Sunday, 9 December 2007

Sunny Outlook for Equities, Loonie - Not So Hot for Greenback, Treasuries

Sorry about the delay in my weekly update. I'm traveling and kind of groggy from this beautiful warm weather here in sunny Florida, especially since we just had about 850 feet of snow back home in Quebec. Mohito cheers!

Some interesting new developments from the latest Commitments of Traders report issued last Friday by the U.S. Commodity Futures Trading Commission. To you newbies out there, these are the free weekly reports that list trillions in futures and options holdings in 100-odd markets like gold, crude oil and the S&P 500.

My trading system based on these reports has given two new signals based on last Friday's data:

- Bullish for the Canadian dollar. After an incredible rally, the loonie has corrected smartly since the beginning of November. My trading setup for the C$ is based on trading opposite to the "dumb money" large speculators when they hit specific extremes in their net futures position as a percentage of the total open interest. They've dramatically cut their net long position since it peaked in mid-October. The latest COTs report gives me a bullish signal. This setup has a four-week trade delay. (Click my "Latest Signals" page for more details and other signals from the latest COTs report. Also, click "How It Works" and "Intro to COTs" on the right to learn how my trading system works.)

- Cash for the 5-year Treasury. This setup flipped to bullish in July, but it's now back to bearish (meaning the setup thinks the 5-year yield will go up). This setup has a trade delay of zero, meaning execution for this Monday's open. The signal is based on trading with the large specs and fading the commercials when both groups of traders concur. The large specs have just built a historically extreme net short position, but the commercials haven't yet concurred by going super-long. So this setup is now in cash.

Incidentally, this new signal for the 5-year Treasury follows a new bearish signal in my 10-week Treasury setup that came in the Nov. 20 COTs report. Another sign that hitherto falling Treasury yields have found a bottom.

And a few interesting renewed signals:

- More woes for the greenback. In my setup for the U.S. dollar index, based on trading on the same side as the commercials, I've gotten a second renewed bearish signal. The commercials haven't been this bearish relative to the historic data since Oct. 2006, when this setup first flipped to bearish.

- Good news for equity bulls. My setup for the Dow Jones industrials has given its second straight renewed bullish signal, based on extreme optimism by the commercial traders. Also, my COTs U.S. Equity Composite Index has given its third straight renewed bullish signal, after rising to a reading of 0.88, up from last week's 0.62. (A "1" means the four setups that make up this index - the SP500, NASDAQ 100, Dow Jones industrials and Russell 2000 - have all just given a bullish signal on average, for execution on next week's open of trading.)

- My COTs Composite Agriculture Index, which is based on my setups for wheat, corn, soybeans and sugar, has fallen to a sad-sack 0.12, down from last week's 0.37. The setup, which gives signals for the DBA Agriculture ETF, is still on a bullish signal, but the latest data warns of possible weakness ahead.

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