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.


Barb said...

Your blog suggests you are bullish in the S&P for next week but your table says Bearish? I'm guessing it is still Bullish for the coming week Aug 31.


Anonymous said...


your S and P signal says BEARISH for Aug 31 on your table.

arent you still on a 3 week BULLISH signal for S and P

also, what 200% leveraged ETF are you using for your treasury investment. I have found those to not track all that accurately so perhaps you found one that does


In Debt We Trust said...

26 Aug 2009 13:00 EDT
DJ TECHNICALLY SPEAKING: Hibernating Bears May Stay In Caves

By Geoffrey Rogow

NEW YORK (Dow Jones)--Just because a fall at the start of fall seems universally expected, don't be so sure.

Even while the market continues its seemingly never-ending climb, stock traders throughout Wall Street are prepping for a pullback. Concern that September and October are traditionally the stock markets' weakest months are prevalent, while some the market's drivers, such as the better than expected earnings season, are now out of the way.

In the interim, traders are being forced to play a high stakes game of musical chairs, buying while the music is playing, ever ready to jump on a chair and sell when the music stops. That possible stop to the music is expected to happen when investors come back after the summer, but since when does what everyone expects actually happen?

"Every time we reach a point where it seems like this would be a good stopping point on a technical basis, some great fundamental news comes out," said Wayne Kaufman, chief market analyst for John Thomas Financial.

Wednesday is a prime example of this trend. Dow Jones Industrial Average futures were pointing lower and stocks even opened to the downside on Wednesday as the durable goods data showed orders for nondefense capital goods excluding aircraft - a key barometer for capital spending by U.S. businesses - fell 0.3%, spooking some traders.

However, as soon as new home sales data came in well above analysts' expectations, stocks pared all of their morning weakness and once again pushed to the upside. The Dow was recently off just 10 points at 9528.

For now, Kaufman says the lack of a broad pullback stems from a dearth of sellers. According to his metrics, buyers are not trading in impressive fashion, while sellers are at multiyear lows. He says this lack of sellers has been at the forefront of the Dow's recent gains, with the index now finishing higher in six straight sessions.

When investors come back, that doesn't necessarily mean the sellers are coming too. For one, the trend of positive economic reports is likely to last for some time. Moreover, many fund managers are on a fiscal calendar ending in October and will have to play catchup to the rising market and buy going into their year's final month.

More short term, should the Dow close Wednesday in the green and mark a seventh day higher, that doesn't even mean it's time to sell.

"We looked at seven-day run-ups in the DJIA back to 1987," wrote John Schlitz, chief market technician for Instinet, in a Wednesday note. "The index typically moves to higher levels following a seven-day advance, although the volatility experienced on the way to those higher levels varies."

-By Geoffrey Rogow, Dow Jones Newswires; 212-416-2179;

(END) Dow Jones Newswires

mgagne77 said...


Long time fan. Wondering if your comments of the S&P 500 match your signals. You comment on the 21st that the S&P500 is bullish based upon small tarders (wrong way) being bearish, and commercial being bullish. You then confirm this week the same info, but your signal has the S&P500 as Bearish?


Anonymous said...

Hi Alex,

Your comment said you were bullish on S&P 500 next Monday, but your Signal table said bearish. I wonder if I read it wrong.

thrombus said...

I'm confused, it looks like your update is saying that the S&P 500 signal is bullish, however the chart says "bearish" for next week. Maybe I'm reading it wrong? Thanks.

carotids said...

Thanks for your insights. Very interesting. I'm a little confused why you are saying people are too bearish on the S&P but you have a "Bearish" signal by your system.

carl said...

Hi Alex, The weels are grinding, computers humming, and here our first results. We started with SPX and the Spy as a measurement, trying to optimalize the formulas. We took the buy and sell signals ( skipped the cash) and looked at how the formulas could be tweaked for max results. We looked only if buy/sell signals were good/bad trades and not how good/bad. Maybe that's why we have different results. Basicly, it is that the more consevative we are, the better the result ( thats because the way of testing) The 16 weeks average was in all testing the best. The main difference was that we came with a 1 ( maybe even 0) trade delay.
Next testing will be with weighted trading. And then with some other commodities, and finally with commodities that you haven't published about. If you are interested, all numbers are available to you.
Thousand thanx and greetings Appi

Anonymous said...

Thanks for publishing your hard work for the rest of us to use. I have a quick question about the latest S&P bearish signal. It appears that the small traders and commercial traders both increased their bearish stance compared to last week. Wouldn't this indicate bullishness if we are fading the small time wrong way traders? Or is this due to the 3 week lag in the signal?

