Saturday, April 24, 2010
It's the bull that never dies! The Commitments of Traders data released Friday by the CFTC suggests the rally that started in March 2009 still has strong legs... for now. I've just updated my latest signals table with the details and several new signals. Some highlights:
- U.S. banks: My trading setup for the BKX Bank Index is in cash for the second straight week. It came very close to turning bullish again this week, as you can see from the data on my signals table - but not quite.
- S&P 500: My S&P 500 setup is bullish for the 10th consecutive week. The "smart money" commercial hedgers actually got more bullish compared to recent data, while the wrong-way small traders are more bearish.
- Gold: My gold setup goes to cash after five weeks being bullish.
- Natural gas: My gas setup goes bearish on Monday's open of trading and will remain so for two weeks.
- Nikkei: My Nikkei setup goes bullish on Monday's open.
- 30-year Treasury bond: My bond setup goes bearish on Monday's open.
Good luck this week, and please check in at my portfolio page for an update early this week. Sorry I couldn't get to the portfolio update last week.
TAGS: SPX, S&P 500, gold, BKX, Bank Index, natural gas, Nikkei, crude oil, Treasury, bond, COT, Commitments of Traders,derivatives, Black Swans, market timing, trading system development, CFTC, Commodity Futures Trading Commission,COTs Timer, out-of-sample testing, walk-around testing
Sunday, April 18, 2010
Trader data has recovered slightly in the past week for U.S. banks, with the three-month Eurodollar large speculator total open interest shooting up from last week's depressed levels, according to the latest COT report from the Commodity Futures Trading Commission. That's good news as this data correlates nicely with U.S. financials. On the other hand, the CFTC reports that the small trader total open interest took a haircut this past week, as you can see from my latest signals table, which I've just updated. That data also correlates with financials, so the data is a bit mixed.
My trading setup for the BKX U.S. Bank Index goes to cash this week after a single week being bearish. With two of the three components that make it up now bullish and the third just a mite away from flipping to bullish, this correction may not last too much longer. (This report contains a correction to my original post regarding the signal for the BKX Bank Index. Apologies for the error.)
Also interesting, positioning in S&P 500 futures and options suggests the bull market rally is still going strong. The "smart money" commercial hedgers remain solidly behind the rally, while wrong-way small traders are still as hopelessly bearish as ever. In fact, this past week saw them grow a tad more bearish in their relative positioning. They've been tilting against the rally since early January. Doh!
In other news, natural gas, which has been bullish for four weeks, goes to cash on Monday's open of trading. It then goes bearish a week later, on the open of April 26. The large speculators have drawn down their total open interest enough to push their signal into the bearish column, where they join the small traders, who've been bearish for three weeks. The large spec data has a 58-percent correlation with next week's gas prices, so there could already be trouble this coming week. Except the small trader total open interest, which also correlates moderately with gas prices, has bounced up a tad, so those could cancel each other out.
As well, my gold setup remains bullish for its fifth straight week. The data shows a third consecutive week of rallying large speculator net positioning and total open interest - both of which correlate strongly with gold prices the following week.
Also, my setup for the 30-year Treasury bond goes bullish, meaning yields would fall.
But not all is bullish across the land. My trading setup for crude oil goes bearish on Monday's open.
Good luck this week, and be sure to check back in Monday or Tuesday for an update to my portfolio page.
Friday, April 9, 2010
U.S. financials could take a hit next week, according to today's Commitments of Traders data from the Commodity Futures Trading Commission. My trading setup for the BKX U.S. Bank Index, a basket of the major U.S. financials, has gone bearish for execution on next week's open of trading. See more on the unhappy news at my newly updated latest signals table.
The signal comes from a major drop-off in trader positioning in three-month Eurodollars, which give me signals for BKX. A couple of caveats you'll notice from my signals table:
(1) The small traders have sharply increased their total open interest in the latest COT report. This is actually bullish because their total open interest correlates nicely with BKX values. In fact, it went up so much my small trader signal went from bearish to bullish this week. But that signal takes two weeks for that signal to take effect, based on the results of my backtesting. So next week could still be bumpy.
(2) However, large spec total open interest was steady, going up a hair from 1.685 to 1.686 million contracts. This data also correlates with BKX values. So overall, the data may be pointing to a pause rather than an end to the bull market since March '09.
For the S&P 500, my setup remains bullish for its eighth consecutive week. The data here looks decidedly less bullish this week. The commercial hedgers are in their seventh straight week of declining net positioning in futures and options, while the wrong-way small traders have bumped up their net position two weeks in a row. But as I've mentioned ad nauseum before, net positioning in this market correlates very poorly with S&P 500 prices. In fact, the best run-up in the market could be in the last period just before the commercial hedgers really sell off and small traders pile into the market. Neither event is even close to happening right now, so I think the data suggests the present trend remains intact for a little longer at least.
My 30-year Treasury bond setup goes to cash after two weeks being bearish.
In gold, my setup remains bullish for a fourth week, but large speculator total open interest has now risen to extreme territory, putting this component's signal into the bearish column. This signal takes seven weeks to take effect, so my overall bullion setup remains buoyantly bullish for now.
And finally, natural gas goes into its fourth week being bullish. So far, it's been a volatile signal, as per usual with this market. The latest COT report offers some hope for an end to the carnage as small trader total open interest, which has a 60-percent correlation with next week's gas price, has bounced nicely. This bullish signal, however, will last just this one more week before going to cash.
Hope you did well this week and that you have a great weekend. Check back in early next week for a portfolio page update.
Sunday, April 4, 2010
I've just updated my latest signals table with the data from the latest Commitments of Traders report. My trading setup for crude oil goes to cash on the open of this coming week's trading, then goes bearish on April 19. That's the only new signal, but the data for the other setups shows some other interesting new developments, including a significant increase in bearishness of the large speculator and small trader total open interest in the three-month Eurodollars. This data correlates strongly with the BKX U.S. Bank Index. Sorry for the truncated report this week. Hope you have a good Easter weekend, and good luck this week. Check back in in a day or two for an update to my portfolio page.