Friday, 28 May 2010

Woah. U.S. Financials Data Falls off a Cliff

Very choppy action this week in the markets. Is the selloff at an end? The Commitments of Traders data released Friday suggests it may not be. It's been warning of trouble for the last few weeks, and the latest COT report from the Commodity Futures Trading Commission is no different. Some highlights:
- U.S. financials: Woah. Take a look at the data on my latest signals table for the BKX U.S. Bank Index, the benchmark for large U.S. financial players. It's fallen off a cliff. The total open interest for both large speculators and small traders - which correlates moderately with BKX the following week - has been dropping steadily since May 1, just before the beginning of this correction. And Friday's numbers are definitely no exception. As I pointed out in my post last week, we're now well into the longest stretch of declining large spec total open interest since Jan. 2009.

- S&P 500: The COT data last week sent my signal for the S&P 500 to cash with a three-week delay, meaning it will take effect June 14. Now, the "smart money" commercial hedgers - who in past testing were usually correctly positioned at key market turns - have reversed course and have gotten significantly more bullish. That's pushed the setup back into the bullish column, again with a three-week delay, meaning the setup will stay in cash for just a week, then go back to being long the week of June 21.

- Gold: My trading setup for gold goes to cash on next week's open of trading after two weeks being bullish. But the data in the latest COT report seems fairly bullish for bullion. In particular, the large spec total open interest, which had a 77-percent correlation with next week's bullion prices between 1995 and 2007, has just skyrocketed.

Hope you have a good weekend. Please check back in early next week for an update to my portfolio page.


Jason said...

Hello, why are you fading both COTS indicators on Gold? What is the use of collecting the data on the hedgers if you dont follow them?

Alex Roslin said...

Hi Jason,

I follow all my system's signals if possible. The setup for gold has gone to cash. I am commenting in this post on the COT data itself, not on the signal. The data I mention in the post has a pretty good correlation with gold prices, which is what I was reporting on. That could mean a potential discretionary trade in bullion for me, but it's not a signal for the COTs Timer system. For more information on how this system works, feel free to read the material on the FAQs and intro pages.

Best regards,