Friday, 11 April 2008

I Can See the Light

The stars look like they're finally lining up. After the major volatility of recent months, most of my trading setups based on the Commitments of Traders reports are now showing signs of stronger, broader trends. Always nice to see. Check the table linked on my Latest Signals page for all the fun details. Some highlights:

- This afternoon's report gave me two new bearish signals for copper and platinum. These setups both work with eight-week trade delays, so the signals don't take effect until June 9. Wow, that's something to think about. We're still digging ourselves out from the snow up here in Quebec's Eastern Townships, and it's nice of the COTs reports to bring to mind those coming balmy days. Given the long delays, there's ample room for several pending signals to stack up in a row for these setups. See my Latest Signals table for some notes on my copper setup in particular.

- My six equities setups (including the BKX Bank Index setup based on the three-month Eurodollars COTs data) seem to be strengthening their bullish alignment. All except the Dow Jones industrials are or will shortly be in bullish mode, with the S&P 500 setup going long as of the open on Monday, April 21. After a week like this one, perhaps we're finally lining up for the long-awaited rally that's been playing hide-and-seek with traders for so long.

- Trades for Monday, April 14, include going long again for gold. This setup operates with a two-week delay and has been flopping around like Gill in the dentist's office in Finding Nemo, but it now seems to have settled happily into bullish mode as the large speculators have steadily increased their net long percentage-of-open-interest position in gold futures and options.

Have a great weekend, and see you back here next week with a portfolio update and those promised revisions to my setups. Sorry not to have posted any of those this week, but rest assured that fascinating refinements are on their way!

6 comments:

ic said...

I just don't get it Alex. The economy is failing more and more rapidly confirmed by GE and UPX, yet the P/E ratio of indexes is above last year. What is going to drive the market up? As you show, not all your trades work historically (in fact historically there are a fair number of losses), so I would think the fundamentals (economy) would play heavily here. Thanks as always for your work.

Alex Roslin said...

Hi Ic,

If the COTs setups are correct in their growing bullishness for equities, I would surmise that the economic stuff is largely already discounted. Markets are generally forward looking.

I've usually found it's best to ignore the headlines anyway. Follow the price. I'm a journalist, and trust me: journalists don't know what they're talking about, oh, about 95 percent of the time, especially when it comes to prognosticating the markets. Ever heard of the front-cover indicator?

Regards,
Alex

makin waffles said...

Hi Alex

Excuse my greenness. I'm looking at your signals page for the first time.

I'm confused. I don't understand the difference between the "Report Date for the Current Signal" and the date of "Last Update."

And, is the signal meant to apply from now on, or has it applied since the "Report Date." (taking into account your trade delay.

Doing an eyeball backtest comparing historical charts to your signal's predictions, I don't get much better than random, even worse than random for some reason.

For instance, corn, soybeans, wheat, sugar, and soybean oil have all been bullish since the "Report Date" for the signal saying "Bearish," though a couple have corrected. Are these just too short term, or am I reading them wrong?

Does the "Report Date" for soybean oil mean you've been bearish since then? I assume not, since its been all bull and you would have just lost money.

What have I got wrong? Thanks.

Kapil

einstein said...

Just found your website- great stuff. I have a few questions. If trading with this signal (and other technical signals) using the actual futures contracts rather than ETFs, what kind of stoploss would one use? Also in these trades what time frame for holding the trade? I assume these are longterm position trades. Thanks

Alex Roslin said...

Hi Kapil,

Thanks for your questions. The "Last Update" column refers to the last COTs report date for which the data was tested. As to your other question, two points: (1) the data goes back to 1995, so it's certainly possible for a current signal to be wrong. As you can see from the table, even the best setups have some losing trades. That's normal in any trading strategy. When a setup scores low in measures like that, I look at it as more of a guidepost to possible future market action, rather than a signal to be traded on its own.

And (2) the agriculture setups are not the strongest ones on that list, as you'll see from the confidence intervals on that table. I plan to revise them soon as part of a regular updating process I'm going through right now, which has vastly improved other setups.

Regards,
Alex

Alex Roslin said...

Hi Einstein - The avg holding period varies by setup, but you can get a sense of it from looking at the "winning/losing trades" column and figuring there are about 13 years of data in most of the markets. Usually, it's a few weeks to a few months.

I use the system to trade ETFs and can't give any specific advice for you about stops for futures. You can see how I calculate my stops on my "How It Works" and "Glossary" pages. Generally, I wouldn't risk more than 1 to 3 percent of total capital on a trade, so that determines my stop and position size.

Regards,
Alex