I've just posted details of my new trading setup for the Japanese Yen based on the Commitments of Traders reports, which are issued weekly by the Commodity Futures Trading Commission. See the results at the "Trading Setups" link above.
The setup has been on a bearish signal - a profitable one - since May 2006. I wanted to look at the Yen because of the possibility that the Yen carry trade is unwinding and the currency's recent technical breakout on the charts.
I developed the setup after looking at both the combined futures-and-options data and the futures-only data for the Yen. I backtested a whole bunch of combinations of moving averages, standard deviations and trade delays to look at what happened when traders hit historic extremes of bullishness and bearishness. The idea was to see if this could lead to profitable trades that also stood up in terms of statistical robustness.
The Yen setup isn't one of the most statistically validated I've found (see the last two columns at that link for the details of my validation exercizes). But I think it'll be interesting to follow nonetheless. As time goes on, with more data, hopefully we can refine the setup in this market. So far, I believe this is the best one. (If you've found a better one, let me know!)
I'll include the Yen setup in my weekly updates.
Tuesday, 31 July 2007
Friday, 27 July 2007
It's Gonna be Okay, Say COTs
Lovely. A crappy close to a crappy week. I hope you fared okay and managed to stay out of too much trouble.
In my case, my DUG UltraShort Oil & Gas and SDS UltraShort S&P 500 positions - based on signals from my trading system built upon the Commitments of Traders reports issued by the Commodity Futures Trading Commission - managed to offset the carnage in my precious metals and other long equities holdings. Plus, the caved-in Canadian dollar boosted the value of my U.S. dollar assets, in C$ terms.
I'm sure you're wondering what gems of wisdom we can glean about all this turmoil from the magical COTs reports. As an aside, here's one of the reasons I find them so interesting, believe it or not: I see them as a calming influence that gives me the longer perspective and helps me catch the big moves, instead of worrying about less significant market yo-yoing.
Why, take this week for example. There aren't any new signals. Y'ad think they'd have something to say at a time like this. But nah, yawn, wake me up next week, seems to be their message. And for that, I thank them. They've helped me lighten up on a certain innate bearishness I've had, well, I guess ever since the dot-com cock-up, which I think still influences much of market sentiment. The doomsday fears of the Robert Prechter types.
Not that I'm saying we won't be crashing down some sort of precipice very soon. Who knows? But we're not there right now - at least not according to my reading of the COTs reports, such as it is.
No new signals this week in Friday's report, based on data as of last Tuesday. A renewed bearish call for the S&P 500. My composite U.S. equity indicator is at -0.18, a drop from last week's -0.1. But still far from the end of the world. Plus or minus 1 means a historic sell or buy signal. A "-1," for example, would mean that on average all of my U.S. equity setups just gave a sell signal.
More trouble to be expected from the renewed bearish signals in energy, the loonie and U.S. dollar. But precious metals appear solid enough. Good luck next week!
New Signals*
BULLISH
None
BEARISH
None
Renewed Signals**
BULLISH
-NASDAQ 100
BEARISH
-Soybean Oil
-Natural Gas***
-13-Week Treasury Bill Yield
-S&P 500
-Crude Oil, Light Sweet***
-S&P/TSE Canadian Energy iUnits ETF, XEG.TO
-Oil Service Holders, OIH
Existing signals (date of original signal in parentheses)****
BULLISH
-30-Year Treasury Yield (3-Jan-07)
-10-Year Treasury Yield (17-Apr-07)
-S&P/TSX Composite (15-Aug-06)
-NASDAQ 100 (27-Mar-07)
-Dow Jones Industrial Average (20-Mar-07)
-Russell 2000 (1-Aug-06)
-Silver (3-Jul-07)
-Gold (29-May-07)
-US Global Investors Funds US Gold Fund, USERX (12-Jun-07)
-S&P/TSE Canadian Gold iUnits ETF, XGD.TO (22-May-07)
-Gold Bugs Index, HUI (29-May-07)
BEARISH
-13-Week Treasury Bill Yield (27-Feb-07)
-S&P/TSE Canadian Energy iUnits ETF, XEG.TO (3-Apr-07)
-Oil Service Holders, OIH (3-Apr-07)
-S&P 500 (26-Jun-07)
-NASDAQ Composite (26-Dec-06)
-Semiconductor Index, SOX (20-Mar-07)
-S&P 400 Mid Cap (3-Jan-07)
-Nikkei Average (19-Dec-06)
-Soybean Oil (11-Nov-06)
-Copper (10-Apr-07)
-Canadian Dollar (10-Apr-07)
-U.S. Dollar Index (3-Oct-06)
NEUTRAL
-Crude Oil, Light Sweet (3-Apr-07)***
-Natural Gas (27-Mar-07)***
Notes
* For an explanation of what I do after a new signal, click “How It Works” above.
** A “renewed” signal is when a market is already on a bullish or bearish signal, and traders again register an extreme net trading position in the same direction. I normally ignore renewed signals unless I don't already have a trade on in this market. I haven't studied the profitability of trading on renewed signals.
*** See my special caveats for my Crude Oil and Natural Gas setups (click “The Trading Setups” above and check the table footnotes).
**** The date in parentheses is the date of the COTs report that gave this signal - not the date I would have executed the trade (which can be up to five weeks later). The existing signals are often several months old and are listed here as references, not trading recommendations.
