Friday, 2 October 2009
Financials Could Stabilize or Rebound Next Week: Data
After a tough few days in the markets, next week could look up, according to this afternoon's Commitments of Traders data. My trading setup for the S&P 500 remains bullish. And the data for the bellwether three-month Eurodollar, which gives me signals for the BKX U.S. Bank Index, has taken a bullish turn. I've just updated my latest signals table with the data highlights.
- 30-Year U.S. Treasury: My trading setup for the 30-year bond goes to cash on Monday's open after a three-week bearish signal (meaning the setup thought the yield would go up).
- U.S. banks: My setup for the BKX Bank Index, based on the Eurodollar contract, is in cash again this week - its ninth straight week. But some of the data that makes up that setup is signing a cautiously bullish tune. Now, most of the COT data doesn't correlate very strongly with market prices, but I found that some of the Eurodollar numbers do. The large speculator total open interest, which has a 0.61 correlation with the next week's BKX, has rebounded somewhat after last week's major swoon. Also interesting, the small trader total open interest, which has a moderate 0.41 correlation with the next week-BKX, continues to bounce back from deeply depressed levels. The specific numbers are on the latest signals table.
- S&P 500: The data in this market is looking seriously less bullish, as the commercial hedgers sell down their super-bullish positioning, while the wrong-way small traders get suddenly braver about the rally. The latter are, in fact, this week within a hair of triggering a bearish signal for their trader group, which would have put my setup in the cash column with a three-week delay. But until the setup actually changes its signal, which it hasn't, my current long trade continues. It's sometimes in these end-game periods that the real blow-off gains are made. Plus, the COT data for the S&P 500 correlates very poorly with market prices, so I'm not too worried about this data until an actual new signal.
- Natural gas: My setup goes bearish on natural gas on Monday's open, but just for one week. The setup returns to cash the following week.
Have a great weekend, and see you early next week with a portfolio update.