Wednesday, 10 October 2007

Falling Interest Rates to Lift Markets (Or Spell Trouble)?

Interesting stuff in the latest Commitments of Traders report issued by the U.S. Commodity Futures Trading Commission. Generally, a sunny forecast for you market bulls, including falling interest rates and rising equities. Here are some highlights from my trading setups based on this fascinating, free government data:

- Will the Fed lower interest rates and if so by how much? My setup for the 30-day Fed Funds contract has just flipped to bullish for the contract (meaning bearish for the rate), after over two years of being bearish. The COTs report issued last Friday, Oct. 5, gave me a second straight bullish signal. This setup is based on trading the same side as the large speculators, who have built a historically extreme bullish net long position in this market.

- Similar news from my setup for the 13-week Treasury Bill. This one, based on trading on the same side as the small traders, is now giving its 11th straight bullish signal (meaning it's calling for the T-Bill rate to fall). Falling interest rates should be good for equities, but they could also signal economic problems, which would ultimately be not so good.

- Large specs are super-bearish on natural gas. My setup for this market trades on the same side as the large speculators, and they've given a slew of 24 bearish signals in the past 28 weeks.

- A cohort of renewed bullish signals for equities - namely, the NASDAQ composite index, S&P 500, Semiconductors, Russell 2000, TSX, Nikkei and my U.S. Composite Equity Indicator, which is based on four of my U.S. equity setups.

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