Friday, 7 March 2008

S&P 500, Gold Setups Turn Down, But New RUT Setup Still Bullish

So is it a bear or not? Just checked the long-term weekly charts and the major indexes - SPX, NYA, TSX composite, FTSE, Nikkei - are all telling the same story: they're broken down, rallies have fizzled, and they're making new lows - the definition of a change of trend. So what's does today's Commitments of Traders data say about this? I just updated my Latest Signals page with the latest news.

Important new signal from my trading setup for the S&P 500: bearish. This setup works by trading on the same side as the "smart money" commercial traders in futures and options when they hit extremes of positioning. Well, they just got extremely negatory. That setup works with a three-week trade delay, which means I'll execute the trade for the open of Monday, March 31.

Also of interest: My setup for gold has now joined my silver setup in going bearish. The gold setup works by trading on the same side as the large speculators, believe it or not. They're not always the dumb money, it turns out. It actually depends a lot on what timeframe you look at them. The large specs tend to be trend followers, so they're only wrong at extremes and only if they stay in too late. Looks like they're bailing out of gold. This setup has a two-week delay, so execution is Monday, March 24.

My gold stocks setup for the HUI Gold Bugs Index and iShares Canadian Gold Fund (XGD) - based on fading the small traders - remains in bullish mode for now. It's important to note this setup has no trade delay, so it could flip to bearish to coincide with the gold setup. As it happens, the "dumb money" crowd has been getting increasingly exuberant for the past seven weeks straight, and it's now getting close to the extreme point that could trigger a sell. Stay tuned. I'm still long XGD for now.

Also, my 30-year Treasury setup has gone to cash. This setup combines my best signals from the large specs and commercials, and when they don't agree - like now - it goes to cash. The commercials have just gone to bearish on the bond (bullish the yield), while the large specs remain bullish the bond, as they've been since last August.

Housekeeping: I've also updated the Latest Signals table with a setup I like slightly better for the Russell 2000. This one is based on the commercial traders, not the small traders. Unlike the old setup, which flipped to bearish a few weeks ago, but with a seven-week trade delay for execution in April, the new setup is squarely in the bullish column right now.

Have a good weekend, and see you back here next week with more updates.

15 comments:

Anonymous said...

I like the way some of your setups are coming together, it seems like the hard commodities will get hit later in Mar, maybe boosting the stock indexes until start of April, then Q1 results set the market on the next leg down? I took a short position on Soybeans a couple of days ago as it looked like the softs are breaking down,it seems to be working out, I haven't had the nerve to short silver yet but I saw on another site that a certain Jason Hommell is telling people to grab silver wherever they can get it and speculating on $50/$100 silver as the shorts are broken, so we have to be near/at a top.
In as much as a question like this can be answered in a few lines, do you understand that financial futures give as strong a signal to future prices as in the physical commodities given that the financial futures mkt. sits along side the stock market? also does it look like the "dumb money" is out shorting the major indexes now using inverse ETF's and the like and they will have their heads handed to them before the market finally turns?

Regards
Silverharp

alexi said...

The S&P 500 contract did turn strongly negative but at the same time, the E-Mini S&P 500 Contract turned strongly positive. I've always considered them to be somewhat interchangeable (not in terms of absolute numbers of course). I'd think it's possible that the commercials simply moved their positions. Is there a reason you don't look at the E-Mini contract?

Anonymous said...

Hi Alex,

With the S&P 500 going bearish and set for execution on March 31, does it mean that your current long position is abandoned till March 31, or you still in a long position and only switch on March 31?

Thanks.

Lawrence

Anonymous said...

I am really confused about your S&P500 comments. The Mini-S&P shows the commercials 100k contracts long (no big deal in total terms, true, but not a bearish position, either). As for the "big" S&Ps they are barely a 10k contracts short. now, i understand that you are looking not at absolute numbers but rather at the relative positioning in relation to overall open interest. examining this, the commercial's position might look extreme - but looking at the chart (www timingcharts com) it is obvious that all groups have cut their net positions pretty much towards zero. that tells me from my common sense that everybody alike seems either uncertain what will happen going forward or that nobody expects a huge move either up or down , at least for the next couple of days/weeks. In any case it seems that your bearish signal for the s&P this time might be all but pretty insignificant from a volume point of view?
regards fxtrader

Anonymous said...

Would you expect to get a bullish dollar signal just before you exit your gold trades? and/or would it influence your decision to exit if you had a non confirmation?

Thanks again
Silverharp

Alex Roslin said...

Hi Silverharp,

Thanks for your comment. Regarding your first question, the best way to judge that would be to look at the confidence intervals for the various markets I've updated more recently and compare them. For equities, I've got two ongoing or pending bearish signals and three bullish (including Nikkei). Pretty mixed. Time will tell!

Regards,
Alex

Alex Roslin said...

Hi Alexi,

I don't think the two are interchangeable in terms of the usefulness of the data. I did some preliminary research on the minis a while back and didn't find as good results, but will take another look at some point soon.

Regards,
Alex

Alex Roslin said...

Hi Lawrence,

The latter.

Regards,
Alex

Alex Roslin said...

Hi FXTrader,

As I said in a comment further up, the minis didn't give as reliable results in my preliminary look a while back. As for volume, that's a variable I haven't studied in the testing, so I'm not sure how or if that will influence anything. I've been meaning to check it out, but the results as shown occurred independent of volume considerations.

Regards,
Alex

Alex Roslin said...

Hi Silverharp,

A dollar signal would not influence my trades in any other market, including gold. I trade each one based on its own setup. Also, I mean to update my dollar setup soon. At this point, it lacks the high level of statistical robustness I like to see in a setup.

Regards,
Alex

Anonymous said...

I really enjoy your comments. You are as good as many so called experts out there. I followed your advice on Silver, and will do so with Gold. The stock market may be manipulated ny the PPT so I ignore it at this time. Keep your reports coming. Stay well
Edrqcggvz

Anonymous said...

There's never been a larger short position in silver (commercial traders) than now. And while I would normally agree with Alex that that is an good indication of a top, I've been using another indicator to confirm that conclusion. The other indicator is alexa.com which tracks traffic on any website. I usually check the traffic on kitco.com and if you'll notice that traffic is not nearly as high as the previous rally top in March of 2006. I would have assumed both charts would top together. Makes the case for a short squeeze.

Alex Roslin said...

Hi Anonymous,

The Alexa traffic for Kitco is indeed interesting to look at. One caveat is that sentiment divergences, like many technical tools, don't always work or don't always work in a predictable timeframe. As well, the data from the Kitco traffic doesn't go back far enough to study it thoroughly, so I'm cautious about how to interpret it.

Regards,
Alex

Anonymous said...

It seems your set ups have alot of kinks in the program. I am certain your bearish set up call, will be like the infamous"Sayonora Silver"call, which I have and continue to be making plenty of $'s on.You seem to speak in double speak, always careful to say your not executing this sell till this date, etc.I think your programed style trading misses out on the Big gains, and is a headache that most can do without.Sincerly,Jim

Alex Roslin said...

Hi Jim,

Thanks for your comment. Not sure which "kinks" you mean, but for my response to your other comments, please refer to my earlier thoughts here:

http://cotstimer.blogspot.com/2008/02/sayonara-silver-thanks-for-memories.html

Regards,
Alex