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!


Andy Dong said...


A quick question. Last week was "Sell, Sell and sell everything must go".

It appeared that market turned its sentiment fair bit in one weeks time.

What is your view on this?


Alex Roslin said...

Hi Doug,

The sentiment was actually getting more bearish for three weeks if you look at the three-month Eurodollar data - specifically, the large spec total open interest. Now, it has reversed. It could change again next week. That's just how the data and market sentiment is. I don't have any other explanation.


In Debt We Trust said...

In retrospect, the data is probably bullish b/c the 3 major Western Central Banks confirmed that we will be in a low interest rate environment for quite some time. A lot of the uncertainty in the prior post was due to traders not knowing if the bankers would turn hawkish on inflation.

The Fed, BOE, and ECB all said the same thing - low rates are here to stay for at least 4-6 more months. That was basically a buy signal for commodities and emerging markets. And a sell signal for bonds.

Of course, low interest rates are only for the most connected players. For everyone else, there's the Eurodollar futures contracts (which you cover well) that covers intra-institutional lending on the commercial paper mkts (e.g. money mkts). I wouldn't be surprised to see the ED futures turn bearihs slightly ahead of April-May 2010. But for now, the signal is BUY, BUY, BUY.

Alex Roslin said...

Hi In Debt...,

Yes, I think you hit the nail on the head. The Eurodollar traders were betting the spigot was going to be tightened.


Anonymous said...

Hello Alex,
Does last week's COT data for S&P 500 still point to a bearish setup?.
The latest signals page still states as bearish but didn't any mention about it in your recent post.


Alex Roslin said...

Hi Anonymous,

Yes, that's right. The S&P 500 setup is still bearish and will remain so until the COT positioning crosses the opposite signal lines - i.e., the small traders get bearish and the commercial traders get bullish. Sorry I didn't have more time to include anything on other markets in this post.


In Debt We Trust said...

Here is some more perspective. Apparently, the G20 meeting was another important factor.