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 16th 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.
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