Saturday, 15 August 2009
Going Long Treasury Bond and Nikkei, Cautious About Banks
The markets seem to have shrugged off that little selloff, but this week's Commitments of Traders data suggests we may not be completely out of the woods. The numbers are giving some mixed signals, with a bullish trade starting Monday for the Nikkei and positive data for the end of the month in the S&P 500 but bearishness signalled for banks. Also potentially worrisome is a bullish signal Monday for the 30-Year Treasury Bond (meaning the bond yield would fall). Bond prices have a moderately negative long-term correlation with equities and commodities (though that kind of relationship often means less in shorter-time horizons, including for the coming week). I've just updated my latest signals table with the data from Friday's COT report for the markets I'm trading with my COTs Timer system. Some highlights:
- S&P 500: The data in S&P 500 futures and options is looking up. My trading setup for this market goes bullish on the open of Monday, August 24, and the numbers remain hopeful into mid-September. The "smart money" commercial hedgers are super-bullish in their net positioning, while the wrong-way small traders are increasingly negative, as you can see from the data on my latest signals table.
- U.S. banks: More trouble for U.S. banks, if the COT data for the three-month Eurodollar contract is any indication. (That's the interest rate, not the currency.) All three of the groups of traders that make up my setup for the BKX U.S. Bank Index are now in the bearish column. Because of the varying trade delays for the three signals, there's no bearish trade just yet in that setup, which has been in cash since Aug. 10. But it's still not pretty.
- Natural gas: This ridiculously volatile commodity has sold off massively since my trading setup went to cash in early August, making new lows this week. My setup suggests this might not be the end to the correction in natural gas. It's given me a bearish signal with a one-week trade delay - meaning execution on the open of trading on Monday, August 24.
I've also just updated my portfolio page with my bond and Nikkei entries and the current result from my open long crude position. Good luck next week!