Friday, 19 November 2010

Selloff May Not be Over

So is that it? Is the selloff over now and market nirvana on the horizon? Not according to my read of this afternoon's Commitments of Traders numbers, issued weekly by the Commodity Futures Trading Commission. I've just updated my latest signals table with the details. Here's the Coles Notes version:
- S&P 500: My trading setup goes into its eighth straight week being bearish, and it shows no signs of letting up. In fact, the "smart money" commercial hedgers are only a tad less net short relative to recent data than last week, while the wrong-way small traders are going bananas in their bullishness. Not sure how much that matters since week-to-week fluctuations in this market have little correlation with market prices, but the COT data is clearly very far from flipping to bullish.

- BKX U.S. Bank Index: U.S. financials don't look like a good bet, according to Friday's data. My setup remains in cash for a 10th consecutive week, but the COT data shows major panic among large speculators and small traders in three-month Eurodollars (the liquidity measure, not the currency). All three component signals in this setup are now bearish (though with their varying trade delays, the setup remains in cash for now).

- Crude oil: My setup is bearish for a sixth week in a row. The small traders, whom I follow in this market, have, however, significantly boosted their net futures and options position as a portion of the total open interest. Their signal has gone bullish with an eight-week trade delay, so the setup will go to cash or bullish in eights weeks' time. The bearish signal could end sooner depending on what the commercial traders do, but regardless, the setup will stay bearish for at least the next four weeks based on the commercial signal's trade delay.

- Gold: Will the gold and silver rally continue? Silver looks pretty hot right now on the charts, with a nice breakout in the SLV:GLD ratio, for example. My gold setup will be in cash for its seventh straight week, but as the latest signals table shows, the COT data suggests serious capitulation among the large speculators, whom I fade in this market. So that could be bullish for gold.

Hope you did well this week and that you have a great weekend. Check back in early next week for a portfolio update.


Joe said...

Thanks for continuing to share all the great work you do here, Alex.

Aroon said...

Hi Alex
You said under S&P 500 :
"wrong-way small traders are going bananas in their bullishness"
Am I understanding right that wrong way small traders are overly bullish

But the figure shows that small traders are now overly bearish
the figure of -1.76 as compared to +0.97 of last week

Alex Roslin said...

Hi Aroon,

Thanks for your message. Yes, that was a mistake. I've corrected it. It should have said +1.76.