Wednesday, 24 June 2009

Possible Green Shoots Amid Mixed Signals

Is this the big, long-awaited market selloff that will take us to retest the March lows? And possibly lower? Lots of skepticism abounds.
The picture from the latest Commitments of Traders data is fairly mixed, but there is some evidence for the bullish case. Still, as you'll see on my latest signals table, all my setups are in cash, except the one for Japan's Nikkei Average, which is bullish.

Below are some highlights from last Friday's data update. Be sure to check out my newly updated backtesting results table with the details for my two new setups for natural gas and the 30-year Treasury.

Also visit my portfolio page, which includes new trades as of this week's open. My tally from 10 real-time trades since last December based on my newly revised COTs Timer system is:

- seven wins, three losses; average return: 8.95 percent; average holding period: 2.88 weeks

- cumulative portfolio return: 23.6 percent (adjusted for the setups' maximum portfolio allocations)

And now for those highlights:

- S&P 500: The "smart money" commercial hedgers are finally buying into the rally, four months in. They've started to significantly reduce their net short positioning in S&P 500 futures and options and now stand just a hair below the line that would take their signal bullish for my setup.

The wrong-way small traders have been already on a bullish signal for seven weeks, owing to their excessively bearish posturing starting in early May.

- BKX U.S. Bank Index: Somewhat muddying the picture is the positioning in the three-month Eurodollar contract, a key liquidity measure. This data gives me signals for U.S. financials. As you can see from my latest signals table, the data has suddenly reversed course and gotten substantially more bearish, almost triggering a bearish signal for this market.

- 30-Year U.S. Treasury: After a two-week bearish signal (meaning the setup expected the Treasury yield to rise), this new setup of mine will go to cash on next Monday's open. That's because the small traders - whom my setup fades - hit a bearish extreme in their derivatives positioning last week, flipping their signal to bullish.

The other signal in this setup - based on fading the large speculators - has been bearish for six weeks. That's based on highly bullish positioning by the wrong-way large spec crowd. But the large specs have steadily reduced their total open interest relative to recent data and may be on track to reverse course soon.

- Crude Oil: My crude oil setup will remain in limbo for the foreseeable future due to conflicting advice from the commercial hedgers and small traders. Can't we learn to get along?

The commercials, who are normally right, have been bearish for five weeks. Their signal operates with a four-week trade delay for executing new signals. So that means bearishness from their corner for at least the next month.

Meanwhile, the small traders, who are also right in this market, just on a different timeframe, are super-bullish. Figure that one out. They've been on a bullish signal, in fact, since early December. And they now show zero signs of capitulation, with a highly bullish posture in their derivatives portfolio, as you'll see on my latest signals table.

Good luck the rest of this week, and for Quebec readers, Joyeuse St-Jean!

3 comments:

michaeld said...

Very good article.

In my opinion, it is all a matter of market timing. It does not matter if it is gold, oil, or Microsoft, if you have access to good market timing signals, they will help you get in and out at a profit.

No guarantees in this business, but if they are right most of the time, you can still make $s.

There are may web sites providing them out there (search Google). Just find one that works and use it! Check out http://invetrics.com as an example.

Its Dow Jones timing signals are up 43% as of 6/23/09 while the Dow is up just 29% off its March lows.

Following a market timing system works!

Adam said...

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Forex Signals said...

That's not just point of timimg. That's point of folowing your trading plan. If you are confident and always keep to your scedule, everything will go right.