-Nikkei Average (19-Dec-06)
-Soybean Oil (11-Nov-06)
-Copper (10-Apr-07)
-Canadian Dollar (10-Apr-07)
-U.S. Dollar Index (3-Oct-06)

NEUTRAL
-Crude Oil, Light Sweet (3-Apr-07)***
-Natural Gas (27-Mar-07)***

Notes
* For an explanation of what I do after a new signal, click “How It Works” above.
** A “renewed” signal is when a market is already on a bullish or bearish signal, and traders again register an extreme net trading position in the same direction. I normally ignore renewed signals unless I don't already have a trade on in this market. I haven't studied the profitability of trading on renewed signals.
*** See my special caveats for my Crude Oil and Natural Gas setups (click “The Trading Setups” above and check the table footnotes).
**** The date in parentheses is the date of the COTs report that gave this signal - not the date I would have executed the trade (which can be up to five weeks later). The existing signals are often several months old and are listed here as references, not trading recommendations.

7 comments:

Anonymous said...

What's behind the weakness in Canadian energy?

Alex Roslin said...

Thanks for your question. For natural gas, it would be the extreme bearishness of the large speculators, who have hit a specific point that in the past has been a good time to be in cash that market.

(Remember, we're trading the same side as the large specs on natural gas. Yes, this is one of the few markets where I found it's best to trade with the large specs, instead of fading them.)

For crude, it's extreme bullishness on the part of the large specs, while for XEG and OIH it's bearishness of the commercial traders in crude oil. I found signals for these two ETFs based on the crude oil COTs data.

Check the explanatory links above for more details.

Regards,
Alex

Joe said...

Alex,

Wow~ your signals did not change despite the big changes in bullishness/bearishness in Gold, Silver and Treasuries?

Thanks, Joerg

steve said...

hmmm...

But, isn't the COT data only from trades up to last Tue (7/24)?

If so, then you haven't seen any data from the trades on Wed, Thur, Fri. Correct?

And, if so, next report will be the interesting report to see if anything has changed.

--steve

Alex Roslin said...

That's right, Steve. We'll only see that data in next week's report. It will be interesting to see it, but my signals are designed to be forward looking. The idea is to try to anticipate the markets.

Regarding Joe's comment, there were some changes in bullishness and bearishness in the latest report. But not anything significant enough to warrant changed signals. In other words, as of last Tuesday's data, traders weren't doing anything hugely significant based on past historic patterns of their behaviour.

Mind you, remember that my S&P 500 setup did flip to bearish a few weeks ago and is now showing a nice profit.

Regards,
Alex

steve said...

Right. I guess I wasn't trying to be confrontative, but rather just a verification of the way I understand the COTs.

I view them as a longerterm indicator. Correct me if I'm wrong, but (based upon your trading system) the COTs don't "suddenly" turn bearish/bullish from one week to the next, but rather there is a build-up until a signal or trend is broken. You might be able to say "hmm... according to my trading system, the S&P is more bearish this week, even though it is still considered bullish...maybe we will see next week if it finally becomes a bear.." or visa-versa.

I just don't see a COT report being a bull one week, and a bear next week, and keep flip flopping, week to week.

--steve

Alex Roslin said...

Thanks, Steve. You got it. Although I've seen a tiny handful of signals lasting only a week, this is quite unusual. Almost all my setups don't flip back and forth from week to week but work by catching the bigger trends.

This, incidentally, is likely why they show superior historic profitability that stands up as statistically robust.

Edwin Lef√®bvre gave me a great insight on this question in his classic Reminiscences of a Stock Operator: “The big money was not in the individual fluctuations but in the main movements… I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!”

Regards,
Alex