Friday, 8 August 2008

Green Light for Natural Gas, Stop Sign for Gold: Data

Is this the bottom? Is it the top? I have no idea. But I can tell you my bullish signals for the BKX Bank Index and NASDAQ 100 are good for another week. Also, my trading setup for natural gas has gone to bullish after two weeks in cash. And my gold setup has just flashed bearish. That one works with a two-week trade delay, which means I'll sell my long position on the open of trading, Aug. 25. All these signals come from my COTs Timer trading system based on the government's free weekly Commitments of Traders reports, the latest of which was issued this afternoon. See my latest signals page table for all the gruesome details. Here are some more highlights:

- Whither the markets? My S&P 500 setup has been in cash for five weeks and shows no signs of figuring out which way it'll go. The "smart money" commercial traders this week have given a bearish signal, while the small traders have been on a bullish signal for the past seven weeks. The small trader signal is based on calculating the total open interest of the small traders (the long plus short positioning). Then I trade opposite to this positioning when it hits specific extremes. So when the small traders are jumping into the market, I want to jump out. Right now, the small traders are abandoning ship, but this signal isn't being confirmed by the commercials. The setup is thus in cash, and I'm still sitting this one out.

- Is the greenback bouncing? Not according to positioning in U.S. dollar index futures. For the past three weeks, the "smart money" commercial traders have sharply increased their net short position as a percentage of the total open interest. They now stand 1.6 standard deviations below the moving average I use for my dollar trading setup. The picture is still a little unclear, however; a number of my commodities setups are in bearish mode, and as I mentioned above, my gold setup has now gone south as well.

- My natural gas setup has gone to bullish after the "smart money" commercial traders reversed a couple of weeks of highly pessimistic net long positioning as a percentage of the total open interest in this market. This setup combines the signals of the commercials with a second setup based on the small trader total open interest - the long and short positions added together. When the total open interest hits bullish extremes, this has often been a good buying opportunity; conversely, when the small trader total interest gets super-low, it's a good time to sell. This week, both setups agreed with each other, giving me a bullish signal for next Monday's open of trading.

Have a relaxing weekend, and good luck next week. Be sure to tune in early in the week for my portfolio page update.

TAGS: natural gas, gold, NASDAQ 100, U.S. dollar, BKX, Bank Index, S&P 500, commodities, open interest, futures, options, COT, Commitments of Traders, market timing, trading system development, CFTC, Commodity Futures Trading Commission, COTs Timer


Anonymous said...

Hi Alex,

The Nat Gas move today Aug.12.08 is nuts..It's a crazy yo-yo. Based on the charts, aside from what the COT is saying, do you think it's trending down to Aug.2007 lows before bouncing back?

Also do set targets to take profits mid-week or before your next COT's signal?


Alex Roslin said...

Hi Pete,

Yeah - crazy move. In my system, I don't take profits until there's a new signal, but hey, that's just me. Not advising anybody what to do!

On the 15-minute chart for HNU (the leveraged natural gas ETF trading in Toronto), I'd say the breakdown this afternoon below the 10-period moving average doesn't look so hot and it could come back to test the breakout level from this morning's opening range.

On the 60-minute chart, it appears the price broke out today above the downtrend line since early July. More importantly, in my eyes, it also broke out above that line by more than the recent Average True Range, which I'd take as very bullish.

On the daily chart, there was a Tom DeMark Sequential countdown buy signal a few days ago, which suggests selling exhaustion.


Anonymous said...

While I appreciate the COTs perspective, I am going to go contrarian in real life: no NG gas lock-in price this year and buying more gold. NG should decline in a deflation. Otherwise, I'll use more wood, which is already cut, and keep the NG system thermostat down to 50F.

Regarding the aforementioned NG conservation plan, many of my neighbors are doing the same.