Saturday, 29 September 2012

Bearish Nasdaq-100 Signal One of Four New Signals From COT Report

Quite a few new signals taking effect on next week's open of trading based on my trading signals built around the free weekly Commitments of Traders data:

- Nasdaq-100: After a week of cash, NDX goes back to bearish. It was bearish nine weeks previously, losing 9.7%. Hopefully, this time around will be better! Large speculator positioning, which my setup fades, remains highly bullish this past week.

And commercial trader positioning, which my setup trades alongside of, has reversed from last Friday's bullishness back to doom and gloom.

- Nikkei: Fifteen weeks in the bearish column are over for this setup for at least a week and possibly more. That depends in part on the commercial total open interest, which got suddenly quite bullish two weeks ago, then reversed a got a heck of a lot more bearish again.

The small trader open interest remains steadfastly bearish, but who knows what next week will bring!

- Natural gas: Another winning signal (knock on wood! - a lot can happen before the open of trading) from my favourite trading setup. This one was bullish for just a week and goes to cash on Monday's open. Trader positioning already looks set in a bearish direction, and we could see this setup go short in two weeks' time if traders keep doing what they're doing right now.

- Copper: This setup is back to bearish after three weeks in cash.

See my latest signals table for more details on trader positioning in these and the other markets I follow using the U.S. Commodity Futures Trading Commission's COT data. Good luck next week.

11 comments:

abe martin said...

The stock market is going to rally next week. You've been wrong on your gold and equity call so far.

abe martin said...

Sorry didn't mean to bash your trading system. I know its right on long term averages. But 80-90% sure the slight drop we had in equities this week is coming over. Next couple of weeks should be on the upside. I just hope payrolls next Friday just meet expectation.

jeff said...

Have you ever thought to create a signal for VIX or agriculture commodities?

corvogrigio said...

Hi Alex. I'm following your blog since four-five weeks. No need to say how I was interested and amazed. Thank you very much for everything.
I'd like to replicate your system in some more activity (like coffee 4 istance where i see interesting levels) but maybe I'm still missing something , so I don't know where to give importance to large spec or to commercials or to others. I see you always use a combination of couple of them but I cant grasp the cryterium you use to pick up them.
Well, thank you in advance and keep up on this fantastic work.

Robert Gauvey said...

Alex, Any plans to add the links back in the DIY section?

Alex Roslin said...

Thanks to all readers who've written comments. I encourage you to contribute your thoughts and create more dialogue on the COT data, which we'll all learn from. Here are some thoughts from me:

Abe: My gold signal is in cash, so I'm not sure what you mean by that one being wrong. I invite you to read my FAQs material for my thoughts on wrong signals in general. One note: I don't consider a signal to really be wrong until it's closed.

Regarding your prediction on the market's direction, I don't know how anyone can know such a thing. I've personally found thinking I can predict the markets usually ends in heartache. My natural gas signals have a very good long-term record, but the market rarely goes the way I would have predicted during those signals.

Jeff: I've thought about that, yes. It's more a question of time.

Corvogrigio: That all depends on backtesting results. I can't know in advance which trader group would work best for any market. I usually use a combination of two trader groups, but in SPX I found that following the commercial traders was most robust.

Robert: Yes, sorry for the long delay in doing that, but I do plan to eventually! Stay tuned.

Best regards,
Alex

Greg said...

Alex,

Very interesting work- thanks for sharing. Could you clarify your definition of trader types:

I see you have categories of:
1. Commercial Trader
2. Large Speculator
3. Small Trader

vs. the current COT Report categories of:

1. Producer/Merchant/Processor/User
2. Swap Dealers
3. Managed Money
4. Other Reportables
5. Non Reportables

Just wondering what exactly you are including in each category?

Thank you again - great work.

Alex Roslin said...

Hi Greg,

My categories are based on the old "legacy" COT reports, not the new reports, for which there isn't enough historic data to do any kind of meaningful robust analysis.

The non-commercials are typically known as the "large speculators." The non-reportables are generally called the "small traders."

Regards,
Alex

abe martin said...

Alex,

Fair enough=Cash Neutral. But I am looking through the trade signals and I am very confused. You are bearish on the S&P but bullish on the bank index? How can this be Alex. Sometimes it better to patient and make a call on all equities when their giving similar signals rather than having conflicting ones.

Alex Roslin said...

Hi Abe,

Thanks for your comments. It's actually very normal for the data in the COT reports to be contradictory. That's one of the reasons I set out to test which trader groups gave the best, most robust signals.

From my experience, that can mean ignoring the large specs or small traders in one market and the commercials in another when those trader groups give inferior signals.

It can also mean following contradictory-seeming signals in two different markets. Remember that the two signals you refer to have different time frames so they could actually both be profitable.

I agree it's worth exploring the idea of adding other sets of criteria to this trading strategy, such as trading a signal only when there's a good technical setup or only when the signal from another market agrees. But for statistical reasons, every extra criteria reduces the robustness of a setup. Also, I haven't actually found better criteria than the ones I use right now.

However, I'm very open to your results if you've found a superior trading strategy for this data or better parameter values.

Regards,
Alex

abe martin said...

Alex,

I appreciate your patience, not trying to be snotty or anything. Its funny how people are most critical of other peoples work, as if they thought they were masters of the subject. Nonetheless, if you work can withstand the scrutiny of others, you got something better than gold.

I recall seeing an excel sheet with the breakdown/ratio between winning trades and losing trades. Is that sheet available? Have you ever constructed an equity curve with your systems profits?

I think its interested you used Eurodollar futures as a proxy for the BKX.