Monday, 30 November 2009

Small Traders Jump Into Market

Small traders seem to be shrugging off this long, painful grind that continues unabated in the markets. In S&P 500 futures and options, the wrong-way small traders have increased their bullish positioning this past week, probably hoping to get in on the year-end seasonal play, according to today's Commitments of Traders report. Meanwhile, the "smart money" commercial hedgers are slightly more bearish than last week - and maintain the pessimistic stance they've had since early October.

Check my latest signals table, updated with the holiday-delayed data this afternoon, to see how my trading setups see the new data.

- U.S. banks: The data I use to get signals for U.S. financials is also looking a little more sad-sack this week, as you'll see from that table. Mind you, my setup remains bullish.

- Nikkei: My punishing bullish signal for the Nikkei Average has finally given up the ghost and gone to cash.

- Natural gas: My setup for natural gas is in its second week of being bearish. The data has turned down as well in the latest COT release, signaling that the setup will remain bearish for at least three weeks in total.

- Gold: Here's we go again! My last gold bearish signal didn't quite work out, and now the setup's back in the bearish column again. Large speculator total open interest and net positioning are both in excessive territory, which historically has meant a decline in the price of gold by the time the large specs get bullish. As usual, I will use a stop and proper positioning sizes to control my risk in case the signal is wrong. See my FAQs and How It Works pages for more details.

Good luck this week, and check back shortly for an update of my portfolio page.

Friday, 27 November 2009

Holiday Delay

Happy Thanksgiving to American readers! This week's Commitments of Traders report will be released on Monday, instead of today. Should be an interesting one, given this week's market madness, so tune back in here that afternoon for an update. Have a good weekend!

Friday, 20 November 2009

Still Long Banks, Selling Natural Gas

Wasn't that fun? What a miserable market this is. Stephen Vita today called it the "strangest of all markets that I've experienced going back to 1987. It acts funky, scaring you half to death one day, then rights itself, and all those stocks that are making fresh breakouts look like they should be owned in massive quantity." That sounds about right.
The new Commitments of Traders numbers are now out, and I've just updated my latest signals table. Two new signals to report: My trading setup for natural gas goes bearish on the open of trading this coming Monday, Nov. 23. It will remain bearish for at least two weeks.

Also, my setup for gold goes to cash on Monday after three weeks bearish. As I mentioned in this post, I was stopped out of this position on Nov. 11 and have been looking to possibly go long. Didn't see anything yet I wanted to throw money at, especially with silver and gold stocks not yet matching gold in making new highs.

In other news:

- U.S. banks: My setup for the banks goes into its third week being bullish. This week's data is pretty close to last week's, except for the small trader total open interest in three-month Eurodollar futures and options, which has jumped up. It has moderate correlation of 42 percent with next week's BKX U.S. Bank Index.

- Crude oil: The small traders have really bumped up their net position as a percentage of the total open interest over the past three weeks. I trade on the same side as the small traders in this market (they're not always the dumb money!) - so that's just flipped their signal from bearish to bullish this week. I trade this signal with an eight-week delay. As well, the commercial traders remain bearish, and that has to change for the setup to go long. For now, the setup remains bearish.

- 30-year U.S. Treasury bond: The large speculators and small traders - both the wrong-way money in this market - have gone heavily long the bond (meaning they think interest rates will fall). Historically, they've tended to be wrong. My setup remains in cash because of the varying trade delays of the two signals, but if both are still aligned this way in coming weeks the setup will go bearish.

Hope you did okay this week, and be sure to tune back in early next week for an update of my portfolio page.

Friday, 13 November 2009

No End for Market Grind

The market sausage grinder kept churning this week. Hope you kept yourself intact. Unfortunately, the Commitments of Traders report this Friday doesn't really help to clarify which way things will break from this long trading range we're stuck in. I've just updated my latest signals table with some new numbers based on that COT report. Two new signals: bearish for natural gas with a week's delay (for the open of trading on Nov. 23) and cash for my 30-year Treasury bond setup on Monday's open (Nov. 16). Some other highlights:
- S&P 500: Not much to report here. This trading setup is in its third week of being bearish and shows no signs of changing course. The wrong-way small traders are still highly bullish in their net positioning as a percentage of the total open interest, while the "smart money" commercial hedgers are still seriously gothic.

- U.S. banks: My setup for the BKX U.S. Bank Index enters its second week of being bullish. The total open interest for the large speculators and small traders - both of which correlate well with BKX prices the following week - is down somewhat this week. But the change is small enough it's hard to know what to read into it. I haven't studied the correlation data enough to know how trade-worthy small or large changes week-to-week changes are. (It's on my massive to-do list!) What I do know is the trading setup - which does have robust backtested results - remains bullish, so that's the real key for me.

- Gold: My trading setup for gold goes into its third week of being bearish. As I mentioned in a post Wednesday, I got stopped out of this position that morning and was looking for a possible chance to put on a discretionary long trade. I didn't see anything worth jumping at. Gold stocks and silver aren't making new highs like bullion is, which is probably a cautionary sign. The gold data this week is also giving mixed signals. The large spec net position, which has a 62-percent correlation with gold prices, has dropped a fair bit, as you can see on my latest signals table. Meanwhile, the large spec total open interest, which has a 77-percent correlation with next week's gold price, has shot up. What does it mean? A good chance of more trading grind next week.

Have a good weekend, and be sure to check back in early next week for an update of my portfolio page. Apologies for missing my update this week. Bad cold. Oink. Anybody got some truffles?

Commitments Data Delayed

Appears to be some kind of problem at the CFTC site this afternoon. None of the Commitments of Traders data is available. I've written the CFTC to find out what's going on and will try again later or over the weekend. Apologies for the delay in my post. Hope you fared well this week.

Wednesday, 11 November 2009

Short Gold No More

I got stopped out of my short gold bullion position this morning. Seeing as how the market moved against historic patterns, this kind of development can sometimes suggest an unusually strong trend. I might look at opportunities to go long with a discretionary trade. Mind you, gold stocks and silver aren't making new highs like bullion is. That kind of divergence is not a good sign for the sector. Hope you're doing well this week.

Sunday, 8 November 2009

Data Bullish for Banks, Bearish for 30-Year Bond

What a wacky week! Sorry about my delayed post about my trading signals from Friday's Commitments of Traders report. I've just updated my latest signals table based on the COT data. Two new signals for this coming week's open of trading: bullish for the U.S. BKX Bank Index and bearish for the 30-year Treasury bond (meaning the yield would rise).
As you can see from my table, the new data is tilting to the bullish for the coming week - particularly the latest numbers from my BKX setup. That setup is based on the three-month Eurodollar contract. The large speculator total open interest, which has a 61-percent correlation with next week's BKX value, has done a major about-face after three weeks getting steadily more bearish. In fact, in absolute terms, the total open interest is higher than it's been since Feb. 2008. Mind you, that correlation isn't a perfect one and isn't always correct - as happened this past week. But there is also some confirmation from the small trader total open interest, which has a 41-percent correlation with next week's BKX and also shot up in relative terms.

Sorry I don't have time for a fuller post this weekend, but be sure to check back in early this coming week for an update of my portfolio page. Good luck this week!