Friday, 15 May 2009

"Dumb Money" Traders Hit Brakes on Rally, Bank Index Almost Flips to Bullish

Is it a pause or the end of this sweet little rally? I wish I knew. It certainly looks suspect, especially when you check out some of the weekly charts. There, many of the indices have bumped up against Tom DeMark Setup Trend resistance lines and bounced back down. (Read more on DeMark's interesting system herehere and here.) All will hopefully be a little clearer next week. Or the week after. Or sometime before the Apocalypse. But until then, we've got the Commitments of Traders to think about. I've updated my new latest signals table with the way my trading setups see things based on this weekly data.
That table is where I'm now going to include many of the details I used to write about in these posts about changes in trader positioning. I thought this would makes things easier for everyone to see what I'm talking about and let me include more useful info. The numbers should speak for themselves. Let me know if something's not clear. (I hope to include some charts eventually too.) I'll limit my Friday posts to a few highlights that elaborate on the data - and anything especially surprising or interesting that jumps out.

- S&P 500: As you'll see from the new numbers, the "dumb money" small traders have really hit the brakes in their derivatives positioning in the S&P 500. They appear certain that we've hit a top and want out. That's actually given me a bullish signal from fading these folks - which takes effect on the open June 2. On the other hand, you'll notice the commercial traders remain quite bearish this week once again. As a caveat, they have reduced their solidly net short positioning for four weeks running. But they are still seriously surly about this rally. So the overall setup will be going to cash on June 2 since the two trader groups don't agree.

- BKX Bank Index: This setup just about went bullish for next week's open. Two of the three signals in this triple-combination trading setup are now bullish. And the third - based on the large speculator total open interest - has moved up very close to flipping to bullish. Maybe the rally has legs after all, based on this setup at least.

- Gold: One more week for the current bullish signal for this setup, then it goes either to cash or bearish for a single week starting Monday, May 25, before likely returning to bullish the following week. The wild card here is the large speculator positioning in the coming weeks. If they suddenly all turn into massive gold bugs, that kind of excessive exuberance would spell trouble for any sustained bullion rally. For the moment, there's no hint of that. As the numbers show in my table, the large specs are only moderately bullish as compared to recent data. They'd have to increase their net long position by an incredible 30 percent as a percentage of the total open interest in order to flip their signal to bearish - and a move of that size would be quite historic.

- Crude oil: My crude setup goes to cash for a single week this coming Monday, May 18, then goes back to the bullish column on the open of Monday, May 25, and will remain there for at least four weels in total - the farthest the setup's trade delays allow me to try to guess into the future.

Have a great weekend, and to Canadian readers a beautiful long spring weekend. See you here early next week with a portfolio update.

20 comments:

DavidDT said...

You most likely either don't know much about real use of DeMark indicators (which is excusable, since it is not your "primary" weapon) or just mixed up weekly charts with daily when said: "It certainly looks suspect, especially when you check out some of the weekly charts. There, many of the indices have bumped up against Tom DeMark Setup Trend resistance lines and bounced back down."
Quite opposite - weekly chart IN SPITE OF registering weeks 8 or 8 on most major indexes/ETF - is so FAR AWAY FROM corresponding TDSTs that it almost does not worth mentioning.
Spueaking of daily, QQQQ for example, current tdst is 33.07 and TDSetup BUY today was 7 and QQQQ did not even come close to tdst. Which suggest, that if Mon/Tue will hold neutral - we might see resume of moderate uptrend next Wed. Thou, I think QQQQ has slightly more downside (to 32 area) and SPY (daily tdst 84.76) if no attempts will be made to prop it up -will decline no further than 86.5 area. I've been using DeMArk indicators for over 12 years now, one of correct calls was going all in long on March 3rd http://trading-to-win.com/ExamplePort.aspx. Anyhow, I do respect your hard work, but...try to stick to the subject you DO know.
Trade well

DavidDT said...

One more thing - speaking of gold.
GLD has one more up day not exceeding (most likely 92.72 where it becomes SHORT)
Same DeMark correctly interpreted :-)
As for Dave Fry...Oh boy... I feel sorry that long ago I wasted few $ reading his "ideas" - the one who can trade - does not sell...Just like M. Fools

fiki said...

Hi

"BKX Bank Index: This setup just about went bullish for next week's open"

Not Monday 18th but 25th, right?

Alex Roslin said...

Hi Fiki,

The bullish signal for BKX would have been for the open of May 18 if the large spec total open interest had risen just a tad more.

Regards,
Alex

Alex Roslin said...

Hi DavidDT,

The charts show TSX bouncing down from a TDST weekly line last week, SPX penetrating a TDST weekly line then breaking back down below that line last week, NDX rising close to a TDST weekly line two weeks ago, then breaking down, and the Russell 2000 breaking down last week before it was able to penetrate a TDST weekly line just above.