In my case, my DUG UltraShort Oil & Gas and SDS UltraShort S&P 500 positions - based on signals from my trading system built upon the Commitments of Traders reports issued by the Commodity Futures Trading Commission - managed to offset the carnage in my precious metals and other long equities holdings. Plus, the caved-in Canadian dollar boosted the value of my U.S. dollar assets, in C$ terms.
I'm sure you're wondering what gems of wisdom we can glean about all this turmoil from the magical COTs reports. As an aside, here's one of the reasons I find them so interesting, believe it or not: I see them as a calming influence that gives me the longer perspective and helps me catch the big moves, instead of worrying about less significant market yo-yoing.
Why, take this week for example. There aren't any new signals. Y'ad think they'd have something to say at a time like this. But nah, yawn, wake me up next week, seems to be their message. And for that, I thank them. They've helped me lighten up on a certain innate bearishness I've had, well, I guess ever since the dot-com cock-up, which I think still influences much of market sentiment. The doomsday fears of the Robert Prechter types.
Not that I'm saying we won't be crashing down some sort of precipice very soon. Who knows? But we're not there right now - at least not according to my reading of the COTs reports, such as it is.
No new signals this week in Friday's report, based on data as of last Tuesday. A renewed bearish call for the S&P 500. My composite U.S. equity indicator is at -0.18, a drop from last week's -0.1. But still far from the end of the world. Plus or minus 1 means a historic sell or buy signal. A "-1," for example, would mean that on average all of my U.S. equity setups just gave a sell signal.
More trouble to be expected from the renewed bearish signals in energy, the loonie and U.S. dollar. But precious metals appear solid enough. Good luck next week!
New Signals*
BULLISH
None
BEARISH
None
Renewed Signals**
BULLISH
-NASDAQ 100
BEARISH
-Soybean Oil
-Natural Gas***
-13-Week Treasury Bill Yield
-S&P 500
-Crude Oil, Light Sweet***
-S&P/TSE Canadian Energy iUnits ETF, XEG.TO
-Oil Service Holders, OIH
Existing signals (date of original signal in parentheses)****
BULLISH
-30-Year Treasury Yield (3-Jan-07)
-10-Year Treasury Yield (17-Apr-07)
-S&P/TSX Composite (15-Aug-06)
-NASDAQ 100 (27-Mar-07)
-Dow Jones Industrial Average (20-Mar-07)
-Russell 2000 (1-Aug-06)
-Silver (3-Jul-07)
-Gold (29-May-07)
-US Global Investors Funds US Gold Fund, USERX (12-Jun-07)
-S&P/TSE Canadian Gold iUnits ETF, XGD.TO (22-May-07)
-Gold Bugs Index, HUI (29-May-07)
BEARISH
-13-Week Treasury Bill Yield (27-Feb-07)
-S&P/TSE Canadian Energy iUnits ETF, XEG.TO (3-Apr-07)
-Oil Service Holders, OIH (3-Apr-07)
-S&P 500 (26-Jun-07)
-NASDAQ Composite (26-Dec-06)
-Semiconductor Index, SOX (20-Mar-07)
-S&P 400 Mid Cap (3-Jan-07)
-Nikkei Average (19-Dec-06)
-Soybean Oil (11-Nov-06)
-Copper (10-Apr-07)
-Canadian Dollar (10-Apr-07)
-U.S. Dollar Index (3-Oct-06)
NEUTRAL
-Crude Oil, Light Sweet (3-Apr-07)***
-Natural Gas (27-Mar-07)***
Notes
* For an explanation of what I do after a new signal, click “How It Works” above.
** A “renewed” signal is when a market is already on a bullish or bearish signal, and traders again register an extreme net trading position in the same direction. I normally ignore renewed signals unless I don't already have a trade on in this market. I haven't studied the profitability of trading on renewed signals.
*** See my special caveats for my Crude Oil and Natural Gas setups (click “The Trading Setups” above and check the table footnotes).
**** The date in parentheses is the date of the COTs report that gave this signal - not the date I would have executed the trade (which can be up to five weeks later). The existing signals are often several months old and are listed here as references, not trading recommendations.
Thursday, 26 July 2007
UltraShort ETF Benefits From Crude Blow-Off
Well, I sure feel good about that DUG UltraShort Oil & Gas position right now! Up 8.11 percent at this point on the day. If USO and OIH close down for the week after making their highs, this would probably qualify as a blow-off top.
I also like my SDS UltraShort S&P 500 position - up 5.22 percent right now. I fortuitously sold my QLD Ultra NASDAQ-100 position yesterday because I needed to raise a little cash for some other projects. Of my equity positions, I felt this one was the least robust, so it's the one I decided to dump. (See the "Trading Setups" link above for details on all my setups based on the Commitments of Traders reports.)
I also like my SDS UltraShort S&P 500 position - up 5.22 percent right now. I fortuitously sold my QLD Ultra NASDAQ-100 position yesterday because I needed to raise a little cash for some other projects. Of my equity positions, I felt this one was the least robust, so it's the one I decided to dump. (See the "Trading Setups" link above for details on all my setups based on the Commitments of Traders reports.)
Tuesday, 24 July 2007
Energy Blow-Off: A Fat Tail?
A reader just wrote in asking about my bearish signals for energy based on the Commitments of Traders reports. I wanted to address this in a blog post because I think it's an interesting question in light of the recent ramp-up in crude oil and energy stocks.
