Monday, 29 December 2008

S&P 500 Stays Bearish, NDX Traders at Exuberant Extreme

Some stocks have had a nice rally since late November - especially precious metals and real estate - but how sustainable is it? Today's holiday-delayed Commitments of Traders data pours a bit of cold water on any idea of a continuing bounce from here. My new, improved S&P 500 trading setup (see more on it here) is still on a bearish signal and will go to cash next Monday for a single week. It will then go back to bearish the week following. Other highlights from my latest signals table:

- My trading setup for the NASDAQ 100 remains in cash for the second week. Interestingly, the small traders in NASDAQ 100 futures and options have suddenly gone ballistic in their bullish positioning. They've never been so optimistic, in fact, since the beginning of the data in 1996. Their net position is now a record 3.02 standard deviations above the moving average I use for this setup, as a percentage of the total open interest. This, of course, is a bad sign. The small traders in this market tend to be wrongly positioned at market turns. Oh-oh.

- Gold, my other fully tested trading setup (see more here), has also gone to cash for this week after a five-week bullish run. This is based on the large speculator total open interest (long plus short positioning) growing to excessive extremes that in my past testing have tended to signal falls in the gold price.

- My trading setup for silver is also bearish. In fact, silver commercial traders are now 2.1 standard deviations below their moving average in their net positioning as a percentage of the total open interest.

Hope you had a good holiday week. Good luck this week and best wishes for a Happy New Year!

TAGS: S&P 500, SPX, NASDAQ 100, NDX, gold, silver, COT, Commitments of Traders, derivatives, Black Swans, market timing, trading system development, CFTC, Commodity Futures Trading Commission, COTs Timer, out-of-sample testing, walk-around testing

7 comments:

Tim said...

Alex,

Anyway to get the cell formula for the 2 signals of your Gold filter? I am not getting the same resulting buy signals on my spreadsheet for Gold that you are. I am sure it is my formula that is off.

Thanks
Tim

Tim said...

Alex,

Also, where can I find the parameters for the Nikkei setup? I don't see it in the notes section?

Tim

Alex Roslin said...
This comment has been removed by the author.
Tim said...

Thanks Alex,

Will do.

Tim

Tim said...

Alex,

I wonder if there is any seasonality to the jump in contracts for the small traders. Although I might be giving them more credit than they deserve, perhaps they are selling their common shares for tax purposes and buying calls to cover the 30 day period?
Tim

Alex Roslin said...

Hi Tim,

Thanks for your message. If you mean the NDX small traders, that may very well be the case. But the positioning is at a record bullish extreme relative to recent past data, so even if there is seasonality involved, the positioning remains more extreme than in previous years at this time.

There was a smaller jump in bullish positioning in the previous two years, while in Dec. 2005 there was only a minor increase in bullish positioning that didn't hit extreme enough levels to trigger a new signal until Feb. 2006.

Regards,
Alex

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