Wow. New Signals Galore: Bullish S&P 500, SOX; Bearish Gold, HUI, USERX Gold Fund

Wow. It's just that crazy. The latest Commitments of Traders report has given an astonishing array of new signals for my trading system based on this fascinating government data:

1) After a summer from Hell for the markets, my trading setup for the S&P 500 has flipped to bullish.

2) After a wild ride to the stars, my setups for gold, the HUI Gold Bugs Index and USERX U.S. Gold Fund have gone bearish. Sorry, gold bugs and dollar-haters!

3) The SOX Semiconductor Index has also gone to bullish after six months in the bearish camp.

And that's not even including an armada of renewed signals in other setups: bullish for the Russell 2000, Nikkei and 13-week T-Bill; bearish for copper and natural gas. Doncha love this stuff?? There's also a renewed bullish signal for my COTs U.S. Composite Equity Indicator, which incidentally has gone ballistic slap-happy. It's shot up to a reading of 1.22 from last week's 0.53. As devotees of this space will know, a "1" means all four of my equity setups that make up this indicator have just registered a bullish signal, on average, for execution on the next open of trading. The reading is now higher than at any time since last April.

Check "Latest Signals & Results" in the Navigation bar for more details on these signals and the setups they go with. For more on my system, see "How It Works." See you early next week with some more thoughts on all this craziness. Hope your week went well, and best wishes for the weekend.

Updates: Gold, Composite Equity Results & More

Just updated my results tables with the most recent numbers for my gold and U.S. composite equity setups based on the Commitments of Traders reports. Both still doing swimmingly, thanks for asking. Check both tables on the "Latest Signals & Results" page.

I've also been continuing to reorganize and update the resources on my investigative journalism pages (see "Alex Roslin's Articles"), including a number of links for market research on company disclosures, SEC cases and more, plus other research tools for freedom of information searches, legislative matters, the worlds of intelligence and the military and other areas. Here are two especially interesting market-related websites I recently found:

1) The White Collar Fraud blog of convicted ex-Crazy Eddie stock swindler Sam Antar, now a convert to the light side and chronicler of corporate fraud, who has created a provocative blog full of great resources.

2) And for those dog days of autumn, HedgeFunnies.com, a satirical look at the markets and the cretins who inhabit them. Good times.

Energy Trade Update

I've been watching my DUG UltraShort Oil & Gas ETF drop with dismay in recent weeks and thought I should check where things stand vis-a-vis my stop for this setup. I'm using DUG to short energy stocks in accordance with my bearish signal for Canadian Energy iUnits (XEG).

I would have used the Horizons S&P/TSX Energy Bear Plus ETF (HED) instead, but it's only been on the market since June. (I got my bearish signal in the April 3 COTs report, for execution with a three-week delay on the open of trading April 30.) Average daily volume is still only 27,000, less than the 50,000 units needed for adequate liquidity to buy it, according to Don Vialoux.

DUG has yoyo'd up and down like crazy since April, especially during the Subprime Meltdown of 2007, when it shot up in a huge way. This morning, the ETF is down 28 percent since the April 30 open. Since DUG is a 200-percent leveraged ETF, this effectively means a 14-percent drawdown for purposes of my risk-management stop rule. The 14-percent loss exceeds my 8-percent stop for XEG, but not my 19-percent stop for Oil Services Holders (OIH). As I explain in "How It Works" (see Navigation bar), I set my stops in my trading system based on the largest intratrade drawdowns that my setups have seen in the historic data.

Sadly for me, XEG itself is only up 2.4 percent since the open April 30! So the signal wasn't so wrong when it came to XEG. The problem is that DUG clearly isn't very suited to fading XEG. Unfortunately, HED isn't yet an option due to the volume problem. So where does that leave me? I'm going to start using OIH for signals for this trade since DUG's fortunes are clearly more closely tied to those of OIH. I'm also on "stop watch" for dumping my holding if it exceeds the 19-percent loss.

New Article Post: U.S. Dollar Rout

Just posted my investing column from today's Montreal Gazette newspaper, "U.S. Dollar Feels Pain as Loonie Flies High." See "Alex Roslin's Articles" link in the Navigation bar.

Dumb Money Shuns the NASDAQ - Duh!