The reason for the signal is that large specs in crude oil have registered historically extreme bullish positions for weeks that in the past have been good times to be in cash this market. Similarly, the commercial traders in crude are also at historically extreme bearish positions that in the past have led to profitable short signals for oil-related stocks.
My system did make a correct call, however, for natural gas, which has been getting chopped to pieces for two months. My best COTs setup for this sector is to trade on the same side as the large specs, and they've been right in their current call, which is to stay in cash this market.
Of course, no setup is always right. Just check the "Trading Setups" link to see details on the wins/losses for each of my COTs-based setups. What could be happening in this market is we're in the "fat end of a tail" - a historic blow-off that is extending longer than previous such periods in the data.
Such periods often end in tears! But I can't count on that. I've just gotten to the point where my position in DUG UltraShort Oil & Gas ProShares has dropped to the largest past intraday drawdowns for my OIH and XEG setups. (See explanation at the "How It Works" link above.) So a couple of days ago, I set a stop at $41.41. (That's based on the June 20 low minus the largest Average True Range value on the 15-minute chart.)
Who knows? Maybe that was the low, and it's all tears for the energy bulls from here on - instead of me!
The reason for the signal is that large specs in crude oil have registered historically extreme bullish positions for weeks that in the past have been good times to be in cash this market. Similarly, the commercial traders in crude are also at historically extreme bearish positions that in the past have led to profitable short signals for oil-related stocks.
My system did make a correct call, however, for natural gas, which has been getting chopped to pieces for two months. My best COTs setup for this sector is to trade on the same side as the large specs, and they've been right in their current call, which is to stay in cash this market.
Of course, no setup is always right. Just check the "Trading Setups" link to see details on the wins/losses for each of my COTs-based setups. What could be happening in this market is we're in the "fat end of a tail" - a historic blow-off that is extending longer than previous such periods in the data.
Such periods often end in tears! But I can't count on that. I've just gotten to the point where my position in DUG UltraShort Oil & Gas ProShares has dropped to the largest past intraday drawdowns for my OIH and XEG setups. (See explanation at the "How It Works" link above.) So a couple of days ago, I set a stop at $41.41. (That's based on the June 20 low minus the largest Average True Range value on the 15-minute chart.)
Who knows? Maybe that was the low, and it's all tears for the energy bulls from here on - instead of me!
Friday, 20 July 2007
COTs More Upbeat on Equities, Still Depressed On Energy
Energy is again getting a slew of bearish renewed signals, while the equity forecast looks a little more upbeat, according to Friday's Commitments of Traders report released by the Commodity Futures Trading Commission.
My COTs composite equity indicator has improved slightly to a reading of -0.1. Plus or minus 1 means a historic sell or buy signal. A "-1," for example, would mean that on average all of my U.S. equity setups just gave a sell signal. It's happened only a handful of times since 1995, when the CFTC started releasing combined futures-and-options data for free.
I've adjusted my indicator to drop the S&P 400 setup because the COTs reports have failed to update futures and options holdings in this market since the report dated June 12. Thus adjusted, last week's reading of my composite equity indicator was a decidedly gloomier -0.23.
As well, the latest report gives two renewed bullish signals in equities and no bearish ones. The report didn't give me any new signals.
On a personal note, I've been in the midst of moving house so that's taken away some of my attention from working on developing my COTs Timer system and answering your emails. I should get back into it as things settle down in the coming couple of weeks. Thanks for your patience.
New Signals*
BULLISH
None
BEARISH
None
Renewed Signals**
BULLISH
-Dow Jones Industrial Average
-NASDAQ 100
BEARISH
-Soybean Oil
-Natural Gas***
-Crude Oil, Light Sweet***
-S&P/TSE Canadian Energy iUnits ETF, XEG.TO
-Oil Service Holders, OIH
Existing signals (date of original signal in parentheses)****
BULLISH
-30-Year Treasury Yield (3-Jan-07)
-10-Year Treasury Yield (17-Apr-07)
-S&P/TSX Composite (15-Aug-06)
-NASDAQ 100 (27-Mar-07)
-Dow Jones Industrial Average (20-Mar-07)
-Russell 2000 (1-Aug-06)
-Silver (3-Jul-07)
-Gold (29-May-07)
-US Global Investors Funds US Gold Fund, USERX (12-Jun-07)
-S&P/TSE Canadian Gold iUnits ETF, XGD.TO (22-May-07)
-Gold Bugs Index, HUI (29-May-07)
BEARISH
-13-Week Treasury Bill (27-Feb-07)
-S&P/TSE Canadian Energy iUnits ETF, XEG.TO (3-Apr-07)
-Oil Service Holders, OIH (3-Apr-07)
-S&P 500 (26-Jun-07)
-NASDAQ Composite (26-Dec-06)
-Semiconductor Index, SOX (20-Mar-07)
-S&P 400 Mid Cap (3-Jan-07)
-Nikkei Average (19-Dec-06)
-Soybean Oil (11-Nov-06)
-Copper (10-Apr-07)
-Canadian Dollar (10-Apr-07)
-U.S. Dollar Index (3-Oct-06)
NEUTRAL
-Crude Oil, Light Sweet (3-Apr-07)***
-Natural Gas (27-Mar-07)***
Notes
* For an explanation of what I do after a new signal, click “How It Works” above.