On top of that, a lot of indices are failing at their weekly TDST lines before completing a Sequential Setup, which suggests their rallies might be exhausted.

Regards,
Alex

In Debt We Trust said...

I just came across your blog. Great stuff. I started using the COT too but mostly for agriculture (grains).

Have you tried using it to predict bond movements?

Alex Roslin said...

Hi In Debt...,

Thanks for your message. I have looked at Treasuries in the past - and found some really interesting trading setups - but not with my current backtesting method yet. It's definitely on my to-do list. Meanwhile, I do have one setup based on the three-month Eurodollar contract, which trades the BKX Bank Index.

Regards,
Alex

Phil said...

First let say thanks Alex, I have log on to this blog for about 8mths, and to come with a approach using COT is a huge task,I am a BIG FAN, I have been trading since 97 using per technicals and chaos math and I have look at COT many times over years but never could find any thing consistent, I like this approach and I am glad you take the time to share it and the DIY.

Strength in crude trade on May 25

I found a good article today www.fx360.com/commentary/kathy/1239/dollar-cautiously-bearish.aspx?aid=5670, Kathy Lien is spot on, I been following the dollar(uup)since June 08, manipulate the strength in $ controls the commodities sell off hence the market sell, time to devalue the dollar re inflates the market?? short term

Thanks again
Phil J
(go Blackhawks)

DavidDT said...

Alex,
you have to excuse me - I am kind of "old guy" and probably my eyes don't serve me well anymore or I am just looking at different implementation of TDSeq (well, it WAS DeMark approved as far as I know) - but I just cannot see what you see (NDX weekly - if you referring to 2006 LOW), and daily just bounced off tdst on bar 8 and recycled due to bullish flop today, but that is OK - there are many ways to make money.
http://screencast.com/t/Wz1pJe8r
http://screencast.com/t/5yoIoT5b
Peace

In Debt We Trust said...

Alex,

I was looking at the COT data again and noticed sugar's (#11) extreme position. It broke 2 year highs today.

Now, I don't trade sugar AT ALL and am not familiar w/that mkt (I trade corn, wheat, soybeans, and sometimes treasuruies). But I couldn't help but notice the data on sugar as being very extreme.

Before finding out about COT I used to just chart the dollar index for the grains. It's worked more or less for me as an inverse signal - e.g. buy grains on weakness when dollar is overbought and vice versa when selling. Well, that and obsessing over NOAA satellite data and reading obscure agronomist reports from midwest universities.

Alex Roslin said...

Hi DavidDT,

For the NDX weekly TDST line, yes, I was referring to the line off the 2006 low. NDX rose to close to that line (less than 3 percent away) before selling off. It didn't get as near as some of the other indexes, but the pattern seemed similar to what was happening in other indexes.

The line wasn't meant as an in-depth analysis of where we stand vis-a-vis TDST lines. Just a passing observation. These reports focus on the Commitments of Traders - not Tom DeMark's material.

If you're interested in writing posts about how markets are doing vis-a-vis DeMark indicators, you are very welcome to contribute your comments. I think his work is great and use it a lot in discretionary trading.

Best regards,
Alex

Anonymous said...

Hi Alex,

Since you've stopped out of the Nat.Gas quick breakout last week. Please post when you think the signal is good to jump back. Possibly if UNG simply bounces off it's 50 day Ma?

Thx.
Pete.

Alex Roslin said...

Hi Pete,

I was in and out of natural gas a few times during the recent rally. Unfortunately, these are very short-term trades, and I don't usually have time to post here about them in a timely way.

Best regards,
Alex

Anonymous said...

Thanks Alex. Any plans for creating a COTS-Timer twitter account for the quick updates ;)

Cheers,
Pete.

Alex Roslin said...

Hi Pete,

It's an interesting idea. I'll think about it.

Best regards,
Alex

fiki said...

Thanx Alex.

Btw Really like your COT angle.. I´m guessing you´re busy man but if you got some spear time silver would bee interesting :)

Take care

Alex Roslin said...

Hi Fiki - I agree. I enjoy trading silver very much. I'm long some right now, as it happens.

Regards,
Alex

fiki said...

Hi Alex,

You don´t have one of your great set-up for silver to share? Or perhaps your´re not using COT for silver?

Alex Roslin said...

Hi Fiki,

Not yet. Takes a while to develop a trading setup, and there are a lot of potential markets to cover. But silver is on my to-do list. I currently trade it with other discretionary techniques.

Regards,
Alex

Forex Signals said...

Frankly speaking, I don't often use DeMark indicators. To my mind every wonderful technical analysis can be ruined in a moment by some news. Though I try to do some fundamentals and then try to set indicators.