Large speculators remain ultra-gloomy about the NASDAQ 100, according to the latest Commitments of Traders report issued today at 3:30 Eastern time. Does that mean it's time for me to bail on tech stocks?

Uh, no. These guys aren't called the "dumb money" for nothing. My trading setup for the NASDAQ 100 is based on trading opposite to the large specs - yes, those hedge funds and investment firms to whom we pay the big bucks to manage our pensions and savings - when they hit specific extremes in their net positioning in NASDAQ 100 futures and options.

In the latest COTs report, the large specs maintained their highly bearish net short position in this index as a percentage of the total interest.

In fact, they've been so negative that my trading system based on the COTs reports has given me an unprecedented 17th straight bullish signal for the NASDAQ 100.

The next longest runs of bullish signals lasted 15 weeks and occurred over the winter of 2002-2003 and in early 2004. The trades that included those two periods gained 14 and 3 percent. (The setup was already on a bullish signal when those runs occurred. The gains would have been 54 and 5 percent respectively if the buys had taken place at the beginning of the 15-week bullish signal runs, with the usual one-week trade delay I have for this setup.)

Other Highlights

I've updated my signals table (click the "Latest Signals & Results" page in the Navigation bar) with this and other signals from today's COTs report. This handy weekly data, released by the U.S. Commodity Futures Trading Commission, details trillions of dollars in derivatives holdings of traders in 100-odd markets.

Other highlights from Friday's report:

- My U.S. Composite Equity Indicator, based on my setups for the S&P 500, NASDAQ 100, Dow Jones industrials and Russell 2000, rose to 0.53 from last week's 0.43. (A reading of "1" indicates a bullish signal across the board, for execution on next week's open.)

- A renewed bullish signal for the Nikkei. (My Nikkei setup flipped to bullish on Sept. 5, with a five-week trade delay, meaning execution on the open of trading Oct. 8.)

- More renewed bullish signals for the 30-year Treasury Bond and 13-week Treasury Bill, meaning traders are signaling lower interest rates ahead.

- After an absence of five weeks, when the number of traders reporting a position fell below 20, the S&P 400 Midcap index is back in the latest COTs report, showing virtually unchanged positioning since the last report, when astute readers may recall the setup flipped to a bullish signal.

Blog Update: Investigative Resources

I've been busy expanding my investigative media pages. Click "Alex Roslin's Articles" in the Navigation bar and head to "My Investigative Journalism Page."

The sites in this area include news and resources that might be of interest to journalist readers as well as others looking for investigative stories, resources or events. I'll be updating this area frequently, especially the "Investigative News & Resources" page. I'm still in the middle of expanding it, so I welcome your suggestions for news items and links and your comments.

Traders Hit Record Bullishness on NASDAQ 100

The markets have just come off a frightening tumble and are striding into their most historically turbulent period of the year. Only a few weeks ago, some analysts were advising us to sell most of our investments and go sailing until things settle down.

At times like these, many wiser heads turn for guidance to the Commitments of Traders reports issued weekly by the U.S. Commodity Futures Trading Commission. These are the fascinating free government reports that list futures and options holdings in 100 markets.

The latest COTs report has good news for equity bulls: My trading setups based on the COTs are on balance quite upbeat on stocks. In fact, they have given me another bullish signal for the NASDAQ 100 index—the 16^th in a row.

This is the first time my COTs-based setup for the NASDAQ 100 has given 16 straight bullish signals since the beginning of the data in 1995. There were two previous occasions with 15 consecutive bullish signals—from Dec. 2002 to March 2003 and Feb. to May 2004. Both of those periods presaged major rises in the index.

This setup is based on fading the large speculators in NASDAQ 100 futures and options when they hit specific extremes in their net positioning that in the past have led to high probabilities of profitable trades.

U.S. Equity Indicator Falls to 0.43, Still Bullish

I've just updated my table for my U.S. Composite Equity Indicator based on the Commitments of Traders reports. As of last Friday's COTs release, the indicator has fallen a little to 0.43 from last week's 0.66. (See the "Latest Signals" link in the Navigation bar.)

A "1" reading means all four of the equity trading setups that make up this indicator have just flashed a bullish signal, for execution on the next weekly open of trading.

Despite the slippage for this indicator, it still remains on a bullish signal first given with the March 27, 2007, COTs report. It is also still far from the "-1" reading that would indicate a bearish signal across the board.

