Wednesday, 3 October 2007

Federal Funds Setup Flips to Bullish: COTs Say Rate Will Fall After 2-Yr Bearish Signal

I've just posted details of a new trading setup I developed based on the Commitments of Traders report for the 30-day Federal Funds. The timing couldn't have been better. After a two-year bearish signal (meaning the setup called for the Fed Funds rate to rise), it has just flipped to bullish in the last COTs report.

(The signal is for the Fed Funds contract, so a bullish signal means the Fed Funds rate is expected to fall. NOTE: I posted incorrect information about this setup's latest signal here yesterday that wasn't quite up to date. I just realized my error and wanted to correct this post as soon as possible.)

I think the results for this new setup are quite interesting. You can check them out at the "Latest Signals & Results" page in the Navigation bar. The setup's bearish signal accurately called the rise in the Fed Funds rate from 3.01 percent in June 2005. In fact, watching this baby correctly call the rate's ups and downs amid the dot-com bust and market recovery is a thing of beauty. I hope to share it with you soon with a table showing all the signals.

The setup is based on trading on the same side as the large speculators when they hit specific historic extremes in their net futures and options position as a percentage of the total open interest. That's right, the same side. Ordinarily, we consider the large specs to be the "dumb money" of the markets, but I've found that's not always the case, especially not in any of the Treasury markets.

Also: Just updated the results table for my gold setup with the last trade completed this Monday. (Click "Latest Signals.")

6 comments:

The Word said...

Now I'm confused. I though your table was update right after the Friday report!!!

Did you change anything after that. If you change the results intra week, I suggest you highlight those changes in yellow or some other color of your choice so that I can follow your modifications.
Regards,

The Word said...

BTW, the Word verification is quite annoying and really useless since you already preview the comments before posting. Make my life easy and remove
Regards,

Alex Roslin said...

Hi The Word,

I update the gold table regularly, but not on each Friday.

Regards,
Alex

Alex Roslin said...

Regarding word verification: I don't know how much more spam I'd get if I turned that off, but I'm not interested in finding out. Get quite enough already, thanks very much.

Regards,
Alex

Anonymous said...

Very Interesting! What are you trading as the underlying? Is it an ETF? Are you using Treasury Direct? Through your broker? Or something like that? How do you short them?

Thanks!

Alex Roslin said...

Just developed that one last night, so I haven't had a chance to give it much thought yet!