Friday, 15 February 2008

COTs Smile On Equities, Natural Gas

Things slowly seem to be turning more sunny for equity bulls. I've just updated the table linked on my Latest Signals page with the word from today's Commitments of Traders data. My trading system based on this weekly free government data works by getting signals when traders hit specific extremes of bullishness and bearishness that in the past have led to profitable and statistically robust trading opportunities.

So what does the latest report say? My COTs U.S. Composite Equity Index continues to turn upward and now has a slight bullish tilt, with a reading of 0.11, up from last week's -0.1. (I'm revising all my setups right now as part of a yearly process, so these numbers are based on revisions from what I reported last week.) The index is still on a bearish signal, but it's steadily climbed upward for the past three weeks and is now above zero for the first time since the Dec. 31 COTs report.

A few other notes: I've updated two more of my setups, those for natural gas and copper. The new setup results are on the Latest Signals page, plus updates for their latest signals. I really like both of them. Their Sharpe ratios are 2.8 for natural gas and 2.7 for copper, and the confidence intervals are also pretty sweet. (See the table for those numbers.) Note that natural gas flipped to bullish with the Jan. 29 COTs report. Also, note that copper works with an eight-week trade delay, meaning the latest bearish signal from the Jan. 22 COTs report takes effect on the open Monday, March 24. Will be interesting to see if any ongoing market rally peters out around that point. I should note there's a second copper setup that's almost as good and has no trade delay, based on following the commercial traders. It went to bearish with the Feb. 2 COTs report. I still plan to study whether some kind of combined signal from both of these copper setups would give superior, more statistically robust results. Stay tuned.

Finally, note to self regarding Russell 2000: My setup for this market went to bullish with the Dec. 24 COTs report. With the seven-week delay for this setup, that means I'll be buying something to track this signal for the open this coming Monday, Feb. 18. Check in here early next week with portfolio updates and more details from today's COTs data. Hope you have a good weekend!


Brendan said...

You are right, I agree with u that copper will rise.

Copper always goes up in first quarter, and it always start to rise during Chinese New Year period. Why?

Real physical demand for copper comes in after Chinese are back from their 1 week Chinese New Year holiday, and hedge funds like to buy just before the real demand comes in.

Currently I'm reseaching on COT indicators as well, hopefully it can help me in my trading.

AUD, Silver, Natural Gas and Coffee are showing bullish indicators in my view now.


Kyle said...

How come on the results and signals page for natural gas you have commercials to watch for but in the notes you have to watch the specs....which one is it?

Alex Roslin said...

Hi Kyle,

Sorry about that. I hadn't updated the note for natural gas when I just updated the setup results on that table. Thanks for pointing this out. I've corrected it now.

Best regards,