If the huge ongoing market rally is any sign, the Composite Equity Indicator's bullish signal seems to confirm that the summer's nastiness was a relatively minor correction within the five-year bull run. No warnings from the COTs data that the bull market is over, despite the doomsday notions of some analysts out there. At least not yet.

Note, however, that at the worst of the summer's market rout, this indicator fell to 0.40, which isn't too far below where it stands right now. So that may be a warning sign of a little volatility ahead.

My composite indicator is based on four of my equity trading setups built around this government data. For more details see the main table at the "Latest Signals" link.

Oops: Scratch That Energy Bullish Signal

I was just going over my crude COTs data again and noticed I had made a downloading error for my data for the crude traders in the last report. There's no new signal for Oil Services Holders (OIH) and Canadian Energy iUnits (XEG) after all.

The mistake came from accidentally downloading into my spreadsheet the COTs data for West Texas intermediate crude instead of light sweet crude. Not the same thing at all.

My sincerest apologies to all readers. Fortunately, the signal wasn't for execution until three weeks from now, but it's still terribly embarrassing. I've just gone through all my other downloads to confirm they're all accurate, and they are. I've corrected previous posts on this subject below.

Gold Traders Not Extreme Enough

Gold is soaring, and so are gold stocks and silver. But have prices come too far? Is it time to take profits?

The latest Commitments of Traders report issued Friday and detailing holdings by traders in futures and options markets gives some enigmatic answers, depending on how you read them.

The “smart money” commercial traders have increased their net short position in gold for the third consecutive week. Meanwhile, the “dumb money” large specs and small traders have boosted their net long positions.

Surely, this means we should bail out, you say. I read one analysis this morning that suggested that very course. But my trading system based on the COTs reports says this might be premature. My setups for gold and gold stocks have yet to hit the extreme relative levels needed to trigger bearish signals.

In fact, the only signal in the metals I got from the latest COTs report was a renewed bullish signal in my silver setup. This setup is based on fading the small traders, who’ve hit an extreme bearish position in this market.

I think the fact that there’s no signal in the gold arena underlines the importance of evaluating the COTs data against historic trends, rather than focusing on week-to-week fluctuations, which show precious little correlation with subsequent market prices.

Renewed Bullish Signal for NASDAQ 100

Just updated my "Latest Signals & Results" page with results from today's Commitments of Traders report issued by the Commodity Futures Trading Commission. Most notable: a 16th consecutive bullish signal for the NASDAQ 100.

I'll be back here early next week with more thoughts about the latest COTs report. Hope you fared well this week, and have a good weekend.

In the News: Dollar Rout, Market Rot

Just put up some interesting new news posts at the "COTs & CFTC News Feed" page (see the Navigation bar). One is on how the U.S. dollar is trading near a record low against the Euro. In fact, the U.S. Dollar Index is now lower than at any time since Sept. 1992, when it fell to 78.43. Overnight, it fell below 79.15, before recovering this morning to 79.38. Also interesting is a website I hadn't heard of before, StockBrokerFraudBlog.com. It scrutinizes the woefully lax regulatory enforcement of the markets.

Signals Page Updates

Just reorganized my "Latest Signals" page a little. Included now are links to updated tables showing my U.S. Composite Equity Indicator and gold trading setups, both based on the Commitments of Traders reports - the great market leveler.

Is the Greenback Toast?

What a difference a few short weeks makes. Precious metals, which got chopped to pieces in July and August, are now firing on all cylinders. Gold seems to have broken out of a long triangle that started in mid-2006, while the U.S. Dollar Index is testing its lows around 80.

This very long-term support level for the greenback goes way back to the 1990s. The area around 80 has been a floor for the U.S. dollar four previous times since 1990. So any decisive break here would pretty much signal Armaggedon for the buck and of course big potential gains for some commodities like gold.

So what’s the prognosis from the latest Commitments of Traders report issued Sept. 7? Looks bad for the dollar. Last Friday’s COTs report issued by the U.S. Commodity Futures Trading Commission didn’t change my bearish signal for the U.S. Dollar Index.

While the latest COTs data shows the “smart money” commercial traders have been super-long the U.S. dollar since March, the commercial net position hasn’t been at any kind of historic extremes that would warrant a flip to a bullish signal, according to my studies of past futures data.

