Friday, 5 February 2010

Commercial Hedgers Bet Big on Rebound

What a crazy day to cap a nutso week. Feels like we're back in the dog days of early last year. So many people are sitting in front of computers with their finger on the nuclear button. But new data from the Commitments of Traders report today suggests my series of bullish signals from last week are still on track. I've updated my latest signals table based on the new figures released this afternoon. A few highlights:
- S&P 500: You have to go back to Sept. 2007 to find a time when the "smart money" commercial hedgers have been this bullish. As you'll see on that latest signals table, these guys are in heavy-duty extreme territory in their bullish net positioning. Meanwhile, the wrong-way small traders have gotten even more super-sizedly bearish. This is setting up very nicely for my long bullish trade starting on the open of trading on Feb. 22. Note that, as I explained in a special post yesterday, such big moves in trader positioning don't necessarily take effect right away. On average, in the S&P 500 data, the commercial and small trader signals were best traded with a three-week delay in my backtesting.

- U.S. banks: My second week of being bullish in this market. The data is still looking pretty hot, even if it's a hair less bullish this week.

- Crude oil: My setup remains in cash, but the data has given me a new bullish signal with a four-week delay. It's to take effect March 8, I guess somewhat in sync with the yearly seasonal trade.

- Gold: Bullion remains also bullish. The data, which correlates strongly with bullion prices, has also gotten a little more bullish Friday.

- Natural gas: My trading setup for gas is bullish a second week and will remain so next week, then cash out.

Hope you did okay last week. Please check back in early next week for an update of my portfolio page. Good luck next week!

12 comments:

In Debt We Trust said...

Did you take a look at the Feb Vix options? IV is really high. What do you think that means?

Anonymous said...

""S&P 500: You have to go back to Sept. 2007 to find a time when the "smart money" commercial hedgers have been this bullish. As you'll see on that latest signals table, these guys are in heavy-duty extreme territory in their bullish net positioning. Meanwhile, the wrong-way small traders have gotten even more super-sizedly bearish.""

Interesting info... but wasn't this only a few weeks before the ALL time high in the SP futures of 1586 in october of 2007 and then the bottom really fell out...
so??

R. Craig Pritchard said...

Alex,

Truly appreciate your work. I read it every week. I've had you on my blogroll for some time, and would appreciate your consideration in adding me to yours.

Thanks,

Craig

R. Craig Pritchard said...

Alex,

Oops. My site is tradercraig.blogspot.com

Thanks again,

Craig

Joey Borsellino said...

the volatility of the volatility index is high in the options

OHNOOOOOOOOOOOOOZ

i would take it to mean that uncertainty is high duh...and since vix is a percentage as is its moves are amplified...so the iv of vix is amplified even higher thus magnifying the uncertainty

Alex Roslin said...

Hi Anonymous,

That's right. My signal actually went to bearish at that time. The highly bullish positioning only took effect three weeks later, due to the trade delay for this setup.

It's still more evidence that extremes in the COT data often don't signal imminent changes in market prices, but rather may signal changes with some delay.

Regards,
Alex

Joseph said...

Hi Alex, quick question. When you say your long starting on the open of trading on Feb. 22. When do you actually buy your position. Do you scale in prior to Feb 22nd with Long positions or do you start scalling in on the actual date FEB 22 ??

Thanks
Joseph

Anonymous said...

Hi Alex,
Can't wait to see your next post on the latest COT report. Hope you can post it this weekend. Appreciate all your efforts on this every week and sharing it with us.
Thanks

Anonymous said...

"That's right. My signal actually went to bearish at that time. The highly bullish positioning only took effect three weeks later, due to the trade delay for this setup."

I am a little bit confused. Your signal was bullish in September of 2007, so you made a bullish trade 3 weeks later, but then your signal turned bearish soon after that and you took a bearish trade 3 weeks after that signal?

jack said...

Great site! One question I have is, what exactly is the different between commercial and non-commercial when it comes to the S&P 500 futures contract?

If my understanding is correct, for commodities like grains, etc, the commercials are the actual producers whereas the non-commercials are the speculators.

What about the S&P 500 contract?

Thanks,

Jack

Alex Roslin said...

Hi Joseph,

Yes, I buy my full position on the date for the signal, not prior to that date.

Regards,
Alex

Alex Roslin said...

Hi Anonymous,

Yes, that's right. The bearish signal gained 3.7% in two weeks. The bullish signal, which was held nine weeks, lost 0.9% as the market meandered for a while before it started the selloff. You can see all the signals from this timeframe in the spreadsheet on my DIY page.

Regards,
Alex