Anonymous said...

Thanks for publishing your hard work for the rest of us to use. I have a quick question about the latest S&P bearish signal. It appears that the small traders and commercial traders both increased their bearish stance compared to last week. Wouldn't this indicate bullishness if we are fading the small time wrong way traders? Or is this due to the 3 week lag in the signal?

Anonymous said...

Hi there,

I am confused as to why your signals page is calling the sp500 when in this blog you appear to be saying it is bullish?

Thanks for the blog, by the way it is very informative...

Alex Roslin said...

Hi Barb,

Oops. That's right. Sorry about the mistake. It's now corrected.

Take care,

Alex Roslin said...

Hi Anonymous,

Thanks for pointing that out. It's now corrected. I'm using HTU in Toronto (not a recommendation). It's got low volume, so that's maybe why it doesn't track that well. TMF seems to be tracking it better.

Take care,

Alex Roslin said...

Hi Appi,

Thanks for the update. I'd love to see the parameter values you came up with. You can send them to me at When you say those were the "best" values, much depends on how you define "best." I've seen many setups that qualify as best under the usual criteria used out there, which are in fact not that great. It would be interesting to see which evaluation criteria you used as well.

Best regards,

Joseph said...

Hi Alex, just wondering if you can briefly breakdown a summary of what you believe happened here with respects to OIL. Getting hammered on OIL, can we do an analysis if on the Sept 4 or 7th we dont break $75. What I mean is if the small and commercial guys were all bullish then what happen to drive OIL down when these future contracts were already spoken for, unless stops were triggered?

Alex Roslin said...

Hi Joseph,

Thanks for your message. It's hard to say what happened. The traders were bullish, but now aren't so much, and the signal goes to cash Sept. 7.

So far, the long crude trade is down 5.6%. That's less than halfway to the potential 13.6-percent loss if my stop were to be triggered. So the loss so far is within the typical past trade pattern seen in this setup. That said, the week isn't over, and the trade could still end profitably.

As well, if you take a look at my backtesting results for this and the other setups, you'll see they haven't had a 100-percent success rate. No trader or system does. The crude oil setup has a 66-percent win record historically. Because of that, I am prepared to lose money on many of my trades, and I set a stop level and position size that's appropriate to my risk level based on past volatility and losses in a setup.

So far since I started trading the first of these particular setups last December, the signals have been profitable 79 percent of the time.


Anonymous said...

Are SP putholders like me still wrong way? If large speculators are bearish then it is the likes of Steve Cohen,John Paul Tudor Jones,and other large hedge-fund guys acting on the Tom DeMark sell signals that were initiated on the daily SP for sequential and Combo for the SP weekly last week and I have seen you recommend trading on DeMark indicators. McClellan Oscillator is below the 0line and is going to stay there for awhile.
Daily reversal to the downside today also.

-----Mr. Panic

Alex Roslin said...

Hi Mr. Panic/Anonymous,

The large speculators didn't give good, reliable signals in my backtesting in the S&P 500. The single signal based on the large specs actually traded alongside them, but it wasn't good enough to include in my setup. The small traders are certainly to be faded in most of the best signals I found in this market.

Are this signal wrong? Please see my new FAQs page where I address wrong signals.

As for the TD Seq signals, yes, a number of combo buy signals were completed last Friday and Monday on the daily chart. But the TD Seq countdowns haven't worked as well during the recent strongly trending markets - whether they were trending up or down.

Personally, I haven't relied on those as much as breakouts and breakdowns through TDST lines. I like to wait for the price to confirm one of those completed countdowns. I think that's the way many successful traders have been using those indicators recently.

Regardless, even if there is a selloff, it doesn't mean that it's the end of the rally since March. It could just be a small selloff or sideways period before the rally resumes.

I prefer to let the price tell me what it's going to do in a discretionary trade. I keep my stop levels below recent daily or weekly TDST lines, adjusting upward as the price breaks out.


Anonymous said...

Gold - "Large speculator total open interest (which I'm fading in this market) ... Right now, that other signal - fading the large spec net position - is bearish. This week's data saw the large specs still happily long."

I'm confused - "that other signal" - there's only one group, "large spec", one signal discussed not two different groups.

There is no "other" group mentioned.

Alex Roslin said...

Hi Anonymous,

My trading setup for gold has two signals that both must agree for a trade to occur. One is based on the large speculator total open interest, the other on the large spec net position as a percentage of the total open interest. See the two tables on the Latest Signals & Results page for more details.