** A “renewed” signal is when a market is already on a bullish or bearish signal, and traders again register an extreme net trading position in the same direction. I normally ignore renewed signals unless I don't already have a trade on in this market. I haven't studied the profitability of trading on renewed signals.
*** See my special caveats for my Crude Oil and Natural Gas setups (click “The Trading Setups” above and check the table footnotes).
**** The date in parentheses is the date of the COTs report that gave this signal - not the date I would have executed the trade (which can be up to five weeks later). The existing signals are often several months old and are listed here as references, not trading recommendations.
My COTs composite equity indicator has improved slightly to a reading of -0.1. Plus or minus 1 means a historic sell or buy signal. A "-1," for example, would mean that on average all of my U.S. equity setups just gave a sell signal. It's happened only a handful of times since 1995, when the CFTC started releasing combined futures-and-options data for free.
I've adjusted my indicator to drop the S&P 400 setup because the COTs reports have failed to update futures and options holdings in this market since the report dated June 12. Thus adjusted, last week's reading of my composite equity indicator was a decidedly gloomier -0.23.
As well, the latest report gives two renewed bullish signals in equities and no bearish ones. The report didn't give me any new signals.
On a personal note, I've been in the midst of moving house so that's taken away some of my attention from working on developing my COTs Timer system and answering your emails. I should get back into it as things settle down in the coming couple of weeks. Thanks for your patience.
New Signals*
BULLISH
None
BEARISH
None
Renewed Signals**
BULLISH
-Dow Jones Industrial Average
-NASDAQ 100
BEARISH
-Soybean Oil
-Natural Gas***
-Crude Oil, Light Sweet***
-S&P/TSE Canadian Energy iUnits ETF, XEG.TO
-Oil Service Holders, OIH
Existing signals (date of original signal in parentheses)****
BULLISH
-30-Year Treasury Yield (3-Jan-07)
-10-Year Treasury Yield (17-Apr-07)
-S&P/TSX Composite (15-Aug-06)
-NASDAQ 100 (27-Mar-07)
-Dow Jones Industrial Average (20-Mar-07)
-Russell 2000 (1-Aug-06)
-Silver (3-Jul-07)
-Gold (29-May-07)
-US Global Investors Funds US Gold Fund, USERX (12-Jun-07)
-S&P/TSE Canadian Gold iUnits ETF, XGD.TO (22-May-07)
-Gold Bugs Index, HUI (29-May-07)
BEARISH
-13-Week Treasury Bill (27-Feb-07)
-S&P/TSE Canadian Energy iUnits ETF, XEG.TO (3-Apr-07)
-Oil Service Holders, OIH (3-Apr-07)
-S&P 500 (26-Jun-07)
-NASDAQ Composite (26-Dec-06)
-Semiconductor Index, SOX (20-Mar-07)
-S&P 400 Mid Cap (3-Jan-07)
-Nikkei Average (19-Dec-06)
-Soybean Oil (11-Nov-06)
-Copper (10-Apr-07)
-Canadian Dollar (10-Apr-07)
-U.S. Dollar Index (3-Oct-06)
NEUTRAL
-Crude Oil, Light Sweet (3-Apr-07)***
-Natural Gas (27-Mar-07)***
Notes
* For an explanation of what I do after a new signal, click “How It Works” above.
** A “renewed” signal is when a market is already on a bullish or bearish signal, and traders again register an extreme net trading position in the same direction. I normally ignore renewed signals unless I don't already have a trade on in this market. I haven't studied the profitability of trading on renewed signals.
*** See my special caveats for my Crude Oil and Natural Gas setups (click “The Trading Setups” above and check the table footnotes).
**** The date in parentheses is the date of the COTs report that gave this signal - not the date I would have executed the trade (which can be up to five weeks later). The existing signals are often several months old and are listed here as references, not trading recommendations.
Thursday, 19 July 2007
COTs Timer Featured in Canadian Journal of Technical Analysis
The inaugural issue of the Canadian Journal of Technical Analysis is out with a story by yours truly on my Commitments of Traders-based trading system.
The journal is available at this point only to members of the Canadian Society of Technical Analysts, so I can't publish the piece here. Sorry! The same issue also features a story by Don Vialoux, author of the excellent DVTechTalk.com website, featuring his unique blend of seasonality, technical and fundamental analysis. His focus: the Dow Jones industrials.
If you've read my story in that journal and you haven't visited this site before, please be aware that I've refined many of my trading setups and put them through an extensive process of system validation since writing that piece. Check the explanatory links above for more details, particularly the "Trading Setups" link. Also be sure to review the notes to that table.
The journal is available at this point only to members of the Canadian Society of Technical Analysts, so I can't publish the piece here. Sorry! The same issue also features a story by Don Vialoux, author of the excellent DVTechTalk.com website, featuring his unique blend of seasonality, technical and fundamental analysis. His focus: the Dow Jones industrials.
If you've read my story in that journal and you haven't visited this site before, please be aware that I've refined many of my trading setups and put them through an extensive process of system validation since writing that piece. Check the explanatory links above for more details, particularly the "Trading Setups" link. Also be sure to review the notes to that table.
Sunday, 15 July 2007
Blog Update: COTs & CFTC in the News
I've just added a new feature to this blog with news items on the Commitments of Traders and Commodity Futures Trading Commission (see new link in the Table of Contents above). I'll update it regularly, so check back often. I hope to make it a fairly comprehensive listing of items of interest.
