Friday, 30 October 2009

Sell! Sell! Sell! Everything Must Go

Yikes! Not a good week. Not at all. At least not if you're a bull. And what say the Commitments of Traders numbers? Holy guacamole. Not good either. Check out the mess of red on my latest signals table, which I've just updated. Here's the lowdown:
- S&P 500: This trading setup goes short on the open of Monday, Nov. 2, as announced here three weeks ago. This afternoon's COT numbers are, if anything, even more bearish: the commercial hedgers still more bearish, the wrong-way small traders again bumping up their bullish derivatives positioning. Amazing. Amid all the carnage this week, these poor folks have been knife-catching! "Losers average losers," was how Paul Tudor Jones put it.

- U.S. financials: This setup just gave a new signal: bearish, also for Monday's open. So ends its 12 weeks in cash. Also worthy of note, the COT data suggests next week is going to be especially grim. That's based on the data from the three-month Eurodollar contract, which you can see on my latest signals table. In particular, the large speculator total open interest, which has a 61-percent correlation with next week's BKX U.S. Bank Index, has taken another massive tumble this week - its third in a row. Note that my bearish signal for BKX will last only one week.

- Gold: Also noteworthy, my gold setup has gone bearish too for Monday's open. The gold large spec total open interest is especially interesting in that it has a very high 77-percent correlation with next week's gold price. This week, the open interest continued its second week of crashing. That's probably bad news for any reflation stocks out there. The open interest declined so much, in fact, that my signal based on fading it has now flipped to bullish. But that signal operates with a seven-week trade delay - meaning that historically, such moves didn't typically reflect themselves in prices until seven weeks later. So for now, the setup is bearish.

Have a great Hallowe'en weekend, and see you back here early next week with an update of my portfolio page.


Anonymous said...

This monday coming, you're going short U.S. financial, would you also short CANADIAN financial as well?


Ken Trung

Alex Roslin said...

I did.


Anonymous said...


Did you get stopped out of the gold trade? If so, you have said in the past sometimes that's a good indicator to go long--is this such a case?

Same question for Oil.

thanks for the great blog.

Alex Roslin said...

Hi Anonymous,

Thanks for your message. The gold bullion and crude trades are losing money at this point, but they're not close to the stop levels. Based on the bearish gold signal, I also put on an inverse trade with a gold stocks ETF. I see that one got stopped out this morning. But that wasn't a pure play based on this signal because gold stocks are much more volatile than bullion itself.

I normally don't do that, and the fact that it was stopped out doesn't really say much about where the trade stands in relation to past market moves and the COT data.


DavidDT said...

Alex, trading GLD, UNG, USO is a lose/lose affair. You are probably aware of the perils of the give up being long a carry market. You might be interested to know that being long oil via the USO (futures contracts) this year has forfeited roughly $19.00 of the upmove in the oil price caused by the "rolling" of contracts into the 2nd month as expiration approaches. (assuming you had bought oil when it first traded $40.50 on Dec 5th last year and rolled on the first day specified by the funds' website... which they don't; they do it over 4 days which would have cost an extra $3.00 in the first quarter).

Natural gas is under an even greater burden, the year costing 3.07 to date, had you bought it Jan 1 at and switched into the next contract month on the first day UNG "rolls".

The rolling of contracts by these ETF's are a major source of income to the professional energy trading desks.