Friday, 2 November 2007

New Setups Say... Bullish for 5-Yr Treasury and Platinum

Isn't it funny how life sometimes puts something special in front of you just when you're despairing? Here I was pulling my hair out trying to work out a decent trading setup for platinum based on the Commitments of Traders reports. After going over the data for a couple of days, I worked out a just barely passable setup based on following the commercial platinum traders.

It scores at the 94-percent confidence level for profitability, and at a sad-sack 73-percent confidence level for beating the underlying market (meaning the average trade would be expected to beat the underlying 73 percent of the time). One consolation is that the setup was in cash 34 percent of the time, but nonetheless, I hesitated to include it in my list. I finally decided to do so with the caveat that I see it as one of several possible indicators for platinum prices, rather than a stand-alone tradable setup (like some of the other less statistically robust setups in my list; see the "Latest Signals" page for the full results). The setup flipped to bullish in the Aug. 14 COTs report, with an eight-week trading delay (meaning executed for the open of Oct. 15).

So I turned my attention to the 5-year Treasury. Holy Mother of God, now that's some fine-looking numbers. A 99.9-percent confidence level for profits, and 99 percent for beating the underlying. That beats even my 13-week T-bill and silver setups, which score next highest. It's based on a combination of my best setups for the large speculators (the "smart money" in this market; yes, you read right) and trading opposite to the "dumb money" commercialsand going to cash when the two groups of traders don't concur.

Yet again, the Treasuries COTs data turns popular notions on their ear. For newbies, the common thinking out there is that the commercials are the ones to follow while the large specs should be faded. My research has found that, while this is true in most markets, it's not in all. My 5-year Treasury setup turned bullish as of the July 31 COTs report (meaning bearish for the yield). This is definitely one I'll be watching with interest.

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