New Signals: 10-Year Treasury Bearish, Heating Oil Bullish

Some interesting new signals for my trading setups based on the Commitments of Traders report issued by the U.S. Commodity Futures Trading Commission. Here are a few highlights:

- Stunning move today in the long bonds. Is the amazing run near an end? Maybe, according to the latest COTs report. My setup for the 10-year Treasury Note has flipped to bearish after a nice run since the bullish signal that started with the July 31 COTs report. The 10-year setup is based on trading on the same side as the small traders in the note's futures and options. They've just hit the brakes and suddenly ramped up their net short position. This setup has a trade delay of one week, meaning execution on the open Dec. 3. (See the main table on my "Latest Signals" page for more details on this setup, including the important risk information that's there, and my other signals from today's COTs report. Also, see "How It Works" to learn, er, how all this works.)

- My 30-year Treasury Bond setup remains in bullish mode, despite the new 10-year signal. In fact, this setup, based on fading the "dumb money" commercial traders and following the "smart money" large specs, has just given another renewed bullish signal. Go figure. So a bit of a mixed picture from the COTs Treasuries data. All my other Treasuries setups, incidentally, also remain on their bullish signals.

- The other new signal is for heating oil, which has flipped to bullish in the latest COTs report. Here's a real odd one. The setup, which is based on some fairly decent, statistically robust results, has been on a real dog of a loser bearish signal since March. Yet, now, with the price of heating oil having gone parabolic, the setup suddenly goes bullish. This, based on fading the small traders in heating oil futures and options. The "dumb money" has reduced its net long position as a percentage of the total open interest to a low extreme in comparison with historic data. Just checked SeasonalCharts.com to see if there's some kind of seasonality reason for the sudden bullishness, and there does appear to be a small seasonal sweet spot in December. Perhaps this is what the signal is tapping into.

On the other hand, there's also a lesson here: like any trading system, mine isn't about winning 100 percent of the time. It's about good-probability trades that try to catch the long moves. For those trades that don't work - and there will always be some - it's important to have risk-management tools (see my "Glossary" page for more details) and use them with discipline.