Friday, August 21, 2009
S&P 500 Smart Money Super-Pumped, Wrong-Way Traders Super-Edgy
Sure was an interesting week. Still seems like a lot of disbelieving bears out there, just waiting for this market to crack up - even as it keeps bouncing back like it did again this week. Today's Commitments of Traders report confirms just how bearish the good people out there are. Check out my just-updated latest signals table to see those numbers.
The data shows the wrong-way small traders in S&P 500 futures and options at a remarkable 2.02 standard deviations below the moving average I use to study their relative positioning. That's their most bearish in over a year. The small traders have steadily reduced their relative net positioning for seven straight weeks as a percentage of the total interest - during almost the entire rise of the market off its mid-July low. Meanwhile, the commercial hedgers, who tend to be correctly positioned at market turns, have gotten even more bullish than they were last week.
All this bodes very nicely for my bullish signal for the S&P 500 that takes effect on Monday's open of trading. I'll hold that trade for at least three weeks due to the trade delays within this setup. Some other highlights from the new data:
- Banks: Mixed news for U.S. financials. Large speculator net positioning in the three-month Eurodollar contract has completely reversed course after a four-week decline as a percentage of the total open interest. And that is bearish. Today's data shows it bumping back up, which has turned their signal bullish. However, the small trader total open interest continues to fall off a cliff, and that is bearish. My setup for the U.S. BKX Bank Index remains in cash for a third week.
- Crude oil: My trading setup for crude oil - presently bullish - stays so for two more weeks, then goes to cash. Friday's data shows the small trader net position collapsing as a percentage of the total open interest. Their signal has now gone to bearish. So if the commercial hedgers, which are already on a bearish signal, remain that way inclined a few more weeks, we could get actually a bearish call from this setup in eight weeks' time. (The small trader signal has an eight-week trade delay before execution.)
- Natural gas: My setup for natural gas goes bearish on Monday's open. Gas has already gotten destroyed for more than two weeks. (I bought a discretionary short position last week as it broke down.) My COT signal will last two weeks, after which time the setup will go either to cash or bullish. Today's data saw the small trader total open interest rally nicely, which is bullish in this market according to my backtesting. But that signal has a two-week trade delay, so it won't impact my setup right away.
Be sure to tune in early next week for my portfolio update. Have a good weekend, and rabbit feet for next week.