Sunday, 23 March 2014

Russia Gloom Stalks Market

Last week's bullish trader positioning -- seemingly on optimism over the West's mild sanctions against Russia -- has given way to oodles of gloom in the latest Commitments of Traders report.

Most startling is the collapse in "smart money" commercial hedger positioning in Nikkei futures and options.

From last week's astonishing 3.87 standard deviations above the moving average, Friday's COT report saw commercial total open interest cleavered to 2.22 standard deviations below the average.

I don't think I've ever seen such a massive reversal in the history of the data. My Nikkei signal remains in cash.

See my latest signals table for more details on the positioning in this and the other nine markets I trade using the weekly COT data.

Banks, Gas Bearish

A similar, though less drastic move took place in the 3-month Eurodollar, a key international liquidity measure.

The Eurodollar gives me signals for the BKX U.S. Bank Index.

My bullish BKX signal last week goes to cash on this week's open of trading due to a sharp decline in the large speculator net futures and options position as a percentage of total open interest.

It's also worth noting what's going on in S&P 500 futures and options. Here, commercial hedgers for the second straight week are reversing their net position as a percentage of the total open interest.

While my signal is still bullish for now, the two-week decline has put an end to 10 straight weeks of increasingly bullish net positioning that started in December.

Reversal Started After Russian Invasion

Notably, the decline in S&P 500 positioning started the Tuesday after Russia invaded Ukraine's Crimea peninsula and organized a widely condemned, fraud-riddled referendum there in an attempt to annex the strategic region.

Meanwhile, gold goes bullish on this week's open -- another sign of market fear.

My signal for silver remains bearish, and the two precious metals rarely diverge.

The explanation could be that traders see value in gold purely as a safe haven, while silver is being seen from the more conventional prism of commodity-positive growth, which traders are now nervous about.

Also noteworthy: Natural gas goes bearish on this week's open.

Good luck this week.

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