Friday, 13 July 2007
COTs Down on Energy, Gloomier on Equities
Equities are again getting a mixed prognosis in today's Commitments of Traders reports from the Commodity Futures Trading Commission, while there's renewed bearishness in the energy sector.
Friday's report - based on data as of last Tuesday - didn't give any new signals for any of my setups. This means my existing signals are all still good.
My COTs Timer composite equity indicator has deteriorated somewhat to a -0.19 reading. Plus or minus 1 basically means a historic sell or buy signal. A "1," for example, would mean that on average all of my U.S. equity setups just gave a buy signal.
Doesn't happen very often. And we're still nowhere near any kind of extreme reading right now, although the COTs are looking a tad gloomier for stocks.
Another sign of the market's ambivalence - the renewed buys for the Dow Jones Industrial Average and NASDAQ 100 alongside the renewed sell for the S&P 500.
I'll try to find some time soon to check my composite equity indicator against some of the major indexes to look for shorter-term signals.
New Signals*
BULLISH
None
BEARISH
None
Renewed Signals**
BULLISH
-Dow Jones Industrial Average
-NASDAQ 100
BEARISH
-Soybean Oil
-Natural Gas***
-Crude Oil, Light Sweet***
-S&P/TSE Canadian Energy iUnits ETF, XEG.TO
-Oil Service Holders, OIH
-S&P 500
Existing signals (date of original signal in parentheses)****
BULLISH
-30-Year Treasury Yield (3-Jan-07)
-10-Year Treasury Yield (17-Apr-07)
-S&P/TSX Composite (15-Aug-06)
-NASDAQ 100 (27-Mar-07)
-Dow Jones Industrial Average (20-Mar-07)
-Russell 2000 (1-Aug-06)
-Silver (3-Jul-07)
-Gold (29-May-07)
-US Global Investors Funds US Gold Fund, USERX (12-Jun-07)
-S&P/TSE Canadian Gold iUnits ETF, XGD.TO (22-May-07)
-Gold Bugs Index, HUI (29-May-07)
BEARISH
-13-Week Treasury Bill (27-Feb-07)
-S&P/TSE Canadian Energy iUnits ETF, XEG.TO (3-Apr-07)
-Oil Service Holders, OIH (3-Apr-07)
-S&P 500 (26-Jun-07)
-NASDAQ Composite (26-Dec-06)
-Semiconductor Index, SOX (20-Mar-07)
-S&P 400 Mid Cap (3-Jan-07)
-Nikkei Average (19-Dec-06)
-Soybean Oil (11-Nov-06)
-Copper (10-Apr-07)
-Canadian Dollar (10-Apr-07)
-U.S. Dollar Index (3-Oct-06)
NEUTRAL
-Crude Oil, Light Sweet (3-Apr-07)***
-Natural Gas (27-Mar-07)***
Notes
* For an explanation of what I do after a new signal, click “How It Works” above.
** A “renewed” signal is when a market is already on a bullish or bearish signal, and traders again register an extreme net trading position in the same direction. I normally ignore renewed signals unless I don't already have a trade on in this market. I haven't studied the profitability of trading on renewed signals.
*** See my special caveats for my Crude Oil and Natural Gas setups (click “The Trading Setups” above and check the table footnotes).
**** The date in parentheses is the date of the COTs report that gave this signal - not the date I would have executed the trade (which can be up to five weeks later). The existing signals are often several months old and are listed here as references, not trading recommendations.
Friday's report - based on data as of last Tuesday - didn't give any new signals for any of my setups. This means my existing signals are all still good.
My COTs Timer composite equity indicator has deteriorated somewhat to a -0.19 reading. Plus or minus 1 basically means a historic sell or buy signal. A "1," for example, would mean that on average all of my U.S. equity setups just gave a buy signal.
Doesn't happen very often. And we're still nowhere near any kind of extreme reading right now, although the COTs are looking a tad gloomier for stocks.
Another sign of the market's ambivalence - the renewed buys for the Dow Jones Industrial Average and NASDAQ 100 alongside the renewed sell for the S&P 500.
I'll try to find some time soon to check my composite equity indicator against some of the major indexes to look for shorter-term signals.
New Signals*
BULLISH
None
BEARISH
None
Renewed Signals**
BULLISH
-Dow Jones Industrial Average
-NASDAQ 100
BEARISH
-Soybean Oil
-Natural Gas***
-Crude Oil, Light Sweet***
-S&P/TSE Canadian Energy iUnits ETF, XEG.TO
-Oil Service Holders, OIH
-S&P 500
Existing signals (date of original signal in parentheses)****
BULLISH
-30-Year Treasury Yield (3-Jan-07)
-10-Year Treasury Yield (17-Apr-07)
-S&P/TSX Composite (15-Aug-06)
-NASDAQ 100 (27-Mar-07)
-Dow Jones Industrial Average (20-Mar-07)
-Russell 2000 (1-Aug-06)
-Silver (3-Jul-07)
-Gold (29-May-07)
-US Global Investors Funds US Gold Fund, USERX (12-Jun-07)
-S&P/TSE Canadian Gold iUnits ETF, XGD.TO (22-May-07)
-Gold Bugs Index, HUI (29-May-07)
BEARISH
-13-Week Treasury Bill (27-Feb-07)
-S&P/TSE Canadian Energy iUnits ETF, XEG.TO (3-Apr-07)
-Oil Service Holders, OIH (3-Apr-07)
-S&P 500 (26-Jun-07)
-NASDAQ Composite (26-Dec-06)
-Semiconductor Index, SOX (20-Mar-07)
-S&P 400 Mid Cap (3-Jan-07)
-Nikkei Average (19-Dec-06)
-Soybean Oil (11-Nov-06)
-Copper (10-Apr-07)
-Canadian Dollar (10-Apr-07)
-U.S. Dollar Index (3-Oct-06)
NEUTRAL
-Crude Oil, Light Sweet (3-Apr-07)***
-Natural Gas (27-Mar-07)***
Notes
* For an explanation of what I do after a new signal, click “How It Works” above.
