Friday, 18 April 2008

S&P 500, Crude Oil Shift to Bullish Column Monday

More bullish signs as the Toronto Stock Exchange composite index breaks up above an ascending triangle in recent days. Is it just a fakeout or will other indexes like the S&P 500 follow suit? Technical analyst guru Tom Bulkowski (you can check out lots of his stuff free at ThePatternSite.com, where he's got a new daily blog) was telling me earlier today he's watching some potentially bullish reverse head-and-shoulders patterns on Japan iShares, Brazil iShares and Australia iShares. He's done a lot of interesting number-crunching: In 900 ascending triangles in a bull market, 74 percent broke out upward with an average 35-percent gain. (Caveat: in the SPX's case, his measure rule puts the target at more like 10 percent.) But caution is advised. Such breakouts throw back to the bottom of the triangle or thereabouts 57 percent of the time! (Btw, Bulkowski has an interesting-looking new book out, Encyclopedia of Candlestick Charts.)

So what do the precious little Commitments of Traders reports have to say about all this? As you can see from the table on my Latest Signals page, they're also lining up smartly on the bullish side. My trading setup for the S&P 500 flipped to bullish a few weeks ago, with the execution date for the trade coming up on the open of Monday, April 21. That setup is based on trading on the same side as the "smart money" commercial traders in SPX futures and options. Right now, they're resolutely upbeat. This makes five of my six equity setups bullish (all except for the holdout Dow Jones industrials). Also taking effect on Monday's open is my bullish signal for crude oil.

From today's new COTs data release, my setup for the 30-year Treasury bond has flipped to bearish. (This means it calls for the yield to rise.) This new signal takes effect Monday, too. I should note that I'm presently long Treasuries through my setup for the 10-year note. That setup is far more robust statistically speaking than the setup for the 30-year bond, and it remains in bullish mode. So I don't plan on taking any action on the 30-year signal. I'll be updating the 30-year setup soon to improve its robustness.

Housekeeping: I know, I know - I keep promising more updates for my setups based on the COTs reports. Rest assured, I'm busy testing and refining various things, but it's not at the point where it's warranted any new announcements or changed trading setups. The research I'm doing now includes out-of-sample analysis of the setups. This is just one step among many in order in verifying how reliable the setups would be in real-time trading. So far, I'm happy to say the results are very positive and haven't caused me to drop any of my setups. But I'm hopeful this and other testing might lead to still-better ones in some markets and to refinements of setups in markets I haven't had a chance to revisit yet, like the agricultural commodities and currencies. Another twist on all this is testing more combined setups, of which I already use a couple - setups based on the best signals from two groups of traders (for example, the commercials and large speculators). Thanks for your patience with this process. Have a great weekend, and see you next week with a portfolio update and hopefully some further news on revisions.

8 comments:

ic said...

Once again you are right Alex, and I am left scratching my head. Companies are just meeting earnings that were revised downward a few months ago; the PE ratios of the S&P, Russel, DJIA are now stratospheric. Based on your set ups the price of oil is going up and the 30 year yield is going down, so gas and mortgages will cost more. I can't imagine people freely spending on anything but necessities in this market, and this should be an extremely bearish signal. I wonder if the COT traders are betting that hyperinflation is in our near future. In the meantime you are making money so more power to you! Best wishes.

Wizardmachine said...

are you really going long crude at 116 ... i am short...your signals have been good....perhaps i should exit.... quick smart!

Ian said...

FYI, there was a review of your COT strategy for the S&P over at cxoadvisory.com, check out the blog entry for this Friday.

Alex Roslin said...

Hi Ian,

Thanks for your message. I saw that too. Unfortunately, the tester on that site used a one-week trade delay for his testing, whereas my SPX setup uses a three-week delay. With a one-week delay, it's certainly true you'd underperform the SPX, but my site makes it clear there's a three-week delay. Otherwise, CXO Advisory is an excellent site that I had just linked to my blog.

Regards,
Alex

Alex Roslin said...

Incidentally, I've asked CXO to retest the setup with the correct delay.

Regards,
Alex

Alex Roslin said...

Hi Wizardmachine,

I did go long crude on the open today. Not all the signals have been right on. For example, I've been short crude until now!

Regards,
Alex

Anonymous said...

Hi Alex:

I've been following your blog for many months and want to thank you for the information you provide.

I've not had success finding the eft's for shorting 10 year notes and/or 30 year bonds (for yields going up).

Is there an etf to short for that? Or, an inverse to buy? Or, one that doubles the moves of the underlying note/bond?

Thanks,

Brian

Alex Roslin said...

Hi Brian,

Thanks for your comment. I don't know of any bear bond ETFs, but there are some mutual funds do the same thing. For example, Horizons BetaPro has a bear Canadian bond fund. I believe there is something offered in the U.S. as well, but I can't recall the company name.

Regards,
Alex