Saturday, 8 August 2009

Taking Profits in Banks, Going Long Crude

What a difference a week makes. The latest data from Friday's Commitments of Traders report shows some pretty massive changes in trader positioning. That has triggered a bunch of signals for my trading setups based around this free weekly government data reporting trillions of dollars in derivatives positioning in major markets.
The best way to see what really happened is to check out my latest signals table, which I've just updated with the new numbers. Now, I know from the traffic data that many readers don't actually take a look at that table week to week. I encourage you to spend a little time figuring out how it works. The raw numbers give a better picture than anything I can write. So I think it's well worth the trouble. Some highlights:

- S&P 500: Commercial hedgers are still highly bullish, small traders still quite negative. These are perfect good conditions for the bullish signal my S&P 500 trading setup has given for the open of trading Monday, Aug. 24. Due to the three-week trade delay in this setup, that signal will now last two weeks at least.

- Financials: My trading setup for the BKX U.S. Bank Index goes to cash for Monday's open after four weeks being long. What a sweet run, but time for me to get out. Large speculator net positioning and total open interest have suddenly collapsed, according to Friday's data. The only thing keeping this setup from going short is small trader total open interest, which remains defiantly buoyant, though it too has dropped considerably since the prior week.

- Crude oil: Commercial net positioning has suddenly taken a sharp downturn this past week. With the four-week trade delay for the commercial signal, the change will cap off my bullish signal for crude oil that starts on Monday's open. The signal will now run four weeks until Friday's commercial bearishness impacts. Since small traders remain bullish, the signal won't go over to short, but rather will go to cash on Sept. 7. Until then, let the black gold flow!

- Gold: Speaking of gold, my setup for the yellow metal has more bad news for gold bugs. This week could have put the setup in the long column after seven weeks in cash. But alas, no. Large speculators, whom I fade in this setup, have gone bearish based on Friday's data. This, after a year being long. Wow. Their net position as a percentage of the total open interest hasn't been this excessively bullish compared to recent data since April 2004, when a similar bullish spike foretold a selloff and half-year sideways move for bullion. Friday's move put the large spec signal firmly in the bearish column. I had thought the setup could actually finally go bullish this week, based on the large spec total open interest, which had gotten super-bearish in mid-June, setting up for a long signal around now. Oh well.

- Nikkei: My setup for Japan's Nikkei Average goes to cash next week for a single week, then returns to bullish.

Tune back in early next week for a portfolio update. Have a good weekend, and best of luck next week. Looks like we might really need it.

13 comments:

In Debt We Trust said...

Your analysis supports the latest BDI data:

http://www.nakedcapitalism.com/2009/
08/baltic-dry-index-down-17-for-week-
worst.html

I took profit on my emerging market calls on Friday afternoon. Didn't like how the volume was shaping up in intra-day trading.

Pelican said...

Alex,
good posting, i am still digesting this week's signal. Do you have older "last signal" files available for download?
thanks,
CC

dave said...

Monsieur Roslin,

I "questioned/criticized" you previously; and you handled it like a Prince.

"My trading setup for U.S. banks remains long for the fourth consecutive week. ... The setup has been in cash 74 percent of the time since 1995, and the last time it was in the market for four weeks was four years ago. Ride the lightning."

The above was a great call ... NONPAREIL. The perspective of i.e., 1995; "four years ago" along with my own work helped me to be very agressive & cash in Fri.

You don't have a high profile. You're not celebrated, but i don't know of anyone who nailed banks as you did. The language "Ride the lightning" was like the cherry on top of the sundae.

Regards,
dave

Anonymous said...

Hello

Very excellent site. I have been studying your backtesting and results and am very impressed.

One area that is not so clear is how you determine your stop losses. For example you are going long oil monday. How do you compute where to set your stop and is that based on any sort of backtesting of historical trade data or on what basis do you set it.

Again, congratulations on your system and your site, I am learning a great deal visiting here.

Alex Roslin said...

Hi Anonymous,

Thanks for your message. For the stop, see the notes to the tables. It is determined by taking the average backtested return and subtracting two times the standard deviation of the returns.

Regards,
Alex

Alex Roslin said...

Thanks Dave. But that signal was luck. The fact is over time, the real-time trading results should not be that different than the backtested results, and in fact they should tend to be somewhat worse due to the way optimization works. So the next BKX signal could very well suck! Hope not, but that's the reality. Markets teach us humility pretty damn quickly.

Regards,
Alex

Alex Roslin said...

No, sorry.

Mark said...

Alex,

Wow, I just discovered your work over the weekend and I'm attempting to bring myself up to speed asap. Very very interesting stuff!

One newbie question I have... how do you cut and paste the comma delimited line into the existing spreadsheet? I'm baffled on this. I know you can paste it into a txt file and then load that file but then the formula's would need to be added. I must be missing something right in front of my eyes but I sure don't see it. BTW, I'm using OpenOffice Calc and not Excel.

Alex Roslin said...

Hi Mark,

You paste it from a text file, then use Control D to extend the formulas to the new row.

Regards,
Alex

Mark said...

I must be a dunce. I still can't seem to get the data I copy from the deacom.txt file to paste correctly into a new line in your ss.

Alex Roslin said...

Hi Mark -

It is a little tricky, and unfortunately the CFTC removed their instructions on how to get the file into a spreadsheet. I got in touch with them to get the original instructions they used to post, which they were kind enough to send along. I just uploaded those on my "How It Works" page. See the first step.

Regards,
Alex

Anonymous said...

Hi Alex,

Does your stop out percentage for Crude Oil applies to the 2x leverage as HOU.TO or the USO?

Thanks,
Pete

Alex Roslin said...

That's the unleveraged stop. It or position size have to be adjusted if I have a leveraged position.

Regards,
Alex