Saturday, 29 August 2009
Probably Not a Top, Wrong-Way Traders Too Bearish
A depressing week in the markets has the top-callers back out in force. You can see it especially clearly in the numbers in Friday's Commitments of Traders report. See my just-updated latest signals table for the details. This week's data shows the wrong-way small traders in S&P 500 futures and options getting still more bearish in their net positioning. Friday saw them at 2.20 standard deviations below their moving average in their net position as a percentage of the total open interest. That's their most bearish in 13 months.
And you know that when the little guy gets really short - at least in this market - that's historically been a sign of more upside. Particularly when that's confirmed by the commercial hedgers being bullish. In this case, they are. My latest signals table shows them at high levels of bullishness since late June. Friday's data finds them still maintaining a solidly bullish net position. Some other highlights:
- U.S. banks: My trading setup for the U.S. BKX Bank Index, a basket of the major U.S. financials, remains in cash a fourth week. But two of its three component signals are now bullish. In Friday's numbers, the small trader total open interest has nicely turned around, pushing their signal into the bullish column.
- 30-Year Treasury Bond: My setup for the 30-Year Bond will go to cash the week of Sept. 7, then to bearish (meaning a call that interest rates would go up as the bond price trades opposite to the bond yield). This, after three weeks being bullish. Friday's data saw the small trader total open interest - which this setup fades (trades opposite to) - shoot up enough to push their signal into the bearish column.
- Natural gas: I'm holding on to my hat for another probably-insane week in this market. My setup says to be short for a week more, then to go back to cash in natural gas. Take a look at the nutso natural gas chart, and you'll see what I'm talking about. This market is craaaaazy.
- Gold: How long will this trading range last? You know the longer it does, the more whacky the breakout or breakdown will be. Well, there is some possible news to report from Friday's data. Large speculator total open interest (which I'm fading in this market) has suddenly moved significantly down, flipping their signal into the bullish column. Nothing to get too excited about just yet; that signal operates with a seven-week trade delay. So we're talking about a potential impact starting Oct. 19. The other signal in this setup has to agree at that point for there to be a trade on the long side. Right now, that other signal - fading the large spec net position - is bearish. This week's data saw the large specs still happily long. But lots can happen in seven weeks.
Good luck next week, and be sure to tune back in for my portfolio update early this coming week.