Friday, 4 September 2009

Rally Gets Boost From Bullish Data

More bullish news from this afternoon's Commitments of Traders report suggesting the rally is still probably on solid ground.
My trading setup for the S&P 500 is bullish for a second straight week. The latest data shows the wrong-way small traders getting somewhat less bearish than they were last week - but on balance they're still very negatory in their sentiment. See my newly updated latest signals table for the exact numbers. (Note that I've corrected a couple of errors on that table from last week's numbers. Apologies.) This is their sixth straight week of increasing bearishness.

Meanwhile, the commercial hedgers - who tend to be correctly positioned when markets turn - are still highly bullish, as you can see from the latest data on that table. Some other highlights from today's report:

- U.S. banks: My trading setup for the BKX U.S. Bank Index is in cash again this week - its fifth in a row. This week's data saw the setup come just a hair from going to bullish. Two of the three signals that make it up are already bullish. The hold-out signal is based on the large speculator total open interest. It has shot up 29 percent in the past three weeks, bringing the large spec positioning to 1.15 standard deviations above the moving average. It needed to get to 1.25 standard deviations above to go bullish. If the open interest had increased 3.6 percent more this week, that would have done it.

- Natural gas: Wow, what a run that was for my short signal. Today's massive reversal to the long side took away some of the gains, but I don't mind at all given what happened earlier this week and last. I figured it would be volatile, but this was craaaazy. The setup goes to cash on next week's open, and there's no clear sense if natural gas has bottomed or not, at least not from the COT data, which is pretty mixed in its outlook for the next week out at least.

- 30-Year U.S. Treasury: This setup also goes to cash on next week's open after a nice rally. It will remain in cash a week, then go bearish on the bond price (meaning bond yields would rise) for at least two weeks starting the open of trading Sept. 14.

- Crude oil: More bearish numbers from the small traders and commercial hedgers in crude oil. But there's still no clear signal at this point because of the various trade delays for their signals in my setup in this market. On next week's open, the current bullish signal - a money-loser, unfortunately - ends, and the setup goes to cash.

Hope you have a great long weekend, and be sure to check in here early next week for my portfolio page update, plus a look at the CFTC's proposed changes to the COT report. Also, be sure to check out my new FAQs page for details on my backtesting process and how COTs Timer works.


Anonymous said...

Hi Alex,

thank you so much for your post ,i learn a lot from your blog .

is that possible to share me the backtest application you mentioned at your FAQS?

thank you for your wonderful blog .

best regards,

Alex Roslin said...

Hi John,

Thanks for your message. No, it's a proprietary application.


toad37 said...

Hi Alex,

Well i'll be damned ... thought there was at least consensus on who is who in the COT. My Commodity traders almanac says thus:

Commercials are considered hedgers ... they do or will own the underlying product and are trying to hedge their positions from adverse price moves. They usually disclose that they are hedging in the account application. Called Smart money because they are in that business, are on the other side of the market.

Non Commercial - Large speculators or big investment houses got to where they are by being very good traders with good track records. They are well funded and they have significant capital to defend their positions.

Non Reportable - Small speculators that lose 80% of the time and are to be ignored. They are undercapitalized and cannot defend positions.

You refer to the non-commercials as dumb money. Can you help me clear this up at all?

Glad I found your blog.


alysomji said...

Any comments on gold, Alex?

Also, do you know of a similar application to the one you're using that we can either purchase or acquire in some way?


Alex Roslin said...

Hi Todd,

I can't comment on that particular information source, but I refer you to my new FAQs page for an explanation of my views on the subject.


Alex Roslin said...

Hi Alysomji,

Unfortunately, I don't.


Alex Roslin said...

Hi again Alysomji,

Regarding gold, I am currently long in a discretionary trade based on a breakout last Wednesday and was thinking of adding some more today on the new breakout, that is until that got kneecapped. The COT data is very mixed on gold right now, and my setup is in cash. There is no possibility of a bullish signal before Oct. 19.


In Debt We Trust said...

Another way of saying the rally gets a boost is that the G20 confirmed what a lot of us long suspected:

There will be no end to money printing (quantitative easing) anytime soon.

bob said...


great site, I've been crunching numbers all week using your method and am observing some great timing signals in relation to certain markets.

One thing I noticed about the CFTC's latest data (from sep 8th this week) is a sharp reversal in the commercial traders short interest in the US dollar index futures. The st dv index went from -1.76 to -0.72 and this was somewhat confirmed on huge volume the same day.

I think there's a good chance that we'll see a bullish reversal in the dollar next week. whether that holds remains to be seen.

Frank said...

Hi Alex,

Thanks for the great blog. A quick question: on the latest data, the small speculators went from -1.06 to -0.71 positioning in SP500. Why do you say that small traders became more bearish? Am I reading the table wrong?


Alex Roslin said...

Hi Frank,

This week, the small traders are less bearish. That was last week's post. I corrected that post of a mistake in updating my spreadsheet. It should all be correct now.