Friday, 31 August 2007

COTs Bull the Nikkei, End 8-Month Bearish Signal

In another sign that the bull market is on solid ground, the latest Commitments of Traders report has flipped to bullish for the Nikkei Average. That's according to my trading system based solely on the COTs reports issued by the Commodity Futures Trading Commission.

The new signal puts an end to an eight-month bearish signal for the Japanese index. The trade is best executed with a five-week delay - i.e., for the open of trading the week of Oct. 8. [I published incorrect information in my original post Friday saying there was a one-week trade delay for this setup. Apologies.]

See my "Latest Signals" link to the right for the full details on this trading setup and other signals from Friday's COTs data. Also interesting: the report gives another renewed bearish signal for the Japanese yen. Oh yeah, and my COTs U.S. Composite Equity Indicator has jumped again, up to 0.78 from last week's 0.68 - giving its fourth consecutive bullish signal.

I'll be back after the long weekend with more thoughts on the latest COTs report. Hope you have a good holiday.


Jonny Red said...

Good posts as always.

But what happens if during the 5 week delay period, the Nikkei COT data turns bearish again?

Does the long trigger invalidate immediately?

How would one play the trade in that case?

Alex Roslin said...

Hi Jonny,

Thanks for your question. That does happen once in a while in the past data. It's traded the same way. The bearish signal is also acted on with the same five-week delay.

The reason I tested for the delays was I found in some cases the market doesn't turn until after the end of the accumulation or distribution, which may continue for a few days or weeks. I noticed that when you chart the data, sometimes the change in price trend starts only when there is a change in direction of the COTs data's trend. In other words, it's not necessarily the fact that the COTs data is extreme, but that it got extreme, then started to unwind. You can sometimes see if you draw trendlines on a COTs chart.

But the charts don't usually lend themselves to trendlines that are very actionable, hence my research into backtesting the data.

Good luck,