Friday, 21 September 2007

Dumb Money Shuns the NASDAQ - Duh!

Large speculators remain ultra-gloomy about the NASDAQ 100, according to the latest Commitments of Traders report issued today at 3:30 Eastern time. Does that mean it's time for me to bail on tech stocks?

Uh, no. These guys aren't called the "dumb money" for nothing. My trading setup for the NASDAQ 100 is based on trading opposite to the large specs - yes, those hedge funds and investment firms to whom we pay the big bucks to manage our pensions and savings - when they hit specific extremes in their net positioning in NASDAQ 100 futures and options.

In the latest COTs report, the large specs maintained their highly bearish net short position in this index as a percentage of the total interest.

In fact, they've been so negative that my trading system based on the COTs reports has given me an unprecedented 17th straight bullish signal for the NASDAQ 100.

The next longest runs of bullish signals lasted 15 weeks and occurred over the winter of 2002-2003 and in early 2004. The trades that included those two periods gained 14 and 3 percent. (The setup was already on a bullish signal when those runs occurred. The gains would have been 54 and 5 percent respectively if the buys had taken place at the beginning of the 15-week bullish signal runs, with the usual one-week trade delay I have for this setup.)

Other Highlights

I've updated my signals table (click the "Latest Signals & Results" page in the Navigation bar) with this and other signals from today's COTs report. This handy weekly data, released by the U.S. Commodity Futures Trading Commission, details trillions of dollars in derivatives holdings of traders in 100-odd markets.

Other highlights from Friday's report:

- My U.S. Composite Equity Indicator, based on my setups for the S&P 500, NASDAQ 100, Dow Jones industrials and Russell 2000, rose to 0.53 from last week's 0.43. (A reading of "1" indicates a bullish signal across the board, for execution on next week's open.)

- A renewed bullish signal for the Nikkei. (My Nikkei setup flipped to bullish on Sept. 5, with a five-week trade delay, meaning execution on the open of trading Oct. 8.)

- More renewed bullish signals for the 30-year Treasury Bond and 13-week Treasury Bill, meaning traders are signaling lower interest rates ahead.

- After an absence of five weeks, when the number of traders reporting a position fell below 20, the S&P 400 Midcap index is back in the latest COTs report, showing virtually unchanged positioning since the last report, when astute readers may recall the setup flipped to a bullish signal.


Anonymous said...

Alex, I'm confused. Here you call the large specs the dumb money. But in your notes attached to the signals report, item 10, traders to watch, says "group of traders that had the best returns", and you have large specs listed on the signals report. Where are the exceptions listed? I'm also looking at silver. Are you fading the small trader or is he the one with the best return? Thanks, Steven B.

Alex Roslin said...

Thanks for your comment, Steven. That note lists the exceptions: the Treasuries and natural gas. In those cases, I either trade on the same side as natural gas or the small traders or fade the commercials. Silver isn't one of the exceptions, so there I'm fading the small traders.


Alex Roslin said...

Just clarified that note a little so it's clearer. Regards,

Steven said...

Thanks for the clarification. Namaste, sb

Alex Roslin said...

Namaste to you too.