Wednesday, 31 October 2007

Easening in the Offening, Say COTs

The world waits as Bernanke & Co. deliberate. I did a quick check back through my Treasuries data from the Commitments of Traders reports to see what I could glean about what might happen at 2 p.m. today. As you may recall, my Fed Funds and 13-week T-Bill trading setups based on the COTs data are on bullish signals, signaling lower short-term interest rates.

The Fed Funds signal, which came with the Sept. 25 COTs report, is especially interesting because it ended a two-year bearish call that coincided nicely with the Fed tightening campaign. In the case of the T-Bill, my setup is based on trading on the same side as the small traders in the 3-month Eurodollar contract. These guys haven't been this bullish since the July 29, 2003, COTs report, near the bottom of the bear market, just before T-Bill rates started to rise. In the very next COTs report, they suddenly flipped to a highly bearish net short position. The change caused my setup for the T-Bill to go from bullish to bearish, and it stayed that way for the most part for the next two years, until Oct. 2005. This is one of my most statistically robust trading setups (see the "Latest Signals" page for more details), so I really enjoy seeing what it has to say. Starting in the July 24 COTs report, it gave a series of 11 bullish signals, and it just gave another one in last Friday's data. I think that means some strong easing measures are in the offing...

So do you think gold and silver are topping? How high can they take it? Is it going to $5,000, as one reader informed me the other day? Is the U.S. dollar kaput? Read my take on the precious metals, copper and U.S. dollar at Kitco.com.

5 comments:

Anonymous said...

Talk about straddling the fence. In your article about gold going to $5000 you seem to indicate that whilst you're long on gold stocks, your short on physical gold and even more curiously, short on the HUI index.

Oh well, I look forward to the inevitable article in which you claim to have got it right - whichever direction the precious metals move. good grief.

About Alex Roslin said...

Hi friend,

Thanks for your message. A couple of things. As you'll see by checking my portfolio page, I have long precious metals positions (in silver and XGD to be precise) and no short precious metals positions. It's not that I don't have faith in those setups. I simply already had the two long positions, and those setups are still bullish.

I think my posts have been pretty clear that the COTs are giving a mixed picture on precious metals. What do you want me to say? That's the fact.

As for claiming I got it right, I've never pretended that each and every trade is a win in my system. See the "Latest Signals" page, and you'll find plenty of losses and drawdowns. There may be periods when some trades contradict each other, but the point of the system is to find trades that have a good probability of profitability, even if they may contradict each other in some cases.

Regards,
Alex

David Wozney said...

Re: “Is the U.S. dollar kaput?

A “Federal Reserve Note” is not a U.S.A. dollar. In 1973, Public Law 93-110 defined the U.S.A. dollar as having the value of 1/42.2222 fine troy ounces of gold.

Dave said...

Nice call on the Fed hike.

Cheers!
Dave

Dave said...

Sorry...meant to say "drop", not "hike".

Cheers!
Dave