Friday, 16 January 2009

Gold Glitters While S&P 500 Sags

Some volatility this week. The fun continues. The Commitments of Traders report this afternoon doesn't have much good news for the bulls. My trading setup for the S&P 500 is still in the bearish column. With the trade delays for the signals that make up that setup, it now will remain bearish until Feb. 9 at the soonest.

The commercial traders in S&P 500 futures and options are heavily net short, with a position 1.23 standard deviations below the moving average I use for their signal - though that's a slight improvement from the week before, when they were 1.74 standard deviations below the average. On the other hand, the small trader total open interest (long plus short positioning) has fallen from 0.61 to 0.79 standard deviations below the moving average - which is bearish. You typically want to see the small trader open interest go up for S&P 500 prices to rise. Think of it as rising market volume.

In gold, the other market I'm trading based on the COT data, my setup has gone to bullish this afternoon after three weeks in cash. I execute the signal on next week's open of trading. This signal is based on a combination of fading the large speculator net position (which last hit an overly bearish extreme in Aug. 2007 and has been on a bullish signal since then) and fading the large spec total open interest, the latter with a seven-week trade delay. The large spec total open interest gave a bullish signal with the Nov. 25 COT report and stayed bullish for three weeks, then went back to bearish, which it has remained since. So barring any change in the large spec net position, this signal will remain bullish for three weeks, then go back to cash.

I've temporarily stopped updating my other setups on my latest signals table because, as I've mentioned before, I'm retesting all my setups using detrended price data and Monte Carlo testing. I've completed this retesting for S&P 500 and gold so far and have two setups there I feel confident trading. I'm still doing a little more testing on gold to see if I can find an even better setup and should have some results to announce soon. Then I'll turn to the other setups. Thanks for your patience. Hope you survived the week and have a great weekend. Happy Ukrainian New Year to any fellow Ukes out there. See you early next week with a portfolio update.

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


Alex said...

3 things i wanted to see: short SPX, long GOLD, and uke's!! didn't know you were ukrainian as well. very usefull blog. thanks. (s novim godom)

mrktneutrl said...


Sent some people your way. Told them about your system so they might come wandering by. Told them how much of a genius you were!

You know, I was thinking - on the GLD indicator. So it just went bullish and will be so for 3 weeks due to the lag time. But, let's say next week the signal goes bearish. You would still hold for 3 weeks. What were your results in examining not holding for the entire 3 weeks - selling when the signal changes?

Did you celebrate Ukranian Christmas? My mother celebrates Russian New Year so we all partake in the good food.

Still waiting for my programmer to a)not be sick b)not be busy with his job so he can complete the perl script and the backtesting.

Alex Roslin said...

Hi Tim,

Thanks for your message and kind words. Genius? Haha! If I was such a genius, most of my signals wouldn't be "under construction"!

I haven't tested your idea, although it sounds like an interesting twist. There are a few options along those lines: having different std. dev. values for entry and exit, as well as another one I've really wanted to explore - buying not when the net position hits the extreme level, but when the net position falls back down from an extreme level. That lag could be a key reason for the need for the trade delays in some cases. It's a signal representing a trend change, rather than an overbought or oversold condition.

Anyway, so many ideas, so little time!

Hope you had a good Russian New Year! I love the food too.

All the best in 2009,