Friday, 17 August 2007

Fund Liquidations Don't Make Dent in COTs Data

Well, wasn't that fun. For once, the markets closed the week on a whimper. But good God, what a week it was. London's FTSE index and the Nikkei getting their backs broken. The bottom falling out of copper, silver and gold stocks. That violent move in the T-Bill was like watching the pits of hell open up underneath. Lordy.

So what were the big players in the markets doing in the middle of all this? you ask. That's why we have the Commitments of Traders reports. Let's see what the large investment funds, commodity producers and retail traders were doing.

Firstly, all the talk of hedge funds liquidating massive positions didn't make much of a dent in the data as reported by the Commodity Futures Trading Commission. (These are the guys who report trillions in futures and options holdings in 100 markets, including the major indexes, commodities and financials.)

In fact, Friday's report gave me no new signals to report. None. So my existing signals all remain valid, according to my trading system based on this data. A few renewed signals are listed in the table below. Here are some other highlights from today's COTs data:

- 10-Year Treasury: Small traders (the "smart money" in this market; yes, they sometimes don't get it wrong!) bumped up their net positions again, for a renewed bearish signal on the yield (bullish for the note).
- 3-Month T-Bill: Small traders (again the "smart money" here) again bullish; fourth consecutive bearish signal for the T-Bill rate.
- Crude Oil: Commercial traders slightly reducing bearish positioning but still significantly net short on a historic basis.
- Natural Gas: Large specs (the "smart money" in this market) still mega net short.
- S&P 500: Small traders (the "dumb money" here) still heavily bullish. Enough to remain bearish for the S&P 500, but not enough to trigger a bearish signal for the Toronto Stock Exchange composite in my system.
- NASDAQ 100: Large specs get even more ultra-bearish.
- Dow Jones industrials: Commercials retain bullish tilt but slowly reducing.
- Russell 2000: Large specs maintain bearish tilt but slowly reducing.
- S&P 400: No data this week. Less than 20 traders reporting.
- Nikkei: Large specs still have bullish tilt but slowly reducing.
- Silver: Small traders still historically bearish.
- Gold: Commercials get more net short but nowhere near historic extremes. Small traders steadily increasing bullish tilt but also far from historic levels.

Housekeeping note:
I didn't see a place to put on an S&P 400 position as called for - sort of - in last week's report, for this coming Monday's open. (This setup has a one-week delay, but this index has been missing from the COTs reports lately, so that made the signal a little suspect; see last Friday's update for more details.) I might do so next week if I see a good technical entry point.

New Signals*



Renewed Signals**
-S&P 500, with COTs U.S. Composite Equity Indicator setup

-Natural Gas***
-10-Year Treasury Yield
-13-Week Treasury Bill Yield
-Semiconductor Index, SOX
-Japanese Yen

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

-S&P 500, with COTs U.S. Composite Equity Indicator setup (27-Mar-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)
-S&P 400 Midcap (7-Aug-07)
-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)

-10-Year Treasury Yield (31-Jul-07)
-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)
-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)
-Japanese Yen (2-May-06)

-30-Year Treasury Yield (31-Jul-07)
-Crude Oil, Light Sweet (3-Apr-07)***
-Natural Gas (27-Mar-07)***

* 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 my system called for the trade to be executed (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.

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