Friday, 21 March 2008

New Bearish Signals; Only One in Five Equities Still Bulllish

Sweet Mother of God. What an insane week that was. Where do I start? Silver? Jesus. Never would have wished that on anyone, including those unfortunate souls who wrote in not so long ago to gently chide my silver bearish signal. Banks? They're acting more hopped-up than the nuttiest dot-com stock back in the day. And if you think that's nutso, wait 'till you check out my Latest Signals, which I just updated with, er, you guessed it, my latest signals. That would be from this afternoon's special Good Friday edition of the Commitments of Traders data, issued weekly for free by the nice people at the U.S. Commodity Futures Trading Commission.

Here's what we got:

- Bearish signal for my trading setup for the Russell 2000 after the "smart money" commercial traders bailed out of their net long futures and options positions. Sayonara, RUT. This setup works with no trade delay, meaning for the open of trading next week.

- Going to cash in my setup for the NASDAQ 100 index. This, after the "dumb money" small traders inexplicably boosted their net long position to bullish extremes this week. Risky move, guys! No trade delay on this one either. That means of all five of my equity setups, only the Nikkei is presently still bullish.

- Gold. What can I say? This one's flipping around like a fish on the dock. Now we're back to bearish. This setup works with a two-week delay, so at this point I've got three pending signals: (1) a bearish signal to be executed this Monday, March 24, which I will hold for one week until... (2) a bullish signal that came with the March 11 COTs report, to be executed March 31, and finally from today's signal, (3) another bearish signal, to be executed April 7. Meanwhile, my setup for the HUI Gold Bugs Index and XGD iShares Canadian Gold Fund is still in the bullish column. Kind of unusual, but that's what the data says. I have to think about what to do with my XGD holding through all this. The gold setup has slightly better statistical robustness scores, so I might sell it and go short gold bullion for next week, but not sure. I don't like not following all signals, but when they conflict like this I have to use some discretion based on the larger portfolio.

- My setup for crude oil has gone back to bullish. With the four-week trade delay, that means execution for the open of Monday, April 21.

Lots to think about. Hope you have a great holiday weekend, and good luck next week!


Anonymous said...

I was looking forward to your writeup today. One thought on the gold shares v the bullion. I heard a floor trader say that they were going to go long the goldshares ETF and go short the gold ETF on the basis that the shares are still a good deal with 800$ gold. So although I am short the gold shares I am going to keep an eagle eye on it and close it if it looks like it is turning around. Will short the gold as a hedge (I'm in a bearish mood).
From you own point of view are you going to short the stock indexes based on you signals? and if not why?
I must say I would be amazed if goldshares stayed up if the commodities and the major indexes were going down, but as a side question if someone reading your signals is generally bearish at the moments does it affect overall returns to ignore the bullish signals and only go with the bearish calls?

Thanks in advance

Gary Ng said...

I saw your bearish signal for silver, which confirmed the very overbought condition of silver. It was probably hard for silver bugs to take in at the time as silver was achieving all time highs every other day! Sorry you had to put up with 'not so nice' emails.

Those emailers probably wish they had taken your advice in hindsight and are probably your biggest fans now - hopefully they had risk management stops in place!

I am impressed by what you have discovered and thanks for publishing your info on your website. Watching with interest from New Zealand, Gary.

Henry Bee said...

Hi Alex,

Looks like your silver signal was right. What's your silver numbers saying this week after the huge drop?


Alex Roslin said...

Hey Silverharp,

Nice to hear from you again. I was looking forward to Friday's data too. I was thinking of something similar too - shorting bullion but staying long the shares. That said, I am spending time today reviewing my crude, copper and gold setups with a slightly improved app that is helping me identify the most robust setups a little more efficiently. Just want to be sure I'm using the very best setups in each market.

For the equity signals, yes I will be following those new signals but remain long the Nikkei.

Generally when using any kind of system with firm rules, it's advised to adhere to all of them. One key reason is it's impossible to know in advance which one(s) will lead to the high-return trades that outweigh the losing trades.

Best regards,

Alex Roslin said...

Hi Henry,

Still bearish!