COTs Look Sunny for Equities, Grim for Buck

Interesting week. Was that a sucker rally in the major indices or the start of a Christmas melt-up? Did this week mark the bottom for Treasuries yields? What's going on with commodities?

Did this cover (see right) in the wrong-way Economist contrarily mark the U.S. dollar bottom, as Stephen Vita suggested today on his Alchemy of Trading site? And why did a dozen wild turkeys just walk in front of my office window here in Quebec's Appalachians?

Lots of questions and plenty of interesting insights into it all, except the one about the turkeys, from this afternoon's Commitments of Traders report (based on data as of last Tuesday). I've just updated my "Latest Signals" page with the data from my trading setups based on these fascinating government reports, which are issued free each week by the U.S. Commodity Futures Trading Commission and detail trillions of dollars in futures and options holdings in nearly every market under the sun.

My overall take: the news is good for equity bulls. My COTs U.S. Composite Equity Index, based on my setups for the SP500, Dow Jones industrials, NASDAQ 100 and Russell 2000, remains unchanged from last week at 0.62. The index also gave a second renewed bullish signal this week. Renewed bullish signals for my Russell 2000 and Dow Jones industrials setups also lend more weight to the overall sunny picture here.

Also interesting: My 30-year Treasury setup hasn't followed suit with my 10-year Treasury setup, which you might recall turned bearish last week. In contrast, my 30-year bond setup has given its sixth straight renewed bullish signal. So I think it may still be an open question as to whether Treasury yields have really bottomed. This week's rebound may be but a pause. As I've noted this week, all my other Treasuries setups remain in bullish mode.

My odd-man-out 10-year setup is based on trading with the small traders when their net position hits historic extremes of bullishness or bearishness. The latest report shows this group of traders suddenly reducing their net position as a percentage of the total open interest. They've actually flipped back up to a decidedly bullish tilt in comparison with historic data, although not anywhere close enough to reverse this signal back to bullish, I should note.

As for the U.S. buck, the commercial futures traders have again slashed their net long position and now give me a renewed bearish signal. This is actually the first signal of any kind in this setup in over a year, since the original bearish signal back in Oct. 2006. It follows a steady 10-week reduction in the commercial net long position, which peaked with the Sept. 18 COTs report. How did Gisele Bundchen know!

I hope you had a good week and wish you a relaxing weekend. Check back here early next week to see more of my thoughts on the latest COTs data. Now, if only I could find my axe next time those turkeys show up.