My trading system built around the COTs reports has been bearish the U.S. dollar since last Oct. 2006. That was when the dollar peaked around 87, and it’s been sliding ever since.

I think the data for the U.S. dollar underlines the importance of looking at the long picture when trying to analyze the COTs reports. Many analysts and stories in the financial media report on the week-to-week fluctuations of this fascinating, free government data. They suggest that just because derivatives traders slightly increased their net positions one way or another the underlying market will move accordingly.

I used to read such stories intently, but after looking closely at the COTs for myself I grew more skeptical. This was because I actually studied the COTs to see if I could find week-by-week correlations with subsequent prices in the following several weeks and months. I found nothing of any significance. To my knowledge, no one else has either.

The U.S. dollar is a prime example. Commercial traders have held highly bullish-seeming net percentage-of-open-interest positions for several months. Meanwhile, the greenback has all but fallen off a cliff. Does that mean the commercials are in fact the “dumb money”? Does it mean the COTs “don’t work any more,” as some folks suggest.

No. I think it just means the recent positioning has to be put into the correct longer-term perspective and matched against past extremes in the historic data that signaled high probabilities of coming changes in the markets. Good luck in your trading and investing.

COTs Sour on Natural Gas

Will crude oil go to $100? Or is the bull over? Is natural gas finally recovering from its 30-percent smash-up? Or is more bad news coming for "gassy" stocks? If it’s true that the energy markets reflect global economic strength, the latest Commitments of Traders report doesn’t look too sunny.

Friday’s report—based on futures and options holdings as of Sept. 4—has some sad news for energy bulls. My existing bearish signals for crude oil, energy stocks, natural gas and the Canadian dollar all still hold true. Same for my bearish signal for the U.S. Dollar Index.

This is because traders in these markets didn’t registered any new historically extreme positions that would have reversed my existing signals, according to my reading of past COTs data. (See the "Latest Signals" link in the Navigation bar for more details from the latest COTs report.)

As well, in natural gas, the COTs report issued Sept. 7 gave me a renewed bearish signal for this market. This signal is based on trading the same side as the large speculators using the combined futures and options COTs data.

Woah. Hold on a sec, Alex. Aren’t the large specs the “dumb money” folks who are normally wrong in the markets? Yes, they usually are. My studies of the COTs data show the large specs are indeed the wrong-way traders in most markets—and thus should be faded when they hit historic extremes in their net positions—but in some markets like natural gas they in fact have proved to be the “smart money.”

I think my trading setup for natural gas shows this fairly conclusively. The large specs have been on a bearish signal since the March 27 COTs report (which, with my three-week trade delay for this setup, meant the signal took effect on the open of trading on Monday, April 16).

Surprise, surprise—natural gas has given up nearly 30 percent since then. Were the large specs smart or dumb? I think the natural gas market shows the importance of actually studying the COTs data, rather than reporting fairly meaningless popular notions about it that we often see in the financial media.

COTs Loooove the NASDAQ

Might be strange to announce this on a day when the VIX is up 11 percent and NASDAQ's VXN volatility index has rocketed more than 10 percent, but hey, I'm perverse that way: Today's Commitments of Traders report has flipped to bullish for the NASDAQ Composite Index.

This is according to my trading system based solely on this valuable government data issued weekly for free by the U.S. Commodity Futures Trading Commission, which lists futures and options holdings worth trillions in 100-odd markets from gold to gasoline and everything in between, including the NASDAQ-100 index, upon which my setup for the NASDAQ Composite is built.

As well, my COTs U.S. Composite Equity Indicator remains at a super-bullish 0.66, down slightly from last week's 0.78, but still good enough for a fifth consecutive bullish signal.

See more details and other signals from the latest COTs report by clicking the "Latest Signals" link in the Navigation bar. Be sure to take a look at the full results for my NASDAQ setup (for example, this setup's trade delay is zero, which means to be executed for the open Monday, Sept. 10). The table also shows my risk factors such as the largest past drawdown, wins/losses and confidence levels for this setup. (You'll notice this setup's confidence intervals are somewhat inferior to some of my other setups.)

Also click the table's "Notes" link to see some important explanations and the "How It Works" link in the Navigation bar if you're not sure how all this works or what I'm going on about here.