** A “renewed” signal is when a market is already on a bullish or bearish signal, and traders again register an extreme net trading position in the same direction. I normally ignore renewed signals unless I don't already have a trade on in this market. I haven't studied the profitability of trading on renewed signals.
*** See my special caveats for my Crude Oil and Natural Gas setups (click “The Trading Setups” above and check the table footnotes).
**** The date in parentheses is the date of the COTs report that gave this signal - not the date I would have executed the trade (which can be up to five weeks later). The existing signals are often several months old and are listed here as references, not trading recommendations.
Wednesday, 11 July 2007
COTs Beat Gold by 99.5%: Setup Details Revealed
I'm going to start posting tables from time to time with a breakdown of signals and results for my setups based on the Commitments of Traders reports. Here are the latest results for gold:
http://spreadsheets.google.com/pub?key=pfhv09UXvNeuZdcDtMtrTKA
This setup works by trading on the same side as the commercial traders when their net percentage-of-open-interest position is two or more standard deviations from its 18-week moving average (using the combined futures and options data).
I use the same parameters in my setup for the HUI Gold Bugs Index, except that setup has much more profitable results. Click "The Trading Setups" link above for more details on this and my gold setup.
Note that the HUI setup scores at the 94-percent confidence level for profitability - less than the 95-percent level I want to see in my setups. This is because we've got less data for HUI than for gold. The HUI data goes back only to 1996, with the first trade signaled in Feb. 1997. With more time and data, I expect this setup will breach the 95-percent confidence level soon.
By pure dumb luck, I think I stumbled across my COTs-based trading system at a good time. It's only recently that there's enough historic data to find robust trading systems that are both highly profitable and can stand up in validation testing—an important process for avoiding the dangers of curve-fitting.
In backtesting, I found plenty of incredibly profitable setups that had a small number of trades. The problem with relying on such setups is it’s impossible to tell if the gains are just coincidental and say anything about future performance. Validation testing can help us overcome this pitfall of system development. Good luck in your trading/investing!
http://spreadsheets.google.com/pub?key=pfhv09UXvNeuZdcDtMtrTKA
This setup works by trading on the same side as the commercial traders when their net percentage-of-open-interest position is two or more standard deviations from its 18-week moving average (using the combined futures and options data).
I use the same parameters in my setup for the HUI Gold Bugs Index, except that setup has much more profitable results. Click "The Trading Setups" link above for more details on this and my gold setup.
Note that the HUI setup scores at the 94-percent confidence level for profitability - less than the 95-percent level I want to see in my setups. This is because we've got less data for HUI than for gold. The HUI data goes back only to 1996, with the first trade signaled in Feb. 1997. With more time and data, I expect this setup will breach the 95-percent confidence level soon.
By pure dumb luck, I think I stumbled across my COTs-based trading system at a good time. It's only recently that there's enough historic data to find robust trading systems that are both highly profitable and can stand up in validation testing—an important process for avoiding the dangers of curve-fitting.
In backtesting, I found plenty of incredibly profitable setups that had a small number of trades. The problem with relying on such setups is it’s impossible to tell if the gains are just coincidental and say anything about future performance. Validation testing can help us overcome this pitfall of system development. Good luck in your trading/investing!
Monday, 9 July 2007
COTs Love Silver
The latest Commitments of Traders report has flipped to bullish on silver, according to my trading setup for this market.
This signal is based on fading - trading opposite to - the small traders when they hit certain historic extremes of bullishness and bearishness. The small traders have been getting progressively more bearish for several weeks and have just now hit that magic point where the signal flips from bearish to bullish. The new signal follows suit with my gold signals, which flipped to bullish a few weeks ago.
I really like my silver setup because it scored at super-elevated confidence levels in both profitability and market-beating probabilities in my validation testing. (Click "The Trading Setups" above for details and "How It Works" to learn how I trade new signals. This setup has no trade delay, meaning execution on the next open. Because of the holiday-delayed COTs report issued today instead of Friday, this would mean Tuesday's open.)
In other news, more yield increases are forecast by the renewed 10-year Treasury yield signal. And more mixed renewed signals for the major equities. My composite equity indicator, which I told you about last week, is still at a neutral -0.06 reading. Minus or plus 1 indicate extremes of bullishness or bearishness, so we've got a kind of do-nothing market at the moment, at least according to this indicator.
Another development on the administrative side is we've had three consecutive COTs reports now with no data for the S&P 400. This seems to happen from time to time with this index, and I'm not sure why. I'll inquire with the CFTC and let you know what they say.
New Signals*
BULLISH
-Silver
BEARISH
None
Renewed Signals**
BULLISH
-10-Year Treasury Yield
-Dow Jones Industrial Average
-NASDAQ 100
BEARISH
-Soybean Oil
-Natural Gas***
-Crude Oil, Light Sweet***
-S&P/TSE Canadian Energy iUnits ETF, XEG.TO
-Oil Service Holders, OIH
-S&P 500
-Nikkei Average
Existing signals (date of original signal in parentheses)****
BULLISH
-30-Year Treasury Yield (3-Jan-07)
-10-Year Treasury Yield (17-Apr-07)
-S&P/TSX Composite (15-Aug-06)
-NASDAQ 100 (27-Mar-07)
-Dow Jones Industrial Average (20-Mar-07)
-Russell 2000 (1-Aug-06)
-Gold (29-May-07)
-US Global Investors Funds US Gold Fund, USERX (12-Jun-07)
-S&P/TSE Canadian Gold iUnits ETF, XGD.TO (22-May-07)
-Gold Bugs Index, HUI (29-May-07)
BEARISH
-13-Week Treasury Bill (27-Feb-07)
-S&P/TSE Canadian Energy iUnits ETF, XEG.TO (3-Apr-07)
-Oil Service Holders, OIH (3-Apr-07)
-S&P 500 (26-Jun-07)
-NASDAQ Composite (26-Dec-06)
-Semiconductor Index, SOX (20-Mar-07)
-S&P 400 Mid Cap (3-Jan-07)
-Nikkei Average (19-Dec-06)
-Soybean Oil (11-Nov-06)
-Silver (1-May-07)
-Copper (10-Apr-07)
-Canadian Dollar (10-Apr-07)
-U.S. Dollar Index (3-Oct-06)
NEUTRAL
-Crude Oil, Light Sweet (3-Apr-07)***
-Natural Gas (27-Mar-07)***
Notes
* For an explanation of what I do after a new signal, click “How It Works” above.
** A “renewed” signal is when a market is already on a bullish or bearish signal, and traders again register an extreme net trading position in the same direction. I normally ignore renewed signals unless I don't already have a trade on in this market. I haven't studied the profitability of trading on renewed signals.
*** See my special caveats for my Crude Oil and Natural Gas setups (click “The Trading Setups” above and check the table footnotes).
**** The date in parentheses is the date of the COTs report that gave this signal - not the date I would have executed the trade (which can be up to five weeks later). The existing signals are often several months old and are listed here as references, not trading recommendations.
This signal is based on fading - trading opposite to - the small traders when they hit certain historic extremes of bullishness and bearishness. The small traders have been getting progressively more bearish for several weeks and have just now hit that magic point where the signal flips from bearish to bullish. The new signal follows suit with my gold signals, which flipped to bullish a few weeks ago.
I really like my silver setup because it scored at super-elevated confidence levels in both profitability and market-beating probabilities in my validation testing. (Click "The Trading Setups" above for details and "How It Works" to learn how I trade new signals. This setup has no trade delay, meaning execution on the next open. Because of the holiday-delayed COTs report issued today instead of Friday, this would mean Tuesday's open.)
In other news, more yield increases are forecast by the renewed 10-year Treasury yield signal. And more mixed renewed signals for the major equities. My composite equity indicator, which I told you about last week, is still at a neutral -0.06 reading. Minus or plus 1 indicate extremes of bullishness or bearishness, so we've got a kind of do-nothing market at the moment, at least according to this indicator.
Another development on the administrative side is we've had three consecutive COTs reports now with no data for the S&P 400. This seems to happen from time to time with this index, and I'm not sure why. I'll inquire with the CFTC and let you know what they say.
New Signals*
BULLISH
-Silver
BEARISH
None
Renewed Signals**
BULLISH
-10-Year Treasury Yield
-Dow Jones Industrial Average
-NASDAQ 100
BEARISH
-Soybean Oil
-Natural Gas***
-Crude Oil, Light Sweet***
-S&P/TSE Canadian Energy iUnits ETF, XEG.TO
-Oil Service Holders, OIH
-S&P 500
-Nikkei Average
Existing signals (date of original signal in parentheses)****
BULLISH
-30-Year Treasury Yield (3-Jan-07)
-10-Year Treasury Yield (17-Apr-07)
-S&P/TSX Composite (15-Aug-06)
-NASDAQ 100 (27-Mar-07)
-Dow Jones Industrial Average (20-Mar-07)
-Russell 2000 (1-Aug-06)
-Gold (29-May-07)
-US Global Investors Funds US Gold Fund, USERX (12-Jun-07)
-S&P/TSE Canadian Gold iUnits ETF, XGD.TO (22-May-07)
-Gold Bugs Index, HUI (29-May-07)
BEARISH
-13-Week Treasury Bill (27-Feb-07)
-S&P/TSE Canadian Energy iUnits ETF, XEG.TO (3-Apr-07)
-Oil Service Holders, OIH (3-Apr-07)
-S&P 500 (26-Jun-07)
-NASDAQ Composite (26-Dec-06)
-Semiconductor Index, SOX (20-Mar-07)
-S&P 400 Mid Cap (3-Jan-07)
-Nikkei Average (19-Dec-06)
-Soybean Oil (11-Nov-06)
-Silver (1-May-07)
-Copper (10-Apr-07)
-Canadian Dollar (10-Apr-07)
-U.S. Dollar Index (3-Oct-06)
NEUTRAL
-Crude Oil, Light Sweet (3-Apr-07)***
-Natural Gas (27-Mar-07)***
Notes
* For an explanation of what I do after a new signal, click “How It Works” above.