I'll be back here early next week with some other highlights from this afternoon's COTs. Meanwhile, you can check my COTs-inspired take on the energy markets at 321energy.com, where I've started to contribute a regular column in addition to my weekly scribblings at Kitco.com.

"It's strange." Yup.

9:28 It's strange. We're in this period where nothing is happening on Daily TD Sequential/Combo after having over a year where all of those Sell signals were coming all the time as the market would get overbought....We also have an equity market where there are quite a few bulls -- including the Commercials -- yet the rally fails at the 50 Day ma above....and then we also have similarities to the 1998 Sucker Play.... so today's going to be important I think - Stephen Vita, AlchemyOfTrading.com, Friday

Blog Updates: Portfolio Page, New Articles

Just created a new page where I'll update my portfolio breakdown for my trading system built around the Commitments of Traders reports. Click the new link in the Navigation bar. Also, check "Alex Roslin's Articles" for new stories I've posted and a new series of web pages devoted to things journalistical.

Nikkei Flips to Bullish, NASDAQ-100 Gives 14th Straight Buy

Last Friday's Commitments of Traders report showed some really interesting shifts in trader futures and options positions. Here are some highlights from the latest weekly data issued by the U.S. Commodity Futures Trading Commission, which chronicles trillions of dollars in derivatives positions in 100-odd markets:

- 30-Yr Treasury: Large speculators have dramatically reduced their net short percentage-of-open-interest position in the last two weeks. They are now more relatively bullish on the bond than at any time since July 2002, after which episode the 30-year yield fell from 5.3 to just above 4 percent over the ensuing year.

Meanwhile, the commercial trader net long position has pretty much collapsed since the highs of June. Commercials are now more bearish than at any time since Jan. 2004.

In my trading setup for the bond, I fade - or trade opposite to - the commercials and trade the same side as the large specs. (I know, it sounds strange. I'm always surprised this is the case, but that's what my testing has shown works best in this market.) So the combined signal from both groups of traders gives a renewed buy for the bond (meaning the yield will continue to fall).

- 13-Wk T-Bill: Small traders are the smart money in T-Bills (surprise!). They've taken in their net short position big-time, enough to give their sixth consecutive bullish signal (meaning the T-Bill rate falls).

- Crude oil: Large specs - whom I fade here - have been reducing their net long percentage-of-open-interest position for four weeks and have now adopted a fairly bearish tilt when compared to recent historic data. They're still not extreme enough to reverse my existing bearish signal, but perhaps soon...

As well, the commercials - whom I follow for Oil Services Holders and the Canadian energy ETF XEG - are leaning more and more bullish, though again not enough yet to reverse my short signal here.

- COTs U.S. Composite Equity Indicator: This indicator - based on the Dow Jones industrials, NASDAQ-100, S&P 500 and Russell 2000 COTs data - rose to 0.78 last week, the fifth week it's gone up. A fourth consecutive bullish signal here. (A "1" means, on average, all four equity setups just gave a bullish signal for execution on next week's open.)

- S&P 500: Small traders - whom I fade here - slowly unwinding their net longs, but still maintaining a fairly bullish tilt.

- NASDAQ-100: Large specs - whom I fade in this market - increasing net shorts again, giving their 14th consecutive bullish signal. They haven't been this bearish since the end of March 2006, after which the NASDAQ-100 rose about 20 percent over the next year.

- S&P 400 Midcap: No data again this time.

- Nikkei: Large specs - whom I fade here - put on a huge net short position, flipping this market to a new bullish signal. The Nikkei had been on a bearish signal (profitable so far) since mid-Dec. 2006, with the trade taking effect at the end of January. Note the trade delay for this setup is five weeks, which means the new trade takes effect on the open the week of Oct. 8.

- Yen: Large specs - whom I fade - have gone to a net long percentage-of-open-interest position, the first time since June 2006. Their bullishness is at a historic extreme, giving the fourth consecutive bearish signal.

For my take on the metals markets and the U.S. dollar, read my story at Kitco.com, titled "Will Gold Break Out?" For an explanation of how I trade my system, click "How It Works" in the navigation box above, and for details on my setups, see "Latest Signals & Results."

Will Gold Break Out?

What does the latest Commitments of Traders report have to say about the turbulent precious metals markets and the woe-begotten U.S. dollar? Check my story at bullion dealers Kitco.com, titled "Will Gold Break Out?", to see.