** A “renewed” signal is when a market is already on a bullish or bearish signal, and traders again register an extreme net trading position in the same direction. I normally ignore renewed signals unless I don't already have a trade on in this market. I haven't studied the profitability of trading on renewed signals.
*** See my special caveats for my Crude Oil and Natural Gas setups (click “The Trading Setups” above and check the table footnotes).
**** The date in parentheses is the date of the COTs report that gave this signal - not the date I would have executed the trade (which can be up to five weeks later). The existing signals are often several months old and are listed here as references, not trading recommendations.
Friday, 6 July 2007
Holiday Delay
Due to this week's 4th of July holiday, the Commitments of Traders report normally issued Fridays is delayed until Monday. Check back here Monday after 3:30 p.m. for my next update. Have a great weekend!
Wednesday, 4 July 2007
COTs Composite Equity Indicator: Neutral
Hope you're enjoying this slow market week and got some time off. I said I'd be back early this week with some thoughts on the latest Commitments of Traders readings. Sorry I didn't get to it as soon as planned.
Friday's COTs report - based on the previous Tuesday's data - has really moved into strange territory for the equity indexes - a true jumble of bullish and bearish signals. The "dumb money" small traders have struck a historically extreme net long position in S&P 500 futures and options. This gave me a new bearish signal on Friday.
Of the six equity markets in the report, three are now bearish - the S&P 500, Nikkei and S&P 400 Midcap. Meanwhile, the other three - the Dow Jones industrial average, NASDAQ-100 and Russell 2000 - are not only not bearish, they gave renewed bullish signals in the last report.
What can it all possibly mean? To make matters more complicated, my two most robust equity setups in terms of their market-beating profitability confidence levels - the Russell 2000 and the S&P 500 - don't agree with each other.
I think one reason for the discrepancies is probably genuine market uncertainty. So in order to give me a better idea, I created a composite indicator based on the five U.S. equity indexes in the COTs report. It's an average of the standard deviation values of these setups - in other words, how bullish or bearish they all are as a whole. Click here to see the table and chart of this composite indicator going back to 1995:
http://spreadsheets.google.com/pub?key=pfhv09UXvNetFM172ei1ffg
A reading of 1 or more means all five indexes are on average at the historic extremes of bullishness that trigger bullish signals across the board. A reading of 1 or less means the same bearish extremes.
You'll notice the indicator is pretty much neutral at the moment, following a couple of seesaw swings in recent months. It'll be interesting to see how the indicator acts as we move toward the fall.
You'll also see we're maybe not in such strange territory after all. It looks from a casual glance that the five COTs signals don't often swing into the same extremes of bullishness or bearishness. (At least, not based on the signal lines at 1 and -1.)
When the setups did agree, however, they seem to have made righteous calls about historic market junctures. New signals happened three times - a buy in April 1997, a sell in April 1999 and a buy in Jan. 2003. I think this will be an interesting new dataset to fine tune and possibly base setups around. Similar indicators can be created around other sectors of COTs data like energy and the metals. I'll let you know what I find. Stay tuned.
Meanwhile, I invite you to surf over to Kitco.com to read my regular weekly COTs precious metals report.
Friday's COTs report - based on the previous Tuesday's data - has really moved into strange territory for the equity indexes - a true jumble of bullish and bearish signals. The "dumb money" small traders have struck a historically extreme net long position in S&P 500 futures and options. This gave me a new bearish signal on Friday.
Of the six equity markets in the report, three are now bearish - the S&P 500, Nikkei and S&P 400 Midcap. Meanwhile, the other three - the Dow Jones industrial average, NASDAQ-100 and Russell 2000 - are not only not bearish, they gave renewed bullish signals in the last report.
What can it all possibly mean? To make matters more complicated, my two most robust equity setups in terms of their market-beating profitability confidence levels - the Russell 2000 and the S&P 500 - don't agree with each other.
I think one reason for the discrepancies is probably genuine market uncertainty. So in order to give me a better idea, I created a composite indicator based on the five U.S. equity indexes in the COTs report. It's an average of the standard deviation values of these setups - in other words, how bullish or bearish they all are as a whole. Click here to see the table and chart of this composite indicator going back to 1995:
http://spreadsheets.google.com/pub?key=p
A reading of 1 or more means all five indexes are on average at the historic extremes of bullishness that trigger bullish signals across the board. A reading of 1 or less means the same bearish extremes.
You'll notice the indicator is pretty much neutral at the moment, following a couple of seesaw swings in recent months. It'll be interesting to see how the indicator acts as we move toward the fall.
You'll also see we're maybe not in such strange territory after all. It looks from a casual glance that the five COTs signals don't often swing into the same extremes of bullishness or bearishness. (At least, not based on the signal lines at 1 and -1.)
When the setups did agree, however, they seem to have made righteous calls about historic market junctures. New signals happened three times - a buy in April 1997, a sell in April 1999 and a buy in Jan. 2003. I think this will be an interesting new dataset to fine tune and possibly base setups around. Similar indicators can be created around other sectors of COTs data like energy and the metals. I'll let you know what I find. Stay tuned.
Meanwhile, I invite you to surf over to Kitco.com to read my regular weekly COTs precious metals report.
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